<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 23, 1998.
REGISTRATION NO. 333-62325
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 3
TO
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 (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION) ----------------------
CLARENDON HOUSE
CHURCH STREET
HAMILTON HM CX BERMUDA
(441) 295-2832
(ADDRESS AND TELEPHONE
NUMBER OF
REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
</TABLE>
----------------------
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:
<TABLE>
<S> <C>
GEORGE E.B. MAGUIRE, ESQ. WILLIAM P. ROGERS, JR., ESQ.
DEBEVOISE & PLIMPTON CRAVATH, SWAINE & MOORE
875 THIRD AVENUE WORLDWIDE PLAZA
NEW YORK, NY 10022 825 EIGHTH AVENUE
NEW YORK, NY 10019
</TABLE>
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AGGREGATE OFFERING AMOUNT OF
REGISTERED PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
Class A Common Shares, $.00457 par
value................................... $253,000,000 $74,635
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(2) A registration fee of $74,635 has previously been paid.
----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Class A Common Stock (the
"U.S. Prospectus") and one to be used in connection with a concurrent
international offering of shares of Class A 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."
<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 NOVEMBER 23, 1998
[LOGO] 7,000,000 SHARES
RSL COMMUNICATIONS, LTD.
CLASS A COMMON SHARES
(PAR VALUE $.00457 PER SHARE)
----------------------
Of the 7,000,000 Class A common shares, par value $.00457 per share (the
"Class A Common Stock"), of RSL Communications, Ltd. (the "Issuer") offered
hereby, 5,250,000 shares are being offered in the United States (the "U.S.
Offering") and 1,750,000 shares are being offered in a concurrent international
offering outside the United States (the "International Offering" and, together
with the U.S. Offering, the "Offerings"). The public offering price per share
and the underwriting discount per share will be identical for both Offerings.
See "Underwriting."
The 7,000,000 shares of Class A Common Stock offered are being sold by the
Issuer. The Selling Shareholders will only sell shares pursuant to the
Underwriters' over-allotment options described herein. See "Principal and
Selling Shareholders." The Issuer will not receive any of the proceeds from the
sale of shares being sold by the Selling Shareholders. Upon consummation of the
Offerings, officers, directors and other affiliates of the Issuer will
beneficially own shares having approximately 92.4% of the voting power of the
Issuer's outstanding Common Stock (as defined below) (approximately 91.9% of the
voting power of the Issuer's Common Stock if the over-allotment options are
exercised in full). See "Principal and Selling Shareholders."
The Class A Common Stock is listed on the Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol "RSLCF." Application will
be made to the Nasdaq National Market to list the shares of Class A Common Stock
offered herein (the "Shares") upon notice of issuance. The last reported sale
price of a share of Class A Common Stock on the Nasdaq National Market on
November 20, 1998 was $25 1/4.
As of the date of this Prospectus, the Issuer has two classes of authorized
common shares, the Class A Common Stock and Class B common shares (the "Class B
Common Stock", and together with the Class A Common Stock, the "Common Stock").
The holders of both classes of Common Stock have identical rights, except that
(i) holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to 10 votes per share, (ii) shares
of Class B Common Stock are convertible at any time at the option of the holders
into shares of Class A Common Stock on a share-for-share basis and (iii) shares
of Class B Common Stock may only be transferred to other original holders of
Class B Common Stock and certain related parties. See "Description of Capital
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
----------------------
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.
----------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) THE ISSUER(2)
-------------- ------------ -------------
Per Share................ $ $ $
Total(3)................. $ $ $
- ------------------
(1) The Issuer and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $3,000,000 payable by the Issuer.
(3) The Selling Shareholders and the Issuer have granted the U.S. Underwriters
an option for 30 days to purchase up to an additional 397,916 shares and
389,584 shares, respectively, at the initial public offering price per
share, less the underwriting discount, solely to cover any over-allotments.
Additionally, the Selling Shareholders and the Issuer have granted the
International Underwriters a similar option with respect to an additional
132,639 shares and 129,861 shares, respectively, as part of the concurrent
International Offering. See "Principal and Selling Shareholders." The Issuer
will not receive any of the proceeds from the sale of the shares of Class A
Common Stock by the Selling Shareholders. If such options are exercised in
full, the total initial public offering price, underwriting discount,
proceeds to the Issuer and proceeds to the Selling Shareholders 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 the shares
will be ready for delivery in New York, New York on or about ,
1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
WARBURG DILLON READ LLC
----------------------
The date of this Prospectus is , 1998.
<PAGE>
FOOTNOTES TO FOREGOING MAPS
+ The Company is negotiating or plans to negotiate to purchase ownership
interests in the identified undersea fiber optic cables.
* The Company intends to lease international circuits in the identified
markets indicated on the map of the RSL COM Pan-European Network. All leased
international circuits shown on the map of the RSL COM Global Network are in
operation pursuant to current leases.
** The Company has signed non-binding agreements with local entities in the
identified markets to install Internet gateways.
*** A single operating agreement applies to each of these countries.
There can be no assurances that the Company will complete any purchase of
undersea fiber optic cables, any negotiation of a lease for internatinal
circuits or any installation of switches or Internet gateways.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
There are restrictions on the offer and sale of the Class A Common Stock in
the United Kingdom. All applicable provisions of the Financial Services Act 1986
and the Public Offers of Securities Regulations 1995 with respect to anything
done in relation to the Class A Common Stock in, from or otherwise involving the
United Kingdom must be complied with. See "Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKETS OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Issuer is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information can be inspected and
copied at prescribed rates at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices at 7 World Trade Center, New York, New
York 10048 and the Northwestern Atrium Center, 500 West Madison Street, Room
1400, Chicago, Illinois 60661. The Commission also maintains a World Wide Web
("Web") site at http://www.sec.gov which contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
The Issuer has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Class A Common Stock
offered hereby. 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 Issuer and the Class A
Common Stock offered hereby, reference is made to the Registration Statement,
including the schedules and 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
3
<PAGE>
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the schedules and exhibits may be
inspected and copied at the public reference facilities maintained by the
Commission at the addresses and in the manner set forth in the preceding
paragraph.
The Class A Common Stock is listed on the Nasdaq National Market under the
symbol "RSLCF." Reports, proxy and information statements and other information
concerning the Company can also be inspected at the National Association of
Securities Dealers, Inc. at 1735 17th Street, N.W., Washington, D.C. 20006.
------------------------
The consolidated financial statements of the Company (as herein defined)
(the "Consolidated Financial Statements") and the notes thereto appearing
elsewhere in this Prospectus are presented in accordance with United States
generally accepted accounting principles ("U.S. GAAP"), and amounts originally
measured in foreign currencies for all periods presented have been translated
into U.S. dollars in accordance with the methodology set forth in Note 3 to the
Consolidated Financial Statements of the Company.
------------------------
In this Prospectus, references to "dollars" and "$" are to United States
dollars. For purposes of the balance sheet data included in this Prospectus,
conversions of foreign currencies to U.S. dollars have been calculated on the
basis of exchange rates in effect on the balance sheet dates. Conversions of
foreign currencies to U.S. dollars in the pro forma and historical financial
information included herein have been calculated, for purposes of the statements
of operations, on the basis of average exchange rates over the periods
presented. Exchange rates per United States dollar as of certain dates for
certain currencies are set forth below.
<TABLE>
<CAPTION>
RATE AS OF RATE AS OF RATE AS OF RATE AS OF RATE AS OF RATE AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, NOVEMBER 20,
CURRENCY 1995 1996 1997 1997 1998 1998
- --------------------- ------------ ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Austrian Schilling... (1) (1) 12.63 12.43 11.76 11.88
Australian Dollar.... (1) 1.26 1.54 1.38 1.69 1.55
Belgian Franc........ (1) (1) (1) (1) 34.49 34.84
British Pound........ 0.65 0.58 0.61 0.62 0.59 0.60
Danish Krone......... (1) (1) 6.85 6.72 6.36 6.420
Dutch Guilder........ (1) 1.74 2.03 1.99 1.89 1.90
Finnish Markka....... 4.37 4.60 5.45 5.29 5.09 5.13
French Franc......... 4.95 5.19 6.01 5.93 5.60 5.66
German Mark.......... 1.44 1.54 1.80 1.77 1.67 1.69
Italian Lira......... (1) (1) 1,770 (1) 1,652 1,672
Spanish Peseta....... (1) (1) 152.3 (1) 142.1 143.6
Swedish Krona........ 6.64 6.89 7.94 7.58 7.83 8.08
Swiss Franc.......... (1) (1) 1.46 (1) 1.38 1.39
Venezuelan Bolivar... (1) (1) 504.3 (1) 573.4 569.5
</TABLE>
- ------------------
(1) The Company had no business activity in these countries during the periods
indicated.
4
<PAGE>
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 otherwise indicated, all
information contained in this Prospectus assumes no exercise of the
Underwriters' over-allotment options. In addition, unless the context otherwise
requires, the term "Company" means RSL Communications, Ltd., a Bermuda
corporation, its predecessors and all of its subsidiaries. Industry data used
throughout this Prospectus were obtained from industry publications and have 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."
THE COMPANY
The Company provides a broad array of telecommunications services, with an
emphasis on international long distance voice services, to small and
medium-sized businesses in key markets. The Company's services include
international and national fixed and wireless, calling card, fax, data,
Internet, private line and other value-added telecommunications services. Since
starting operations in the United States in 1995, the Company has grown rapidly
through acquisitions, strategic investments, joint ventures, alliances, and the
start-up of its own operations in key markets. The Company generates revenue in
19 countries in which approximately 70% of all international long distance
telecommunications minutes originated in 1997.
The Company was formed to capitalize on the growth, deregulation and
profitability of the international long distance switched telecommunications
market. The Company currently has significantly less than a 1% share of this
market, which as a whole generated an estimated $65.9 billion in revenue and
81.8 billion minutes in 1997. International long distance minutes are projected
to grow between approximately 12% and 18% per annum through the year 2001.
The Company is building a low-cost, facilities-based global network
designed to provide high quality telecommunications services and developing a
wide range of marketing and distribution channels to expand its customer base.
The core of the Company's operations is "RSL-NET," its integrated digital
telecommunications network. The Company's independent local operations in each
country ("Local Operators") market its services through (a) direct sales forces,
(b) strategic marketing alliances, (c) networks of independent agents and
distributors and (d) telemarketing organizations.
RISK FACTORS
See "Risk Factors" beginning on page 10 for a discussion of certain risks
that should be considered in connection with an investment in the Class A Common
Stock offered hereby, including risks relating to the Company's needs for
additional capital, historical and future net operating losses and negative
EBITDA (as defined), substantial indebtedness, the rapidly changing industry,
increasing pricing pressures, government regulatory restrictions and shares
eligible for future sale.
COMPANY STRATEGY
The key elements of the Company's strategy for capitalizing on
opportunities in the long distance market are as follows:
o Focus on International Long Distance Services.
o Identify and Enter Key Markets Ahead of Full Deregulation.
o Target Small and Medium-Sized Businesses as Potential Customers.
o Build a Cost Competitive Global Network.
5
<PAGE>
o Expand Marketing and Distribution Channels.
o Pursue Strategic Acquisitions and Alliances.
o Leverage Expertise of Management Team.
o Expand Internet-Based Telephony and On-Line Service Offerings.
See "Business--Company Strategy".
RECENT DEVELOPMENTS
On November 9, 1998, the Company, through its wholly owned subsidiary RSL
Communications PLC ("RSL PLC"), issued $100 million aggregate principal amount
at maturity of 12% Senior Notes due 2008 (the "New Notes") in an offering exempt
from registration under the Securities Act (the "New Notes Offering"). The net
proceeds to the Company were approximately $90.5 million after deducting the
underwriting discount and estimated expenses. See "Description of Certain
Indebtedness--New Notes." In light of current favorable market conditions, the
Company may seek to raise additional debt financing promptly following the
Offerings. See "Use of Proceeds."
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).
6
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Class A Common Stock offered by
the Company(1)
U.S. Offering........................ 5,250,000 shares
International Offering............... 1,750,000 shares
Total................................... 7,000,000 shares
Common Stock outstanding after the
Offerings:
Class A Common Stock(2)................. 25,484,529 shares
Class B Common Stock(3)................. 26,328,590 shares
Total................................ 51,813,119 shares
Use of Proceeds........................... The Company intends to use the net proceeds from the Offerings for
(i) the expansion and development of the Company's infrastructure,
such as the replacement of leased transmission facilities with
owned transmission facilities, and the purchase of IRUs (as
defined herein) and interests in inter-city fiber routes in
European countries, as well as the installation of additional
national and international gateway switches, and (ii) the funding
of the Company's operating losses. In addition, in the ordinary
course of its business, the Company continuously reviews
acquisition opportunities in the telecommunications industry as
they arise. Although it is not currently party to any agreement or
binding understanding with respect to a transaction, it may use
proceeds from the Offerings partially to fund suitable acquisition
opportunities that arise. The Company will not receive any
proceeds from the sale of shares by the Selling Shareholders.
Voting Rights............................. 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.
Nasdaq National Market symbol............. RSLCF
</TABLE>
- ------------------
(1) The Selling Shareholders are not offering any of the 7,000,000 shares of
Class A Common Stock in the Offerings, but have granted to the Underwriters
certain over-allotment options described in this Prospectus. See
"Underwriting." The table assumes the Underwriters' over-allotment options
granted by the Selling Shareholders and the Company are not exercised. See
"Underwriting." If the Underwriters exercise such over-allotment options in
full, the number of shares of Class A Common Stock sold by the Selling
Shareholders and the Company will be 530,555 and 7,519,445, respectively.
The Selling Shareholders are set forth in "Principal and Selling
Shareholders." No other shareholders are selling Shares in the Offerings.
(2) Does not include (i) 1,492,625 shares of Class A Common Stock issuable upon
the exercise of outstanding stock options, (ii) 26,328,590 shares of
Class A Common Stock issuable upon the conversion of the shares of Class B
Common Stock, (iii) 459,900 shares of Class A Common Stock issuable upon the
conversion of shares of Class B Common Stock issuable upon exercise of the
Lauder Warrants (as defined herein), (iv) 917,729 shares of Class A Common
Stock issuable upon exercise of unexercised Warrants (as defined herein),
(v) 109,500 shares of restricted stock granted pursuant to the Company's
1997 Stock Incentive Plan or (vi) shares of Class A Common Stock issuable
upon exercise of Roll-Up Rights (as defined herein) or Incentive Units (as
defined herein) or in the Telegate Exchange (as defined herein). See "Shares
Eligible for Future Sale."
(3) Shares of the Class B Common Stock are convertible at any time into shares
of the Class A Common Stock on a share-for-share basis. Does not include
459,900 shares of Class B Common Stock issuable upon exercise of the Lauder
Warrants.
7
<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,
1997 and for the nine month periods ended September 30, 1997 and 1998, which
have been derived from the Consolidated Financial Statements and notes thereto.
The information as of and for the year ended December 31, 1994 was derived from
the Consolidated Financial Statements of the Company's predecessor entity,
International Telecommunications Group, Ltd. The Company's Consolidated
Financial Statements as of December 31, 1997, 1996 and 1995 and for the years
ended December 31, 1997, 1996 and 1995 have been audited by Deloitte & Touche
LLP as stated in their report appearing herein.
In the opinion of management, the unaudited Condensed Consolidated
Financial Statements as of September 30, 1998 and 1997 and for the nine month
periods ended September 30, 1998 and 1997 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 nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the full year. In
addition, the Company has experienced rapid growth over the periods set forth
below, which growth may not necessarily continue at such rate. Accordingly, the
financial and operating results set forth below may not be indicative of future
performance.
The summary consolidated financial and operating data presented below
should be read along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------------------------- SEPTEMBER 30,
PREDECESSOR ----------------------
1994 1995(1) 1996 1997 1997 1998
----------- -------- --------- --------- --------- ---------
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues...................................... $ 4,702 $ 18,617 $ 113,257 $ 300,796 $ 192,604 $ 564,118
Operating costs and expenses:
Costs of services (exclusive of depreciation
and amortization shown separately
below).................................... (4,923) (17,510) (98,461) (265,321) (171,203) (462,181)
Selling, general and administrative
expense................................... (2,395) (9,639) (38,893) (94,712) (62,085) (147,494)
Depreciation and amortization............... (240) (849) (6,655) (21,819) (14,367) (43,282)
------- -------- --------- --------- --------- ---------
(7,558) (27,998) (144,009) (381,852) (247,655) (652,957)
------- -------- --------- --------- --------- ---------
Loss from operations.......................... (2,856) (9,381) (30,752) (81,056) (55,051) (88,839)
Interest income............................... -- 173 3,976 13,826 9,947 13,239
Interest expense.............................. (225) (194) (11,359) (39,373) (28,910) (51,646)
Other income (expense)........................ -- -- 470 6,595(2) 6,572(2) 445
Foreign exchange loss......................... -- -- -- -- -- (10,621)
Minority interest............................. -- -- (180) 210 (212) 4,322
Income taxes.................................. -- -- (395) (401) (405) (726)
Loss in equity interest of unconsolidated
subsidiaries................................ -- -- -- -- -- (1,625)
------- -------- --------- --------- --------- ---------
Loss before extraordinary item................ (3,081) (9,402) (38,240) (100,199) (68,059) (135,451)
Extraordinary item(3)......................... -- -- -- -- -- (20,800)
------- -------- --------- --------- --------- ---------
Net loss after extraordinary item............. $(3,081) $ (9,402) $ (38,240) $(100,199) $ (68,059) $(156,251)
------- -------- --------- --------- --------- ---------
------- -------- --------- --------- --------- ---------
Loss per share before extraordinary
item(3)(4).................................. $(15.41) $ (1.67) $ (5.13) $ (5.27) $ (2.16) $ (3.17)
Loss per share after extraordinary
item(3)(4).................................. $(15.41) $ (1.67) $ (5.13) $ (5.27) $ (2.16) $ (3.66)
Weighted average number of shares of Common
Stock outstanding(4)........................ 200 5,641 7,448 19,008 31,541 42,740
OTHER FINANCIAL DATA:
EBITDA(5) (as defined)........................ $(2,616) $ (8,532) $ (23,807) $ (52,432) $ (34,324) $ (40,790)
Capital expenditures(6)....................... 1,126 6,074 23,880 49,417 26,835 104,868
Cash (used in) provided by operating
activities.................................. (1,987) 3,554 (10,475) (91,812) (60,443) (116,367)
Cash (used in) provided by investing
activities.................................. (478) (16,537) (225,000) (18,821) 25,305 (312,772)
Cash (used in) provided by financing
activities.................................. 2,888 18,143 335,031 152,035 (14,976) 367,011
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------
ACTUAL AS ADJUSTED(7)
---------- --------------
($ IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 82,196 $ 335,830
Restricted marketable securities(8).................................................. 30,579 30,579
Total assets......................................................................... 1,167,049 1,424,683
Short-term debt, current portion of long-term debt, and current portion of capital
lease obligations(9)............................................................... 17,700 17,700
Long-term debt and capital lease obligations(9)...................................... 718,767 813,256
Shareholders' equity................................................................. 18,019 181,164
</TABLE>
- ------------------
(1) Effective with the acquisition of a majority equity interest in RSL COM
North America, Inc. (formerly known as International Telecommunications
Group, Ltd.) ("RSL North America"), in September 1995, the Company began to
consolidate RSL North America's operations. From March 1995 (the date of
the Company's initial investment) to September 1995, the Company accounted
for its investment in RSL North America using the equity method of
accounting.
(2) Other income includes the reversal of certain liabilities accrued in
connection with the Company's obligations under an agreement that required
the Company to meet a carrier vendor's minimum usage requirements, which
agreement was entered into by a subsidiary of the Company prior to the
Company's acquisition of such subsidiary. During May 1997, the Company
renegotiated the contract with this carrier vendor resulting in the
elimination of approximately $7.0 million of previously accrued charges.
(3) Extraordinary item represents primarily the premium paid to retire
approximately $127.5 million of the original $300.0 million of the
Company's 1996 Notes (as defined herein).
(4) Loss per share is calculated by dividing the loss attributable to the
Common Stock by the weighted average number of shares of Common Stock
outstanding, and has been retroactively restated to reflect the
2.19-for-one stock split. Shares issuable pursuant to outstanding stock
options, unexercised Warrants, the Lauder Warrants, Roll-Up Rights or
Incentive Units or in the Telegate Exchange are not included in the loss
per share calculation as their effect is anti-dilutive.
(5) EBITDA (as defined) consists of loss before interest, loss in equity
interest of unconsolidated subsidiaries, income taxes, extraordinary item,
depreciation and amortization and foreign exchange loss. EBITDA (as
defined) 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 (as defined) 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.
(6) Capital expenditures include assets acquired through capital lease
financing and other debt.
(7) Adjusted to give effect to the Offerings (assuming net proceeds of
approximately $163.1 million) and the New Notes Offering (the net proceeds
of which were approximately $90.5 million) and the application of the
estimated net proceeds therefrom received by the Company. See "Use of
Proceeds" and "Capitalization."
(8) The restricted marketable securities consist of U.S. government securities
pledged to secure the payment of interest on the principal amount of the
1996 Notes. See "Description of Certain Indebtedness--1996 Notes."
(9) As of September 30, 1998, the Company had approximately $3.4 million of
available (undrawn) borrowing capacity under its current bank and vendor
facilities.
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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 other matters described in this Prospectus before
purchasing shares of Class A Common Stock. The Prospectus 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, regulatory environments in which the
Company operates or plans to operate, trends affecting the Company's financial
condition or results of operations, the impact of competition, the start-up of
certain operations and acquisition opportunities. 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 ("Cautionary
Statements"), including, without limitation, information contained in this
section of this Prospectus and information under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business,"
identifies important factors that could cause such differences. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
SHORT OPERATING HISTORY
The Company has acquired all of its operations since 1995 and, therefore,
has limited experience in conducting those operations. The Company's principal
operations commenced on various dates during 1990 through 1997 and, therefore,
have limited operating histories. In addition, the Company invests in start-up
operations in markets where it has no existing operations. Furthermore, in many
markets, the Company plans to offer services that have been provided only by
existing government-owned post, telegraph and telephone monopolies ("PTTs"). The
Company may face difficulties in establishing or expanding such businesses.
Since its inception, the Company has generated net losses of $9.4 million, $38.2
million and $100.2 million in 1995, 1996 and 1997, respectively. See "--Risks
Associated with Anticipated Growth and Acquisitions."
ENTRANCE INTO NEWLY OPENING MARKETS
The Company's prospects must be considered in light of the risks, expenses,
problems and delays inherent in establishing a new business. As a new entrant in
its markets, the Company may need to discount services to customers. In
addition, the Local Operators may incur significant costs developing their
network infrastructures (including the purchase of minimum investment units
("MIUs") and indefeasible rights of use ("IRUs") in fiber optic cable systems,
switches and leased capacity). The fixed costs and expenses incurred under these
circumstances have resulted, and may continue to result, in low or negative
operating margins. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
HISTORICAL AND FUTURE NET OPERATING LOSSES AND NEGATIVE EBITDA (AS DEFINED)
The Company must continue to expand its operations and meet increasing
demands for service quality, availability of value added services and
competitive pricing to establish and maintain a competitive position in its
markets. The Company has generated net losses of $304.2 million from its
inception through September 30, 1998. The Company has also incurred negative
EBITDA (as defined) since its inception. During the next several years, the
Company expects to incur significant net losses and negative cash flow from
operating activities and expects to incur negative EBITDA (as defined) through
1998 due to its need to expand its operations, develop RSL-NET and build its
customer base and marketing operations.
NEED FOR ADDITIONAL CAPITAL
When market conditions are favorable, the Company plans to raise
substantial additional capital to fund its capital expenditures, acquisitions,
strategic alliances, start-up operations and anticipated substantial net losses.
In light of current favorable market conditions, the Company may seek to raise
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additional debt financing promptly following the Offerings. In 1997, the Company
made capital expenditures of approximately $49.4 million. The Company expects
that it will have made capital expenditures of at least $115 million in 1998.
The Company intends to increase its capital expenditures in 1999. The Company
has also experienced a consistently increasing working capital deficit. If
market conditions for future capital-raising transactions are not favorable, the
Company believes that the net proceeds from the Offerings, together with the
remaining net proceeds of prior securities offerings and other sources of
liquidity available to the Company, will be sufficient to fund a reduced capital
expenditure and expansion plan for its existing operations, as well as
continuing net losses, for approximately 9 to 12 months. The Company may be
required to seek additional capital regardless of market conditions if (i) the
Company's plans or assumptions change or prove to be inaccurate, (ii) the
Company identifies additional required or desirable infrastructure investments
or acquisitions, (iii) the Company experiences unanticipated costs or
competitive pressures or (iv) the net proceeds from the Offerings, together with
the remaining net proceeds from prior securities offerings and other sources of
available liquidity otherwise prove to be insufficient. There can be no
assurance that the Company will be able to raise additional capital on
satisfactory terms or at all. The failure to obtain additional capital on
acceptable terms could materially adversely affect the Company's business,
results of operations and financial condition and its ability to compete.
SUBSTANTIAL INDEBTEDNESS
As of September 30, 1998, the Company had consolidated indebtedness of
$712.0 million and shareholders' equity of $18.0 million. Upon the closing of
the New Notes Offering on November 9, 1998, the Company incurred $94.5 million
(net of unamortized discount of $5.5 million) of additional long term
indebtedness under the New Notes. The Company expects to incur substantial
amounts of additional indebtedness resulting in substantial and increasing
interest expense that will likely exceed its EBITDA (as defined). If the Company
is unable to generate sufficient EBITDA (as defined) or is otherwise unable to
obtain funds necessary to make required payments, or if the Company fails to
comply with the material terms of its indebtedness, it would be in default and
the holders of such indebtedness would be entitled to accelerate the maturity of
such indebtedness.
The trust indentures governing the Company's outstanding debt securities
contain, and in the case of the New Notes will contain, certain restrictive
covenants which impose limitations on the ability of the Company and certain of
its subsidiaries 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. See "Description of Certain
Indebtedness--1996 Notes," "--U.S. Dollar Notes," "--DM Notes" and "--New
Notes."
In addition, the Company has obtained initial commitments for up to
$35 million of revolving credit, subject to the negotiation and execution of
final documentation (the "New Credit Facility"). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The Company's level of indebtedness could adversely affect the value of its
Class A Common Stock because: (i) 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; (ii) 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 will not be available for the Company's business;
(iii) the Company's indebtedness could limit its flexibility in planning for, or
reacting to changes in, its business; (iv) the Company is more highly leveraged
than certain of its competitors, which may place it at a competitive
disadvantage; and (v) the Company's high degree of leverage 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."
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<PAGE>
RISKS ASSOCIATED WITH ANTICIPATED GROWTH AND ACQUISITIONS
The Company has experienced rapid growth and intends to pursue further
expansion of its existing operations, through acquisitions, joint ventures and
strategic alliances and the establishment of new operations. The Company's
ability to manage its 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 and
significantly expand its internal management, technical and accounting systems.
The Company's growth will also depend on its ability to purchase MIUs, IRUs and
other capacity, which may be adversely affected by competition and regulatory
restrictions on ownership. The Company's rapid growth strains its financial,
management and operational resources, including its ability to identify
acquisition targets and joint venture partners, negotiate acquisition and joint
venture agreements and maintain satisfactory relations with its joint venture
partners and minority investors in acquired entities. In addition, acquisitions
and the establishment of new operations will entail considerable expenses in
advance of anticipated revenues and may cause substantial fluctuations in the
Company's operating results.
The Company may, as a result of legal restrictions or other reasons, be
limited to acquiring only a minority interest in strategic targets, in which
case the Company would lack control over the target company's operations and
strategies. There can be no assurance that such lack of control will not
interfere with the Company's growth and integration of its operations.
The Company may also acquire interests in operations for strategic reasons,
despite the fact that such operations have operational or managerial problems or
are incurring losses. In such cases, there can be no assurance that such
operational or managerial problems or losses will not cause the Company
significant problems or consume substantial monetary, management and other
resources of the Company.
RISKS ASSOCIATED WITH INTEGRATION WITH NEW OPERATIONS
The Company's new businesses must be integrated with its existing
operations. For acquired businesses, this entails integration of switching,
transmission, technical, sales, customer service, 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. Additionally, acquired businesses may offer product
lines that the Company has limited experience in providing, such as, in the case
of the recent Motorola Tel.co acquisition (described in "Business--Company
Operations--Europe"), wireless resale. Furthermore, acquired businesses
generally suffer from employee and customer attrition and turnover at higher
rates, beginning when employees and customers learn of a proposed transaction
and ending some time after the transaction has been completed. The Company has
experienced high levels of customer attrition and turnover in certain acquired
businesses in the United States, Australia, France and Germany. In connection
with the recent Motorola Tel.co acquisition, the Company expects to experience
higher levels of customer attrition than previously experienced by the Company's
European operations. In countries where the Company expands by establishing a
new business, it must 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 already operates businesses in many countries and intends to
expand into additional countries and regions, including countries and regions
within Europe, Asia/Pacific Rim and Latin America, it must manage the problems
associated with integrating a culturally and linguistically diverse workforce.
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 the Company will be able to compete effectively or adjust its contemplated
plan of development to meet these changing market conditions.
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<PAGE>
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
necessary 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 meeting
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.
INCREASING PRICING PRESSURES
Existing excess international transmission capacity minimizes the marginal
cost of carrying an additional international call for carriers. 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. This system of pricing, if it were to become prevalent in the
Company's markets, would likely have a material adverse effect on the Company's
prospects, financial condition and results of operations and its ability to make
payments on its indebtedness. See "--Dependence on Other Carriers."
INABILITY TO PREDICT TRAFFIC VOLUME
The Company may enter into long-term agreements for leased capacity in
anticipation of traffic volumes which do not reach expected levels and, thus,
may be obligated to pay for transmission capacity without adequate corresponding
revenues. Conversely, the Company may underestimate its need for leased capacity
and, thus, may be required to obtain transmission capacity through more
expensive means. In the past, the Company has overestimated and underestimated
its need for leased capacity and as a result has transported traffic at a higher
cost, and has 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." A failure to
accurately project needs for leased capacity in the future may have a material
adverse effect on the Company's business and profitability.
DEPENDENCE ON OTHER CARRIERS
The Company does not own any local exchange transmission facilities and
owns only limited intra-national transmission facilities. All of the telephone
calls made by the Company's customers are connected at least in part through
transmission facilities that the Company leases. In many of the foreign
jurisdictions in which the Company conducts or plans to conduct business, the
primary provider of significant intra-national transmission facilities is the
PTT. Accordingly, prior to full deregulation, the Company may be required to
lease transmission capacity at artificially high rates from a provider that
occupies a monopoly or near monopoly position. Such rates may prevent the
Company from generating gross profit on the related calls. In addition, PTTs may
not be required by law to allow the Company to lease necessary transmission
lines or, if applicable law requires PTTs to lease transmission lines to the
Company, the Company may encounter delays in commencing operations and
negotiating leases and interconnection agreements. Additionally, disputes may
result with respect to pricing terms and billing. See "--Government Regulatory
Restrictions."
In the U.S., the providers of local exchange transmission facilities are
generally the incumbent local exchange carriers ("LECs"), including the regional
Bell operating companies ("RBOCs"). The permitted
13
<PAGE>
pricing of local exchange facilities that the Company leases in the U.S. are
subject to uncertainties. The U.S. Court of Appeals for the Eighth Circuit has
held that the United States Federal Communications Commission (the "FCC") does
not have jurisdiction to create national rules for the pricing of such
facilities, but rather, that such jurisdiction rests with each of the individual
states. As of the date of this Prospectus, this case is before the U.S. Supreme
Court and, if the lower court decision is upheld, the need to address different
pricing regimes in different states could make it more burdensome or expensive
for the Company to enter a local exchange market.
Many of the international telephone calls made by the Company's customers
are transported through transmission facilities that the Company leases from its
competitors, including American Telephone & Telegraph, Inc. ("AT&T"), Teleglobe
Canada, Inc. ("Teleglobe"), British Telecommunications PLC ("British Telecom"),
France Telecom S.A. ("France Telecom"), Deutsche Telekom AG ("Deutsche
Telekom"), Cable and Wireless Communications PLC ("C&W"), MCI WorldCom, Inc.
("MCI WorldCom") and Sprint Corporation ("Sprint"). To the extent the Company
provides local exchange services in the U.S., it will be required to lease
facilities from LECs that will be competitors of the Company, such as the RBOCs.
The Company generally leases lines on a short-term basis. These include leases
on a per-minute basis (some with minimum volume commitments) and, where the
Company anticipates higher volumes of traffic, leases of transmission capacity
for point-to-point circuits on a monthly or longer-term fixed cost basis. The
negotiation of lease agreements involves estimates regarding future supply and
demand for transmission capacity as well as estimates of the calling patterns
and traffic levels of the Company's existing and future customers. When excess
transmission capacity is present, as was the case for many years in the U.S.,
lease rates have declined and short term leases have been advantageous.
Recently, capacity has been somewhat constrained in the U.S. 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 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., European and Australian operations. The Company intends to
integrate and operate the information services for all of its Local Operators
from its respective regional headquarters. A failure of any of the Company's
current systems, the failure of the Company to efficiently implement or
integrate new systems, 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 results of operations.
YEAR 2000 TECHNOLOGY RISKS
The Company is reviewing its computer systems and operations to identify
and determine the extent to which any systems will be vulnerable to potential
errors and failures as a result of the "Year 2000" problem. The Year 2000
problem is the result of the use by computer programs of two digits, rather than
four digits, to define the applicable year. Any of the Company's programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations, causing disruptions of operations including, among other
things, a temporary inability to process transactions, billing and customer
service or to engage in similar normal business activities.
The Company is assessing and upgrading its computer system in an effort to
prevent major system failures which could result upon the transition from 1999
to the year 2000. There can be no assurance
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that any such upgrades will be successfully implemented or that additional steps
will not be necessary. A failure of the Company's computer systems or the
failure of the Company's vendors or customers to effectively upgrade their
software and systems for transition to the year 2000 could have a material
adverse effect on the Company's business and financial condition or results of
operations.
Even if the Company's assessment is completed without identifying any
additional material non-compliant systems operated by, or in the control of, the
Company or of third parties, the most reasonably likely worst case scenario
would be a systems failure beyond the control of the Company to remedy. Such a
failure could materially prevent the Company from operating its business. The
Company believes that such a failure would likely lead to lost revenues,
increased operating costs, loss of customers or other business interruptions of
a material nature, in addition to potential claims of, among other things,
mismanagement, misrepresentation or breach of contract. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Technology Risks," "Business--U.S. Operations" and "--European
Operations--General."
COMPETITION
The provision of telecommunications services is extremely competitive.
Prices for long distance calls are decreasing substantially in most of the
Company's markets. In addition, all of the Company's markets have deregulated or
are in the process of deregulating telephone services. Customers in most of
these deregulating markets are not familiar with obtaining services from
competitors to the PTTs and incumbent LECs and may be reluctant to use new
providers. 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 must compete with a variety of other telecommunications
providers in each of its markets, including (i) the PTTs and other dominant
carriers, (ii) alliances such as AT&T's alliance with British Telecom and AT&T's
alliance with Unisource (itself an alliance among PTT Telecom Netherlands, Telia
AB and Swiss Telecom PTT) and the corresponding alliance with WorldPartners, and
Sprint's alliance with Deutsche Telekom and France Telecom, known as "Global
One," (iii) international fixed wire and wireless resellers, (iv) companies such
as GTE and MCI WorldCom offering local exchange service in conjunction with
domestic long distance and international long distance services, (v) LECs such
as the RBOCs, and (vi) other companies with business plans similar to that of
the Company. The Company anticipates increased competition as worldwide
deregulation 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 devote additional resources to
international long distance voice telecommunication services to the Company's
key markets, including its target customer base of small and medium-sized
businesses, there could be a material adverse effect on the Company's business.
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 discount its services from 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. In certain
deregulated markets severe price competition has occurred, and there can be no
assurance that, as deregulation progresses in other markets, the Company will
not encounter severe price competition in those markets. 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--General."
Recent and pending deregulation in each of the Company's markets may
encourage new entrants. For example, as a result of the enactment of the
Telecommunications Act of 1996 and regulatory initiatives taken by the FCC, the
RBOCs may provide international telecommunications services, are allowed as
"non-dominant" carriers to offer domestic long distance service through an
affiliate outside
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their service areas and are also allowed to provide long distance service within
their service areas, provided certain competition related conditions are met.
AT&T, MCI WorldCom 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. The U.S. District Court for the Northern District of
Texas recently ruled that restrictions placed by the Telecommunications Act of
1996 on the ability of RBOCs to provide long distance service within their
respective service areas was unconstitutional. Certain RBOCs have filed
applications with the FCC seeking authority to provide long distance service
within their respective service areas. An appellate decision affirming the
decision by the District Court, or the grant by the FCC of the pending RBOC
applications, would enable the RBOCs to compete more effectively against the
Company.
In November 1997, the FCC revised its rules to implement commitments made
by the U.S. under the Basic Telecommunications Agreement (the "GBT Agreement")
of the World Trade Organization (the "WTO") executed in February 1997. The FCC
established an open entry standard for applicants from World Trade Organization
member countries seeking authority to provide international telecommunications
service in the United States and adopted a rebuttable presumption that the U.S.
affiliates of a foreign carrier with less than 50% market share in their home
market should be treated as non-dominant. In addition, 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 (including pricing constraints) on AT&T and affiliates of
foreign carriers. As a result, the Company expects to encounter additional
regional competitors and increased competition. Moreover, the Company believes
that competition in foreign markets will increase and become increasingly
similar to the competitive environment in the U.S.
The PTTs and incumbent LECs generally have certain competitive advantages
over the Company due to their control over and connection to intra-national and
local exchange transmission facilities, their ability to delay access to lines
and the reluctance of some regulators to adopt policies and grant approvals that
would increase competition. The Local Operator in such a jurisdiction would be
adversely affected to the extent that the PTT or incumbent LEC in any
jurisdiction uses its competitive advantages to their fullest extent.
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
IP telephony services. Furthermore, there can be no assurance that changes in
current or future laws or regulations or future judicial intervention in the
U.S. or in any other country would not have a material adverse effect on the
Company or that FCC or other regulatory intervention would not have a material
adverse effect on the Company. In addition, the Company's European strategy is
based in large part upon the ongoing liberalization of the European Union ("EU")
and deregulation of other foreign markets based on European Commission ("EC")
directives and the GBT Agreement. Several EU member states ("Member States")
have already experienced delays in deregulation. Further, even if a national
legislature of a Member State implements the relevant directives within the time
frame established by the EC, there may be significant resistance to the
implementation of such measures from PTTs, regulators, trade unions and other
sources. The telecommunications services provided by the Company in various
Member States are subject to and affected by regulations and license conditions
enforced by the National Regulatory Authority ("NRA"). The NRA has imposed
mandatory rate reductions on the dominant operator in the U.K., British Telecom,
and is expected to continue to do so for the foreseeable future. This may have
the effect of reducing the prices the Company can charge its U.K. customers.
There can also be no assurance that government in other foreign markets
will implement deregulation or, where implemented, that deregulation will
proceed on schedule. In addition, even if other foreign markets act to
deregulate their telecommunications markets on the current schedule, the
national governments of such foreign markets must pass legislation or other
national measures to deregulate the markets within the countries. The national
governments may not pass such legislation or
16
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other national measures in the form required, if at all, or may pass such
legislation or measures only after a significant delay. 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.
The Internet protocol ("IP") 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.
In the United States, the FCC has advised Congress that it may, in the future,
regulate IP telephony services as basic telecommunications services. The
regulation of Delta Three's activities may have a material adverse effect on the
financial condition and results of operations of Delta Three and the Company.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is dependent, in part, upon its key management.
In particular, the Company is highly dependent upon certain of its personnel,
including Ronald S. Lauder, Chairman of the Board of the Company and its largest
and controlling shareholder, and Itzhak Fisher, the President and Chief
Executive Officer of the Company. The loss of services of Mr. Lauder,
Mr. Fisher or any of the other members of the Company's senior management team
could have a material adverse effect on the Company.
The 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.
CONTROLLING SHAREHOLDER
Ronald S. Lauder, Chairman of the Board of Directors of the Company,
beneficially owns, in the aggregate, approximately 59.8% (58.4% after giving
effect to the Offerings, assuming the Underwriters' over-allotment options are
exercised in full) of the voting power and approximately 37.8% (32.3% after
giving effect to the Offerings, assuming the Underwriters' over-allotment
options are exercised in full) of the outstanding capital stock of the Company.
As a result, Mr. Lauder has majority voting control of the Company, the ability
to approve certain fundamental corporate transactions and to elect all members
of the Company's Board of Directors. Mr. Lauder together with certain other
executive officers and directors of the Company, companies and partnerships they
control and members of their immediate families, in the aggregate, control
approximately 94.6% (92.1% after giving effect to the Offerings, assuming the
Underwriters' over-allotment options are exercised in full) of the voting power
and approximately 66.4% (56.4% after giving effect to the Offerings, assuming
the Underwriters' over-allotment options are exercised in full) of the
outstanding capital stock of the Company.
NEGATIVE EFFECTS OF ANTI-TAKEOVER PROVISIONS
The concentration of ownership in the Issuer may have the effect of
delaying, deferring or preventing a change of control of the Issuer, a
transaction which might otherwise be beneficial to shareholders. In addition,
the Issuer's Memorandum of Association and By-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 and Selling Shareholders" and "Description of Capital
Stock--Anti-Takeover Protections."
EFFECTS OF INCORPORATION UNDER BERMUDA CORPORATE LAW
The Company is a Bermuda company and, accordingly, is governed by The
Companies Act 1981 of Bermuda. The Companies Act 1981 of Bermuda differs in
certain respects from laws generally applicable to United States corporations
and shareholders. These differences include less restrictive limitations on
transactions entered into by the Company in which any of its directors have an
interest and greater restrictions on the rights of the Company's shareholders to
dissent from and obtain remedies in connection with mergers, takeovers and other
combination transactions, to pursue legal
17
<PAGE>
challenges to corporate actions and to inspect corporate records. See
"Description of Capital Stock--Differences in Corporate Law."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Class A Common Stock may be extremely volatile.
Factors such as adverse regulatory changes, additional debt and equity
financings, acquisitions by the Company, significant announcements by the
Company and its competitors, quarterly fluctuations in the Company's operating
results and general conditions in the telecommunications market may have a
significant impact on the market price of the Class A Common Stock. In addition,
in recent years the stock market has experienced extreme price and volume
fluctuations. These fluctuations have had a substantial effect on the market
prices for many high technology and telecommunications companies, often
unrelated to the operating performance of the specific companies.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of the Offerings, there will be a significant number of
shares of Class A Common Stock outstanding or issuable upon conversion of shares
of Class B Common Stock or upon exercise of outstanding options or other rights
to acquire shares of Class A Common Stock. Some of which shares of Class A
Common Stock will be freely tradeable without restriction or further
registration under the Securities Act and some of which will be "restricted
securities" (as that term is defined in Rule 144) and subject to the volume and
other resale limitations of Rule 144, as well as a "lock up" period ending 90
days after the consummation of the Offerings, to which the Company's executive
officers and directors and certain other shareholders are subject pursuant to
the Underwriting Agreements. See "Management--Stock Option and Compensation
Plans," "--Compensation of Directors--Directors' Plan," "Certain Relationships
and Related Transactions," "Description of Capital Stock--Warrants," "Certain
Rights to Acquire Class A Common Stock" and "Shares Eligible for Future Sale."
Sales of substantial amounts of Class A Common Stock in the public market,
and the availability of shares for future sale (including shares issuable upon
conversion of shares of Class B Common Stock or upon exercise of outstanding
options or other rights to acquire shares of Class A Common Stock) could
adversely affect the prevailing market price of the Class A Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
ABSENCE OF DIVIDENDS
The Company has never paid dividends on any class of the Common Stock and
does not anticipate paying any such dividends in the foreseeable future. In
addition, the Company's debt facilities and the trust indentures governing its
outstanding debt securities contain restrictions on the Company's ability to
declare and pay dividends on each class of the Common Stock. See "Description of
Certain Indebtedness" and "Dividend Policy."
ENFORCEMENT OF JUDGMENTS AND SERVICE OF PROCESS
The Company is incorporated in Bermuda, and certain of its officers and
directors are resident outside the United States. All or a substantial portion
of the assets of such persons are or may be located outside the United States.
Consequently, it may not be possible to effect service of process within the
United States upon such persons or to enforce against them judgments obtained in
United States courts, including judgments predicated upon the civil liability
provisions of the federal securities laws of the United States. See "Service of
Process and Enforcement of Liabilities."
DEVALUATION AND CURRENCY RISKS
Most of the Company's revenues, costs, assets and liabilities are
denominated in local currencies. 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 risks but may in the future commence such
hedging against specific foreign currency transaction risks including currency
exchange risks relating to the DM Notes (as defined herein). There can be no
assurance that the Company will be able to hedge all its exchange rate
18
<PAGE>
exposure economically, and there can be no assurance that exchange rate
fluctuations will not have a material adverse effect on the ability of the
Company to meet its obligations. 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.
Under the treaty on the European Economic and Monetary Union (the
"Treaty"), on or before January 1, 1999, and subject to the fulfillment of
certain conditions, the "Euro" may replace all or some of the currencies of the
member states of the EU, including some countries in which the Company operates.
The Company is modifying its computer systems and programs to prepare for the
upcoming replacement of certain European currencies with the Euro. Costs
associated with the modifications necessary to prepare for the Euro are being
expensed by the Company during the period in which they are incurred. Such costs
may involve significant expenditures and, if not implemented in a timely manner,
could have a material adverse effect on the Company.
FOREIGN PERSONAL HOLDING COMPANY AND PASSIVE FOREIGN INVESTMENT COMPANY RULES
The Issuer will seek to manage its affairs and the affairs of its
subsidiaries so that neither the Issuer 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, to
the extent such management of its affairs is consistent with its other business
goals. If the Issuer 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 Issuer or of its foreign corporate
subsidiaries would be included in the income of a U.S. shareholder of the Issuer
as a dividend on a pro rata basis. If the Issuer were a PFIC, then each U.S.
holder of Class A Common Stock would, upon certain distributions by the Issuer,
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 Issuer's ordinary earnings and net
capital gain would be required to be included in such U.S. shareholder's income
each year. Also, 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 Issuer intends to manage its
affairs and the affairs of its corporate subsidiaries so as to avoid PFIC status
or, once profitable, FPHC status, to the extent such management of its affairs
is consistent with its other business goals, there can be no assurance that the
Issuer will be successful in this endeavor. See "Certain United States Federal
Income Tax Considerations."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Issuer from the Offerings are estimated to be
approximately $163.1 million, assuming an initial public offering price of
$25 1/4 per share and after deducting the underwriting discount and estimated
expenses of the Offerings. Of the net proceeds, the Company intends to use
(i) approximately $75 million for the expansion and development of the Company's
infrastructure, such as the replacement of leased transmission facilities with
owned transmission facilities and the purchase of IRUs and interests in
inter-city fiber routes in European countries, as well as the installation of
additional national and international gateway switches and (ii) approximately
$88.1 million for the funding of the Company's operating losses. In addition, in
the ordinary course of its business, the Company continually reviews acquisition
opportunities in the telecommunications industry as they arise. Although it is
not currently party to any agreement or binding understanding with respect to a
transaction, it may use proceeds from the Offerings partially to fund suitable
acquisition opportunities that arise. Historically, the Company has acquired
telecommunications carriers with established customer bases, compatible
operations and experience with additional or emerging telecommunications
products and services. See "Risk Factors--Risks Associated with Anticipated
Growth and Acquisitions." The Issuer will not receive any of the proceeds from
the sale of the Shares by the Selling Shareholders.
When market conditions are favorable, the Company plans to raise
substantial additional capital to fund its capital expenditures, acquisitions,
strategic alliances, start-up operations and anticipated substantial net losses.
In light of current favorable market conditions, the Company may seek to raise
additional debt financing promptly following the Offerings.
PRICE RANGE OF CLASS A COMMON STOCK
The Class A Common Stock has been quoted on the Nasdaq National Market
under the symbol "RSLCF" since October 1, 1997. Prior to that date, there was no
trading market for the Class A Common Stock. At September 30, 1998, there were
approximately 102 holders of record of the Class A Common Stock, and the Issuer
believes that there were approximately 3,000 beneficial owners of the Class A
Common Stock. At September 30, 1998, there were approximately 17 holders of
record of the Class B Common Stock and the Issuer believes that there were
approximately 10 beneficial owners of the Class B Common Stock. The following
table lists, for the periods indicated, the high and low sales prices of the
Class A Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
PRICE OF CLASS A
COMMON STOCK
----------------
HIGH LOW
<S> <C> <C>
1997 Fourth Quarter (from October 1, 1997)................................................... $35 1/4 $21 1/8
1998 First Quarter........................................................................... 27 1/2 17
1998 Second Quarter.......................................................................... 30 21 7/8
1998 Third Quarter........................................................................... 44 1/2 21 1/2
1998 Fourth Quarter (through November 20, 1998).............................................. 26 1/2 15 1/16
</TABLE>
On November 20, 1998 the last reported sales price for the Class A Common
Stock on the Nasdaq National Market was $25 1/4 per share.
The Class B Common Stock has no established public trading market.
DIVIDEND POLICY
The Issuer has never paid dividends on any class of Common Stock and does
not anticipate paying any dividends on the Class A Common Stock or any other
class of Common Stock in the foreseeable future. Certain of the Company's credit
facilities and indentures contain restrictions on the Issuer's ability to
declare and pay dividends on the Common Stock. See "Description of Certain
Indebtedness." The declaration and payment of dividends by the Issuer 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
20
<PAGE>
operations, capital requirements, restrictions in the Company's loan agreements
and indentures, if any, and any such other factors as the Board of Directors may
deem relevant.
DILUTION
As of September 30, 1998, the net tangible book value of the outstanding
shares of Class A Common Stock and Class B Common Stock was $(507.8) million.
Net tangible book value per share represents the amount of the Company's
tangible net worth (total tangible assets less total liabilities) divided by the
total number of shares of Common Stock outstanding. The following table
demonstrates the increase in the net tangible book value per share to the
Company's existing shareholders and the dilution to the new investors if the
7,000,000 shares of Class A Common Stock offered by the Company in the Offerings
had been sold at September 30, 1998, assuming an initial public offering price
of $25 1/4 per share.
<TABLE>
<S> <C> <C>
Initial public offering price per share........................................... $ 25.25
Net tangible book value per share before the Offerings(1)....................... $(11.36)
Increase per share attributable to the Offerings................................ 4.70
-------
Net tangible book value per share after the Offerings(1).......................... (6.66)
-------
Dilution of net tangible book value per share to new investors.................... $ 31.91
-------
-------
</TABLE>
- ------------------
(1) Includes (i) 1,492,625 shares of Class A Common Stock issuable upon exercise
of outstanding stock options, (ii) 917,729 shares of Class A Common Stock
issuable upon the exercise of the Warrants, (iii) 459,000 shares of Class B
Common Stock issuable on exercise of the Lauder Warrants and (iv) 109,500
shares of restricted stock granted pursuant to the Company's 1997 Stock
Incentive Plan. Excludes shares of Class A Common Stock issuable upon
exercise of Roll-Up Rights or Incentive Units or in the Telegate Exchange.
The following table summarizes, as of September 30, 1998, 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
of Common Stock (including Class B Common Stock) paid by the existing
shareholders and the new investors.
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED(1) CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders................. 47,792,873 87.22% $328,646,565 65.03% $ 6.88
New investors......................... 7,000,000 12.78 176,750,000 34.97 25.25
---------- ----- ------------ -----
Total................................. 54,792,873 100.0 $505,396,565 100.0
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
- ------------------
(1) Includes (i) 1,492,625 shares of Class A Common Stock issuable upon exercise
of outstanding stock options, (ii) 917,729 shares of Class A Common Stock
issuable upon the exercise of the unexercised Warrants, (iii) 459,900 shares
of Class B Common Stock issuable on exercise of the Lauder Warrants and (iv)
109,500 shares of restricted stock granted pursuant to the Company's 1997
Stock Incentive Plan. Excludes shares of Class A Common Stock issuable upon
exercise of Roll-Up Rights or Incentive Units or in the Telegate Exchange.
21
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated cash and cash
equivalents, marketable securities, restricted marketable securities and
capitalization of the Company as of September 30, 1998 and as adjusted to give
effect to (i) the New Notes Offering and the application of the net proceeds
therefrom received by the Company and (ii) and the Offerings (assuming a public
offering price of $25 1/4 per share) and the application of the estimated net
proceeds therefrom received by the Company. In light of current favorable market
conditions, the Company may seek to raise additional debt financing promptly
following the Offerings. The table should be read in conjunction with the
Consolidated Financial Statements and notes thereto and the other information
included elsewhere in this Prospectus. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-----------------------------------------
AS ADJUSTED
FOR THE
AS ADJUSTED NEW NOTES
FOR THE OFFERING
NEW NOTES AND THE
ACTUAL OFFERING OFFERINGS
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
-----------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents......................... $ 82,196 $ 172,685 (1) $ 335,830 (1)(2)
--------- --------- -----------
--------- --------- -----------
Restricted marketable securities(3)............... $ 30,579 $ 30,579 $ 30,579
--------- --------- -----------
--------- --------- -----------
Short-term debt and current portion of long-term
debt and current portion of capital lease
obligations..................................... $ 17,700 $ 17,700 $ 17,700
Long-term debt and capital lease obligations:
Capital leases.................................. 21,211 21,211 21,211
12 1/4% Senior Notes due 2006 (net of
unamortized discount of $1.8 million)......... 170,667 170,667 170,667
9 1/8% Senior Notes due 2008.................... 200,000 200,000 200,000
10 1/8% Senior Discount Notes due 2008.......... 212,131 212,131 212,131
10% Senior Discount Notes due 2008.............. 114,758 114,758 114,758
12% Senior Notes due 2008 (net of unamortized
discount of $5.5 million)..................... -- 94,489 94,489
--------- --------- -----------
Total long-term debt, short-term debt and
capital lease obligations(4)................ 736,467 830,956 830,956
--------- --------- -----------
Shareholders' equity:
Common Stock, $.00457 par value; 438,000,000
authorized; 17,782,140 shares of Class A
Common Stock outstanding and 24,782,140 shares
outstanding as adjusted(5).................... 81 81 113
26,874,795 shares of Class B Common Stock
outstanding(6).............................. 123 123 123
Preferred Stock, $.00457 par value; 65,700,000
shares authorized; no shares outstanding...... -- -- --
Warrants--Common Stock.......................... 5,544 5,544 5,544
Additional paid-in capital...................... 328,443 328,443 491,556
Accumulated deficit............................. (304,190) (304,190) (304,190)
Foreign currency translation adjustment......... (11,982) (11,982) (11,982)
--------- --------- -----------
Total shareholders' equity.................... 18,019 18,019 181,164
--------- --------- -----------
Total capitalization.......................... $ 754,486 $ 848,975 $ 1,012,120
--------- --------- -----------
--------- --------- -----------
</TABLE>
- ------------------
(1) Reflects the receipt of net proceeds of approximately $90.5 million from the
New Notes Offering.
(2) Reflects the receipt of net proceeds of approximately $163.1 million from
the Offerings.
(3) The restricted marketable securities consist of U.S. government securities
pledged to secure the payment of interest on the principal amount of the
1996 Notes. See "Description of Certain Indebtedness--1996 Notes."
(4) As of September 30, 1998, the Company had approximately $3.4 million of
available (undrawn) borrowing capacity under its current bank and vendor
facilities.
(5) The foregoing does not include (i) 1,492,625 shares of Class A Common Stock
issuable upon the exercise of outstanding stock options, (ii) 26,328,590
shares of Class A Common Stock issuable upon the conversion of the shares of
Class B Common Stock, (iii) 459,900 shares of Class A Common Stock issuable
upon the conversion of shares of Class B Common Stock issuable pursuant to
the Lauder Warrants, (iv) 917,729 shares of Class A Common Stock issuable
upon the exercise of unexercised Warrants (as defined herein), (v) 109,500
shares of restricted stock, granted pursuant to the Company's 1997 Stock
Incentive Plan or (vi) shares of Class A Common Stock issuable upon exercise
of Roll-Up Rights or Incentive Units or in the Telegate Exchange.
(6) Does not include 459,900 shares of Class B Common Stock issuable upon
exercise of the Lauder Warrants.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are selected consolidated financial data for each of the
years in the four year period ended December 31, 1997 and for the nine months
ended September 30, 1997 and 1998. The selected consolidated financial data
presented below with respect to the years ended December 31, 1997, 1996 and 1995
have been derived from the Consolidated Financial Statements appearing elsewhere
in this Prospectus. The Consolidated Financial Statements for the three year
period ended December 31, 1997 have been audited by Deloitte & Touche LLP,
independent auditors. 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, RSL North America.
In the opinion of management, the unaudited Condensed Consolidated
Financial Statements as of September 30, 1998 and 1997 and for the nine month
periods ended September 30, 1998 and 1997 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 nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the full year. In
addition, the Company has experienced rapid growth over the periods set forth
below, which growth may not necessarily continue at such rate. Accordingly, the
financial and operating results set forth below may not be indicative of future
performance.
The information set forth below is qualified by reference to and should be
read in conjunction with the Consolidated Financial Statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------------------------ SEPTEMBER 30,
PREDECESSOR ------------------------
1994 1995(1) 1996 1997 1997 1998
----------- -------- -------- --------- --------- -----------
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................... $ 4,702 $ 18,617 $113,257 $ 300,796 $ 192,604 $ 564,118
Operating costs and expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)...................... (4,923) (17,510) (98,461) (265,321) (171,203) (462,181)
Selling, general and administrative
expenses............................... (2,395) (9,639) (38,893) (94,712) (62,085) (147,494)
Depreciation and amortization............ (240) (849) (6,655) (21,819) (14,367) (43,282)
------- -------- -------- --------- --------- ---------
(7,558) (27,998) (144,009) (381,852) (247,655) (652,957)
------- -------- -------- --------- --------- ---------
Loss from operations....................... (2,856) (9,381) (30,752) (81,056) (55,051) (88,839)
Interest income............................ -- 173 3,976 13,826 9,947 13,239
Interest expense........................... (225) (194) (11,359) (39,373) (28,910) (51,646)
Other income (expense)..................... -- -- 470 6,595(2) 6,572(2) 445
Foreign exchange loss...................... -- -- -- -- -- (10,621)
Minority interest.......................... -- -- (180) 210 (212) 4,322
Income taxes............................... -- -- (395) (401) (405) (726)
Loss in equity interest of unconsolidated
subsidiaries............................. -- -- -- -- -- (1,625)
------- -------- -------- --------- --------- ---------
Loss before extraordinary item............. (3,081) (9,402) (38,240) (100,199) (68,059) (135,451)
Extraordinary item(3)...................... -- -- -- -- -- (20,800)
------- -------- -------- --------- --------- ---------
Net loss after extraordinary item.......... $(3,081) $ (9,402) $(38,240) $(100,199) $ (68,059) $(156,251)
------- -------- -------- --------- --------- ---------
------- -------- -------- --------- --------- ---------
Loss per share before extraordinary
item(3)(4)............................... $(15.41) $ (1.67) $ (5.13) $ (5.27) $ (2.16) $ (3.17)
Loss per share after extraordinary
item(3)(4)............................... $(15.41) $ (1.67) $ (5.13) $ (5.27) $ (2.16) $ (3.66)
Weighted average number of shares of Common
Stock outstanding(4)..................... 200 5,641 7,448 19,008 31,541 42,740
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
------------------------------------------------ SEPTEMBER 30,
PREDECESSOR -----------------------
1994 1995 1996 1997 1997 1998
----------- -------- --------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(5) (as defined)..................... $(2,616) $ (8,532) $ (23,807) $(52,432) $(34,324) $ (40,790)
Capital expenditures(6).................... 1,126 6,074 23,880 49,417 26,835 104,868
Cash (used in) provided by operating
activities............................... (1,987) 3,554 (10,475) (91,812) (60,443) (116,367)
Cash (used in) provided by investing
activities............................... (478) (16,537) (225,000) (18,821) 25,305 (312,772)
Cash (used in) provided by financing
activities............................... 2,888 18,143 335,031 152,035 (14,976) 376,011
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------- AS OF SEPTEMBER 30,
PREDECESSOR -----------------------
1994 1995 1996 1997 1997 1998
----------- ------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 452 $ 5,163 $104,068 $144,894 $ 52,706 $ 82,196
Securities available for sale.............. -- -- 67,828 13,858 24,093 --
Restricted marketable securities(7)........ -- -- 104,370 68,836 86,034 30,579
Total assets............................... 3,682 53,072 427,969 605,664 435,961 1,167,049
Short-term debt, current portion of
long-term debt and current portion of
capital lease obligations(8)............. 2,645 5,506 6,974 8,033 5,438 17,700
Long-term debt and capital lease
obligations(8)........................... 1,404 6,648 314,425 316,608 316,677 718,767
Shareholders' (deficiency) equity.......... (3,651) 5,705 20,843 126,699 (14,275) 18,019
</TABLE>
- ------------------
(1) Effective with the acquisition of a majority equity interest in RSL North
America in September 1995, the Company began to consolidate RSL North
America's operations. From March 1995 (the date of the Company's initial
investment) to September 1995, the Company accounted for its investment in
RSL North America using the equity method of accounting.
(2) Other income includes the reversal of certain liabilities accrued in
connection with the Company's obligations under an agreement that required
the Company to meet a carrier vendor's minimum usage requirements, which
agreement was entered into by a subsidiary of the Company prior to the
Company's acquisition of such subsidiary. During May 1997, the Company
renegotiated the contract with this carrier vendor resulting in the
elimination of approximately $7.0 million of previously accrued charges.
(3) Extraordinary item represents primarily the premium paid to retire
approximately $127.5 million of the original $300.0 million of the Company's
1996 Notes.
(4) Loss per share is calculated by dividing the loss attributable to Common
Stock by the weighted average number of shares of Common Stock outstanding,
and has been retroactively restated to reflect the 2.19-for-one stock split.
Shares issuable pursuant to outstanding stock options, unexercised Warrants,
the Lauder Warrants, Roll-up Rights or Incentive Units or in the Telegate
Exchange are not included in the loss per common share calculation as their
effect is anti-dilutive.
(5) EBITDA (as defined) consists of loss before interest, loss in equity
interest of unconsolidated subsidiaries, income taxes, extraordinary item,
depreciation and amortization and foreign exchange loss. EBITDA (as defined)
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 (as defined) 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.
(6) Capital expenditures include assets acquired through capital lease financing
and other debt.
(7) The restricted marketable securities consist of U.S. government securities
pledged to secure the payment of interest on the principal amount of the
1996 Notes. See "Description of Certain Indebtedness--1996 Notes."
(8) As of September 30, 1998, the Company had approximately $3.4 million of
available (undrawn) borrowing capacity under its current bank and vendor
facilities.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus.
OVERVIEW
GENERAL
The Company is a rapidly growing multinational telecommunications company
which provides a broad array of services, with a focus on international long
distance voice services to small and medium-sized businesses in key markets. The
Company's services include international and national fixed and wireless,
calling card, fax, data, Internet, private line and other value-added
telecommunications services. The Company currently has revenue generating
operations in Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Italy, Japan, Luxembourg, The Netherlands, Portugal, Spain, Sweden,
Switzerland, the United Kingdom, the United States and Venezuela. In 1997,
approximately 70% of all international long distance telecommunications minutes
originated in these markets. The Company is also in the process of commencing
start-up operations through its investments in an entity in Mexico. See
"Business--Latin American Operations--General." 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.
NORTH AMERICA. The Company commenced operations in the U.S. in 1995 and
has since implemented solutions designed to improve the operations of RSL COM
U.S.A., Inc. ("RSL USA"). The Company added key members to its management and
purchased and developed additional management software systems which provide
current traffic provisioning and an enhanced ability to predict future traffic
volume. The Company also successfully negotiated and continues to negotiate rate
reductions and more appropriate transmission capacity arrangements based on the
Company's current and anticipated capacity requirements. In addition, the
Company anticipates that expanded utilization of its own facilities (as such
component of RSL-NET continues to grow) will result in more cost-efficient
methods of transport for its U.S. business.
As of September 30, 1998, the Company had recorded approximately
$277.1 million of goodwill in connection with its North American acquisitions.
Goodwill represents the excess of cost over the fair value of the net
assets of acquired entities. The Company's component cost and purchase price
allocation for its North American acquisitions for each of the three years ended
December 31, 1995, 1996 and 1997 and for the nine month period ended
September 30, 1998 are as follows:
<TABLE>
<CAPTION>
COMPONENT COST AND PURCHASE PRICE
ALLOCATION
-------------------------------------
SEPTEMBER 30,
1995 1996 1997 1998
---- ---- ---- -------------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS ACQUIRED:
Cash and cash equivalents.......................... 7.4 -- 5.1 1.0
Accounts receivable................................ 9.0 -- 5.2 29.5
Telecommunications equipment....................... 4.5 -- 0.8 35.1
Deposits and others................................ 1.9 -- 0.5 4.6
Intangible assets--goodwill........................ 29.3 26.3 80.6 140.9
LIABILITIES ASSUMED:
Accounts payable and other long-term liabilities... 32.6 7.0 12.4 73.4
Long-term debt..................................... 5.1 -- -- --
EQUITY:
Increase to shareholders' equity................... -- -- 38.2 8.7
TOTAL CASH INVESTED.................................. 14.4 19.3 41.6 129.0
TOTAL NET LIABILITIES ASSUMED........................ 14.9 7.0 0.8 3.2
TOTAL STOCK ISSUED................................... -- -- 38.2 8.7
---- ---- ---- -----
TOTAL GOODWILL RECORDED/TOTAL PURCHASE PRICE......... 29.3 26.3 80.6 140.9
---- ---- ---- -----
---- ---- ---- -----
</TABLE>
25
<PAGE>
EUROPE. Member States are in various stages of deregulation. Deregulation
in these countries may occur either because the Member States of the EU decide
to open up their own markets (e.g., the United Kingdom, Sweden and Finland) or
because they are 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 interconnection was not available and implemented in most EU
countries by January 1, 1998 (as called for by an EC directive), the current
regulatory scheme in the EU nevertheless provides an opportunity for the Company
to provide a range of services immediately in many countries, while putting in
place adequate infrastructure to capitalize on final deregulation if and when it
occurs. The Company can provide value-added services before interconnection is
available and, in certain Member States, the Company is already providing
dial-in access, coupled, when possible, with autodialers or the programming of
customers' phone systems to dial access codes, to route traffic over the
domestic public switched telephone network ("PSTN") to the Company's switches.
See "Business--International Long Distance Mechanics."
As of September 30, 1998, the Company had recorded an aggregate of
approximately $155.2 million of goodwill in connection with its European
acquisitions. Goodwill represents the excess of cost over the fair value of the
net assets of acquired entities. The Company's component cost and purchase price
allocation for its European acquisitions for each of the three years ended
December 31, 1995, 1996 and 1997 and for the nine month period ended
September 30, 1998 are as follows:
<TABLE>
<CAPTION>
COMPONENT COST AND PURCHASE PRICE
ALLOCATION
-------------------------------------
SEPTEMBER 30,
1995 1996 1997 1998
---- ---- ---- -------------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS ACQUIRED:
Cash............................................... -- 2.3 1.7 0.9
Accounts receivable................................ 0.2 0.6 2.3 28.1
Telecommunications equipment....................... -- 2.2 0.8 3.7
Deposits and others................................ -- 0.3 0.4 16.5
Intangible assets--goodwill........................ 0.9 24.7 33.7 95.9
LIABILITIES ASSUMED:
Accounts payable and other long-term liabilities... 0.2 5.9 5.0 52.8
Lease commitments.................................. -- 2.4 -- --
EQUITY:
Increase to shareholders' equity................... -- -- 3.4 --
TOTAL CASH INVESTED.................................. 0.9 21.8 30.5 92.3
TOTAL LIABILITIES (ASSETS) ASSUMED................... -- 2.9 (0.2) 3.6
TOTAL STOCK ISSUED................................... -- -- 3.4 --
---- ---- ---- -----
TOTAL GOODWILL RECORDED/TOTAL PURCHASE PRICE......... 0.9 24.7 33.7 95.9
---- ---- ---- -----
---- ---- ---- -----
</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. The Company also 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
26
<PAGE>
services at a discount to the prices charged by the local PTTs and major
carriers. The Company has experienced, and expects to continue to experience,
declining revenue per minute in all of its markets as a result of increasing
competition in telecommunications, which the Company expects will be offset by
increased minute volumes and decreased operating costs per minute. See "Risk
Factors--Risks Associated With Rapidly Changing Industry" and "--Competition."
NORTH AMERICAN OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------- NINE MONTHS ENDED
PREDECESSOR SEPTEMBER 30,
------------------ ----------------------
1994 1995 1996 1997 1997 1998
------- ------- -------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................................... $ 4,702 $18,461 $ 85,843 $ 194,518 $ 127,491 $ 305,673
Percentage of consolidated revenues............ 100.0% 99.2% 75.8% 64.7% 66.2% 54.2%
Operating costs and expenses:
Cost of services (exclusive of depreciation
and amortization shown separately
below).................................... (4,923) (17,367) (76,892) (176,780) (117,666) (253,200)
Selling, general and administrative
expenses.................................. (2,395) (7,444) (17,606) (38,207) (20,478) (53,348)
Depreciation and amortization................ (240) (619) (3,047) (5,650) (4,009) (8,014)
------- ------- -------- --------- --------- ---------
(7,558) (25,430) (97,545) (220,637) (142,153) (314,562)
------- ------- -------- --------- --------- ---------
Loss from operations........................... $(2,856) $(6,969) $(11,702) $ (26,119) $ (14,662) $ (8,889)
------- ------- -------- --------- --------- ---------
------- ------- -------- --------- --------- ---------
</TABLE>
Prior to 1997, the Company's revenues had been primarily derived from its
operations within the United States. The Company's U.S. revenues result
primarily from the sale of long distance voice services on a wholesale basis to
other carriers, on a retail basis to commercial customers and on a bulk discount
basis to distributors of prepaid calling cards. The Company experiences
significant month to month changes in revenues generated by its carrier
customers (i.e., customers who acquire the Company's services for the purpose of
reselling such services on a wholesale basis to other carriers or on a retail
basis to end users). The Company believes such carrier customers will react to
temporary price fluctuations and spot market availability that will impact the
Company's carrier revenues. Over the past two years, the Company has shifted its
marketing focus in the United States to small and medium-sized businesses and
has restructured its pricing of wholesale services to other carriers. The
Company has derived increased revenues from its commercial customers, and it
continues to reduce its reliance on wholesale carrier revenues. The Company will
also begin deriving revenues as a result of its recent acquisition of operations
in Canada. See "--Overview" in this Section.
27
<PAGE>
EUROPEAN OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
------- -------- ----------- --------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $ 156 $ 27,414 $ 73,653 $ 51,220 $ 168,672
Percentage of consolidated revenues............ 0.8% 24.2% 24.5% 26.6% 29.9%
Operating costs and expenses:
Cost of services (exclusive of depreciation
and amortization shown separately
below).................................... (143) (21,569) (59,516) (40,746) (136,779)
Selling, general and administrative
expense................................... (539) (17,377) (43,004) (32,879) (64,118)
Depreciation and amortization................ (12) (1,906) (7,038) (4,298) (14,298)
------- -------- --------- --------- ----------
(694) (40,852) (109,558) (77,923) (215,195)
------- -------- --------- --------- ----------
Loss from operations........................... $ (538) $(13,438) $ (35,905) $ (26,703) $ (46,523)
------- -------- --------- --------- ----------
------- -------- --------- --------- ----------
</TABLE>
The Company commenced European operations in certain countries in the
second quarter of 1996 and has since established operations in many additional
European countries.
Substantially all revenues from the Company's European operations are
derived from commercial sales to end-users. Sales are targeted at small to
medium-sized corporate customers, as well as to niche consumer markets
(including selected ethnic communities). To reduce its credit risk to such niche
consumer markets, the Company primarily offers prepaid products to its targeted
consumer. 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 its
customers. The Company also believes that as it pursues its strategic growth
strategy it will continue to encounter various degrees of start-up time.
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. The Company believes that, with
established or start-up operations in 14 European countries, it will be well
positioned to benefit from the anticipated deregulation of European markets.
However, there can be no assurance regarding the timing or extent of
deregulation in any particular country. See "Risk Factors--Risks Associated with
Rapidly Changing Industry," "--Government Regulatory Restrictions" and
"Business--European Operations--General--Regulatory Environment."
28
<PAGE>
ASIA/PACIFIC RIM OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
INCEPTION (APRIL 1997 NINE MONTHS
(APRIL 1997 THROUGH ENDED
THROUGH DECEMBER SEPTEMBER 30, SEPTEMBER 30,
31, 1997) 1997) 1998
----------------- ------------------ ------------------
(IN THOUSANDS EXCEPT PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C>
Revenues......................................... $32,333 $ 13,836 $ 89,219
Percentage of consolidated revenues.............. 10.7% 7.2% 15.8%
Operating costs and expenses:
Cost of services (exclusive of depreciation and
amortization shown separately below)........... (28,873) (12,756) (71,738)
Selling, general and administrative expenses... (5,827) (2,674) (20,555)
Depreciation and amortization.................. (824) (268) (3,604)
------- -------- --------
(35,524) (15,698) (95,897)
------- -------- --------
Loss from operations............................. $(3,191) $ (1,862) $ (6,678)
------- -------- --------
------- -------- --------
</TABLE>
The Company commenced Asian/Pacific Rim revenue producing operations
through its Australian entity with the acquisition of a customer base in
Australia in the second quarter of 1997. The Company initiated operating in
Japan through RSL COM Japan K.K. ("RSL Japan") in July 1998.
LATIN AMERICAN OPERATIONS
The Company commenced Latin American revenue producing operations in
Venezuela in the third quarter of 1997. The Company's operations in Venezuela
have generated approximately $846,000 in revenues from August 1997 through
September 30, 1998.
COST OF SERVICES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION)
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 plans to make significant investments in IRUs, MIUs and domestic
circuits and, as a result, expects an increasing amount of its total operating
costs to become fixed, as the volume of the Company's calls carried over its own
facilities increases. The depreciation expense with respect to the Company's
MIUs and IRUs is not accounted for in cost of services. In addition, the Company
intends to lower its variable cost of termination as a percentage of revenues by
carrying traffic pursuant to more of its existing operating agreements and by
negotiating additional operating agreements on strategic routes. The Company has
directly linked certain of its Local Operators in Europe and the United States
utilizing lines leased on a fixed cost point-to-point basis and MIUs and IRUs.
To the extent traffic can be transported between two Local Operators over MIUs
or IRUs, there is only marginal cost to the Company with respect to the
international portion of a call other than the fixed lease payment or the
capital expenditure incurred in connection with the purchase of the MIUs or
IRUs. The Company's cost of transport and termination will decrease to the
extent that it is able to bypass the settlement rates associated with the
transport of international traffic. While the Company intends to purchase or
construct intranational transmission facilities where such facilities are
available for purchase or may be constructed and such investments are cost
effective and warranted by traffic patterns, a significant percentage of its
intranational transmission facilities will continue to be leased on a variable
cost basis. Accordingly, variable costs will continue to be a majority of the
Company's cost of services for the foreseeable future.
29
<PAGE>
EFFECT OF DEREGULATION ON EUROPEAN COST OF SERVICES (EXCLUSIVE OF DEPRECIATION
AND AMORTIZATION)
The Company's current cost structure varies from country to country, in
part, 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 substantially deregulated than in those which are partially
deregulated. In countries that are not substantially deregulated, the Company's
access to the local exchange network is through more expensive means (i.e.,
leased lines or dial-in access). This results in higher costs to the Company for
carrying international traffic originating within one country and terminating in
another country. In addition, local regulations in many countries restrict the
Company from purchasing capacity on international cable and fiber systems. The
Company must instead either enter into long-term lease agreements for
international capacity at a high fixed cost or purchase per-minute of use
termination rates from the dominant carrier. Deregulation in countries in which
the Company operates is expected to permit the Company to (i) interconnect its
switches with the local exchange network and (ii) purchase its own international
facilities. The Company believes that as a result of deregulation, its cost
structure will improve. Deregulation in a particular country is also expected to
permit the Company to terminate international inbound traffic in such 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. The Company's selling, general and administrative expense also
includes the settlement of various claims and disputes relating, primarily, 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 Company's 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 recorded a foreign currency translation adjustment of
$4.7 million and $6.7 million for the year ended December 31, 1997 and for the
nine months ended September 30, 1998, respectively. Such amount is recorded upon
the translation of the foreign subsidiaries' financial statements into U.S.
dollars, and is dependent upon the various foreign exchange rates and the
magnitude of the foreign subsidiaries' financial statements.
30
<PAGE>
The Company incurs settlement costs when it exchanges traffic via operating
agreements with foreign correspondents. These costs currently represent a small
portion of the total costs of services; 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.
The Company has monitored and will continue to monitor its currency
exposure. See "Risk Factors--Devaluation and Currency Risks."
ACQUISITION ACCOUNTING
Since its formation in 1994, the Company has expanded its revenues,
customer base and network through internal growth and acquisitions. All of its
acquisitions were negotiated on an arm's length basis with unaffiliated third
parties. The Company accounted for all of its acquisitions of controlling
interests using the purchase method of accounting and, accordingly, the
respective purchase prices have been allocated to the assets acquired and
liabilities assumed based on their estimated fair values at their dates of
acquisition. The excess of the purchase price over the estimated fair values of
the net assets acquired has been recorded as goodwill, which is being amortized
over a 15-year period. For periods prior to April 1, 1996, the Company had
included 100% of the losses of its loss generating subsidiaries in its results
of operations because the book value of the minority interests in these
subsidiaries has been reduced to below zero. The Company's non-U.S. subsidiaries
denominate revenues, costs, assets and liabilities for the most part in local
currencies. All of the subsidiaries, however, report their financial results in
U.S. dollars pursuant to U.S. GAAP. See "--Foreign Exchange."
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
REVENUES. Revenues increased to $564.1 million for the nine months ended
September 30, 1998 compared to $192.6 million for the nine months ended
September 30, 1997, an increase of 193%. This increase is due primarily to an
increase in the Company's North American revenues from $127.5 million for the
nine months ended September 30, 1997 to $305.7 million for the same period this
year and the Company's European revenues, which increased from $51.2 million for
the nine months ended September 30, 1997 to $168.7 million for the same period
this year. The Company had revenue generating operations in the United States,
Canada, 14 European countries, Venezuela, Australia and Japan during the first
nine month period of 1998. The increase in the Company's North American revenues
was primarily due to acquisitions, which contributed $98.1 million and $0.0 for
the nine months ended September 30, 1998 and 1997, respectively, a significant
increase in the Company's U.S. commercial customer base and increased traffic
volume from existing customers. Revenues from the Company's European operations
increased as a result of increased sales of prepaid calling cards, which
contributed $20.6 million and $0.0 for the nine months ended September 30, 1998
and 1997, respectively, through acquisitions, primarily the Motorola Tel.co
acquisition, completed after September 30, 1997, which contributed
$62.6 million to the Company's September 30, 1998 European revenues, and an
increase in the European customer base. Revenues from the Company's Asia/Pacific
Rim operations increased to $89.2 million for the nine months ended
September 30, 1998, compared with $13.8 million for the same period of 1997,
primarily as a result of various acquisitions which had taken place throughout
the period.
COST OF SERVICES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION DISCUSSED
SEPARATELY BELOW). Cost of services increased to $462.2 million for the nine
months ended September 30, 1998 from $171.2 million for the nine months ended
September 30, 1997, an increase of 170%. This increase is primarily due to
increased traffic and, to a certain extent, increased rates paid to the
Company's carrier vendors. As a percentage of revenues, cost of services
decreased to 81.9% for the nine months ended
31
<PAGE>
September 30, 1998 from 88.9% for the nine months ended September 30, 1997. The
decrease in cost of services as a percentage of revenues is primarily
attributable to the increased diversification in the Company's customer base,
increase in commercial accounts and mobile subscribers which positively impacted
the Company's profitability, and the improvement in the Company's North American
operations' costs of services which represented 54.8% of the Company's total
cost of services in the period. This was offset by the Company's European
operations which experienced problems in purchasing capacity in Germany and
France due to certain delays in implementing deregulation in these countries.
Accordingly, traffic arising from increased prepaid card sales in these
countries had to be carried over uneconomical overflow capacity which produced
low and in certain cases negative gross margins for the Company's prepaid
operations in Germany and France. The Company believes that these capacity
problems were temporary and have since been corrected. In order to reduce costs,
the Company intends to purchase additional capacity, if and when regulations
permit, in each of the Company's respective countries of operation, on routes on
which it has experienced, or anticipates experiencing, overflow traffic.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the nine months ended September 30, 1998 increased by
$85.4 million, or 138%, to $147.5 million from $62.1 million for the nine months
ended September 30, 1997. This increase is primarily attributable to costs of
start-ups in and expansion of the Company's European operations, the hiring of
new personnel in Europe and as a result of acquisitions in North America and
Australia. The Company's European operations contributed $64.1 million or 43.5%
of the Company's consolidated SG&A for the nine months ended September 30, 1998,
although such operations accounted for only 29.9% of the Company's total
revenues in such period. European selling, general and administrative expense
increased as a result of the Motorola Tel.co acquisition and the significant
increase in employees in many of the Company's European operations. Selling,
general and administrative expense will continue to increase as a result of
start-up costs and infrastructure expansion and start-up costs attributable to
new local operations.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 201% to $43.3 million for the nine months ended September 30,
1998 from $14.4 million for the nine months ended September 30, 1997. This
increase is primarily attributable to the increased amortization of goodwill
recorded as a result of the Company's 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 $13.2 million for the nine
months ended September 30, 1998 from $9.9 million for the nine months ended
September 30, 1997, primarily as a result of interest earned on the proceeds of
the 1998 Notes (as defined herein).
INTEREST EXPENSE. Interest expense increased to $51.6 million for the nine
months ended September 30, 1998 from $28.9 million for the nine months ended
September 30, 1997, primarily as a result of interest related to the 1998 Notes.
FOREIGN EXCHANGE LOSS. Foreign exchange loss increased to $10.6 million
for the nine months ended September 30, 1998 from $0.0 for the nine months ended
September 30, 1997, primarily as a result of the increase in the Deutsche mark
against the U.S. dollar in connection with the Company's 1998 Deutsche mark
denominated Senior Discount Notes.
LOSS IN EQUITY INTEREST OF UNCONSOLIDATED SUBSIDIARIES. Loss in equity
interest of unconsolidated subsidiaries increased to $1.6 million for the nine
months ended September 30, 1998 from $0.0 for the nine months ended
September 30, 1997 to account for the Company's pro-rata allocable loss in its
investment in Maxitel (as defined) and Telegate (as defined).
LOSS BEFORE EXTRAORDINARY ITEM. Net loss before extraordinary item
increased to $132.7 million for the nine months ended September 30, 1998, as
compared to net loss of $68.1 million for the nine months ended September 30,
1997 due to the factors described above. An extraordinary item of $20.8 million
for the nine months ended September 30, 1998 represents primarily the premium
paid to retire approximately $127 million of the original $300 million of the
Company's 1996 Notes. The Company had no such expense in the nine month period
ended September 30, 1997.
32
<PAGE>
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES. Revenues increased to $300.8 million for the year ended December
31, 1997 compared to $113.3 million for the year ended December 31, 1996, an
increase of 165.6%. This increase was due primarily to an increase in the
Company's U.S. revenues from $85.8 million for the year ended December 31, 1996
to $194.5 million for the year ended December 31, 1997 and the Company's
European revenues, which increased from $27.4 million for the year ended
December 31, 1996 to $73.7 million for the year ended December 31, 1997. The
Company generated revenues in the United States, in 10 European countries, and
in Australia and Venezuela during the fourth quarter of 1997. The Company had
revenue producing operations in only the United States and five European
countries in 1996. The increase in U.S. revenues was primarily due to increased
traffic volume from existing customers, increases in the Company's U.S.
commercial customer base and the LDM acquisition on October 1, 1997 which
contributed $13.1 million (for the period October 1, 1997 to December 3, 1997)
to the Company's December 31, 1997 revenue. The increase in the Company's
European revenues was primarily due to increased traffic volume from existing
customers, increases in the Company's commercial customer base in the United
Kingdom, Sweden, Finland, Germany and The Netherlands. The Company's 1996
European acquisitions in France, Germany and The Netherlands contributed $32.7
million in revenue for the full 1997 year end compared to revenues of $16.5
million recorded from the dates of their respective acquisitions to
December 31, 1996.
COST OF SERVICES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION DISCUSSED
SEPARATELY BELOW). Cost of services increased to $265.3 million for the year
ended December 31, 1997 from $98.5 million for the year ended December 31, 1996,
an increase of 169.5%. This increase was primarily due to increased traffic and
increased rates paid to the Company's carrier vendors. As a percentage of
revenues, cost of services increased to 88.2% for the year ended December 31,
1997 from 86.9% for the year ended December 31, 1996. The increase in cost of
services as a percentage of revenues was primarily attributable to the Company's
U.S. operations' cost of services, which represented 66.6% of the Company's
total cost of services. Although the Company anticipated a decrease in U.S. and
European cost of services during 1997, rapid growth in excess of the Company's
expectations continued to cause traffic overflow resulting in higher cost of
services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the year ended December 31, 1997 increased by $55.8
million, or 143.5%, to $94.7 million from $38.9 million for the year ended
December 31, 1996. This increase was primarily attributable to the reasons
previously provided for revenues and cost of services above. As a percent of
U.S. revenues, the Company's U.S. selling, general and administrative expense
decreased to 19.6% for the year ended December 31, 1997 from 20.5% for the prior
year. The Company's U.S. bad debt expense for the year ended December 31, 1997
increased by $8.1 million or 289% to $10.9 million from $2.8 million for the
year ended December 31, 1996. This increase was primarily attributable to a 127%
increase in the Company's U.S. revenues for the same period and increased credit
exposure primarily due to the increased diversity in the Company's customer
base. Additionally, the Company's 1997 bad debt expense included approximately
$3.0 million of bad debt recorded in connection with the bankruptcy filing of
one of the Company's major customers, Cherry Communications. As a percent of
European revenues, the Company's European selling, general and administrative
expense decreased to 58.4% for the year ended December 31, 1997 from 63.4% for
the prior year. The Company's consolidated selling, general and administrative
expense in Europe was 45.4% of its total consolidated selling, general and
administrative expense, despite such operations accounting for only 24.5% of the
Company's total revenues because of a greater proportion of start-up and
expansion costs.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 227.9% to $21.8 million for the year ended December 31, 1997
from $6.7 million for the year ended December 31, 1996, an increase of $15.1
million. This increase was primarily attributable to the increased amortization
of goodwill recorded as a result of the Company's acquisitions.
INTEREST INCOME. Interest income increased to $13.8 million for the year
ended December 31, 1997 from $4.0 million for the year ended December 31, 1996,
primarily as a result of interest earned on
33
<PAGE>
the remaining net proceeds of the 1996 Units Offering (as defined) and the net
proceeds from the initial public offering of Class A Common Stock in October
1997 (the "IPO").
INTEREST EXPENSE. Interest expense increased to $39.4 million for the year
ended December 31, 1997 from $11.4 million for the year ended December 31, 1996,
an increase of approximately $28.0 million, as a result of interest related to
the 1996 Notes.
NET LOSS. Net loss increased to $100.2 million for the year ended December
31, 1997, as compared to a net loss of $38.2 million for the year ended December
31, 1996 due to the factors described above.
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES. Revenues increased to $113.3 million for the year ended December
31, 1996 from $18.6 million for the year ended December 31, 1995, an increase of
509%. This increase was due primarily to the full year of U.S. operations
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's international
voice operations in France and Germany in May 1996. These operations contributed
approximately $13.1 million to 1996 revenues. The Company's European operations
generated minimal revenues in 1995. For the year ended December 31, 1996,
approximately 24% of the Company's revenues were generated from the Company's
European operations.
In connection with the Company's shift in marketing focus to small and
medium-sized businesses, the Company determined in December 1995 that certain
carrier customers provided the Company with margins below its targeted levels
for margin contribution. Accordingly, the Company established new pricing
structures and terminated service to the low or zero margin customers which did
not agree to the new pricing structures. In addition, the Company terminated
service in February 1996 to its largest wholesale customer because of such
customer's inability to pay for past services. This customer represented
approximately 11% of RSL North America's revenues in 1995. The Company commenced
legal proceedings to recover amounts owed to the Company by such customer. The
Company 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 (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION DISCUSSED
SEPARATELY BELOW). 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 was due primarily to the full year of U.S.
operations that is consolidated in the 1996 results of operations compared to
only three months of the Company's U.S. operations consolidated in the
historical statement of operations for 1995. As a percentage of revenues, cost
of services decreased to 86.9% for the year ended December 31, 1996 from 94.1%
for the year ended December 31, 1995. The decrease in cost of services as a
percentage of revenues was primarily attributable to the Company's increased
European revenues.
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
was primarily attributable to the Company's investment in sales personnel and
marketing expense in order to generate increased revenue. Costs for start-up and
expansion of the Company's U.K., Dutch, Finnish and Swedish Local Operators
represented 30.1% and 5.6% of the Company's total selling, general and
administrative expense for the years ended December 31, 1996 and 1995,
respectively, although they only accounted for 9.9% and less than 1.0% of the
Company's total revenues for the same periods.
34
<PAGE>
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 was primarily
attributable to the increased amortization of goodwill recorded as a result of
acquisitions. For the years ended December 31, 1996 and 1995, amortization of
goodwill amounted to approximately $2.9 million and $548,000, respectively. 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 a securities
offering completed in October 1996 (the "1996 Units 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
1996 Notes ($9.2 million) and borrowings under the Revolving Credit Facility
($748,000) and the remaining amounts due to interest related to capital leases.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating and net losses and negative
cash flow, due in large part to the start-up and development of the Company's
operations and RSL-NET. The Company expects that its net losses and negative
cash flow will increase as the Company implements its growth strategy.
Historically, the Company has funded its losses and capital expenditures through
capital contributions, borrowings and a portion of the net proceeds of prior
securities offerings. Cash used in operating activities for the nine months
ended September 30, 1998 totaled $116.4 million compared with $60.4 million for
the same period in 1997. Capital expenditures for the nine months ended
September 30, 1998 were $104.9 million compared with $26.8 million for the
comparable period in 1997. These capital expenditures are principally for
switches, fiber, and related telecommunications equipment. The Company intends
to increase significantly its capital expenditures to expand and develop the
Company's infrastructure, in part by replacing leased transmission facilities
with owned transmission lines, purchasing IRUs and interests in inter-city fiber
routes in European countries and installing additional national and
international telephone gateway switches. Funds expended for acquisitions were
$271.2 million during the nine months ended September 30, 1998 compared with
$26.8 million for the nine months ended September 30, 1997. At September 30,
1998, the Company had $37.6 million of working capital deficit as compared to
$83.1 million of working capital on December 31, 1997.
Cash provided by operating activities for the year ended December 31, 1995
and cash used in operating activities for the years ended December 31, 1996 and
1997 equaled $3.6 million, $10.5 million and $91.8 million, respectively.
Capital expenditures for the years ended December 31, 1995, 1996 and 1997 were
$6.1 million, $23.9 million and $49.4 million, respectively. These capital
expenditures were principally for switches and related telecommunications
equipment. Funds expended for acquisitions during the years ended December 31,
1995, 1996 and 1997 were $15.4 million, $38.6 million and $77.8 million,
respectively. During 1996, the Company funded its operating losses, capital
expenditures and acquisitions with borrowings of $44.5 million and a portion of
the net proceeds of the 1996 Units Offering. During 1997, the Company funded its
operating losses, capital expenditures and acquisitions with a portion of the
net proceeds of the 1996 Units Offering and a portion of the net proceeds of the
IPO. At December 31, 1997, the Company had $83.1 million of working capital as
compared to $124.9 million of working capital at December 31, 1996.
The Company's indebtedness was approximately $712.0 million at
September 30, 1998, of which $699.4 million represented long-term debt and
$12.6 million represented short-term debt. The Company's indebtedness was
approximately $304.6 million at December 31, 1997, of which $300.0 million
represented long-term debt and $4.6 million represented short-term debt.
Substantially
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<PAGE>
all of the Company's long-term indebtedness is attributable to the debt
securities issued by RSL PLC and guaranteed by the Issuer.
In October 1996, RSL PLC consummated the offering of $300.0 million of
12 1/4% Senior Notes due 2006, $127.5 million of which were redeemed by RSL PLC
in April 1998. In February 1998, RSL PLC consummated the offering of $200.0
million of 9 1/8% Senior Notes due 2008 and $328.1 million ($200.0 million
initial accreted value) of 10 1/8% Senior Discount Notes due 2008. In March
1998, RSL PLC consummated the offering of DM296.0 million (approximately $99.1
million initial accreted value) of 10% Senior Discount Notes. In addition, on
November 9, 1998, the Company issued $100 million ($94.5 million initial
accreted value) of 12% Senior Notes due 2008. The foregoing debt securities were
issued under indentures containing certain restrictive covenants which impose
limitations on the Company's 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. See
"Description of Certain Indebtedness--1996 Notes," "--U.S. Dollar Notes," "--DM
Notes" and "--New Notes."
In connection with the issuance of the 1996 Notes, RSL PLC was required to
purchase and maintain restricted marketable securities, which are held by the
indenture trustee for the 1996 Notes, in order to secure the payment of the
first six scheduled interest payments on the 1996 Notes. The market value of
such restricted marketable securities was approximately $68.9 million at
December 31, 1997. The market value of such securities at September 30, 1998, as
adjusted to reflect the redemption of $127.5 million of the 1996 Notes, was
$31.0 million. See "Description of Certain Indebtedness--1996 Notes."
In October 1998, the Company obtained from a group of its officers and
directors and affiliates thereof (the "New Lenders") commitments for up to $35
million of revolving credit under the New Credit Facility, subject to the
negotiation and execution of final documentation. Amounts borrowed under the New
Credit Facility will accrue interest at LIBOR plus 5% per annum. RSL PLC will be
the borrower and the Issuer will guarantee any obligations of RSL PLC under the
New Credit Facility. The commitments of the New Lenders under the New Credit
Facility will expire on the earlier of January 15, 2000 and the date of any
change of control of the Issuer. See "Certain Relationships and Related
Transactions."
The commitment under the Company's revolving credit facility with The Chase
Manhattan Bank was $7.5 million at June 30, 1998, which amount was permanently
reduced to $5 million at July 1, 1998. Approximately $3.5 million of the
commitment under the facility was utilized at September 30, 1998 and at the date
of this Prospectus. The facility is payable on June 30, 1999 and accrues
interest, at the Company's option, at (i) the lender's prime rate per annum or
(ii) LIBOR plus 1% per annum. The Company, through LDM, has a $10.0 million
revolving credit facility. There was $8.1 million outstanding under this
facility at September 30, 1998. This facility is payable in full on
September 30, 2000 and accrues interest at prime rate plus 2.5% per annum. One
of the Company's primary equipment vendors has also provided to the Company
$75.0 million in vendor financing to fund the purchase of additional switching
and related telecommunications capital equipment. At September 30, 1998, there
was approximately $7.3 million available under this facility. Borrowings under
this vendor facility accrue interest at a rate of LIBOR plus either 5.25% or
4.5% per annum depending on the equipment purchased. See "Description of Certain
Indebtedness--Credit Facilities."
When market conditions are favorable, the Company plans to raise
substantial additional capital to fund its capital expenditures, acquisitions,
strategic alliances, start-up operations and anticipated substantial net losses.
In light of current favorable market conditions, the Company may seek to raise
additional debt financing promptly following the Offerings. If market conditions
are not favorable, the Company believes that the net proceeds from the Offerings
and the New Notes Offering, together with the remaining net proceeds of prior
securities offerings and availability under its revolving credit facilities,
vendor financing facility and short-term lines of credit and overdraft
facilities from local banks, will be sufficient to fund a reduced capital
expenditure and expansion plan for its existing operations, as well as
continuing net losses, for approximately 9 to 12 months. However, the Company
may be
36
<PAGE>
required to raise additional capital regardless of market conditions, if the
Company's plans or assumptions change or prove to be inaccurate, if the Company
identifies additional required or desirable infrastructure investments or
acquisitions, if the Company experiences unanticipated costs or competitive
pressures or if the net proceeds from the Offerings, together with the remaining
proceeds of prior securities offerings and other sources of liquidity otherwise
prove to be insufficient. See "Risk Factors--Historical and Future Net Operating
Losses and Negative EBITDA (as defined)," "--Need for Additional Capital" and
"--Substantial Indebtedness."
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." The Company adopted SFAS
No. 130 during the nine month period ended September 30, 1998. The Company has
determined to present the data on a geographical basis for SFAS No. 131.
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, it has no impact on the
Company's net income. Comprehensive income includes both net income and other
comprehensive income. Other comprehensive loss for the nine months ended
September 30, 1998 and September 30, 1997 of $6.7 million and $1.2 million,
respectively, represented foreign currency translation adjustment. Accumulated
other comprehensive loss included in the accompanying condensed consolidated
balance sheet as of September 30, 1998 and September 30, 1997 was $12.0 million
and $1.8 million, respectively, consisting of the accumulated foreign currency
translation adjustment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and hedging activities. Generally, it
requires that an entity recognize all derivatives as either an asset or
liability and measure those instruments at fair value, as well as identify the
conditions for which a derivative may be specifically designed as a hedge. The
Company does not have any derivative instruments.
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.
YEAR 2000 TECHNOLOGY RISKS
The "Year 2000" problem is the result of computer programs being written
using two digits, rather than four digits, to define the applicable year. Any of
the programs used in the Company's operations that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations, causing disruptions
of operations including, among other things, a temporary inability to process
transactions, billing and customer service or to engage in similar normal
business activities.
The Company is conducting a comprehensive review of its computer systems to
ensure that all such systems are, or prior to the end of 1999 will be, Year 2000
compliant. The Company's plan for its Year 2000 project includes the following
phases: (i) conducting a comprehensive inventory of the Company's internal
systems, including information technology systems and non-information technology
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<PAGE>
systems (which include switching, billing and other platforms and electrical
systems) and the systems acquired or to be acquired by the Company, (ii)
assessing and prioritizing any required remediation, (iii) remediating any
problems by repairing or, if appropriate, replacing the non-compliant systems
and (iv) testing all remediated systems for Year 2000 compliance. The Company
has also retained a Year 2000 solution provider as a consultant to assist the
Company in its assessment and remediation projects and to manage and coordinate
Year 2000 compliance for each of the Local Operators on a global basis.
In addition to assessing its own systems, the Company is conducting an
external review of its vendors and suppliers, including equipment and systems
providers and other telecommunications service providers, to determine their
vulnerability to Year 2000 problems and any potential impact on the Company.
Based on preliminary discussions with L.M. Ericsson A.B. ("Ericsson"), the
Company's primary equipment vendor, the Company believes that the equipment
provided to the Company by Ericsson will be Year 2000 compliant. The Company may
experience problems to the extent that other telecommunications carriers whose
services are resold by the Company or to which the Company sends traffic for
termination are not Year 2000 compliant. There can be no assurance that such
problems will not have a material adverse effect on the Company.
The Company expects to complete all of the phases of the process described
above by June 30, 1999 and further expects that all of its computer systems will
be fully Year 2000 compliant before the end of 1999. There can be no assurance,
however, that the Company will achieve full Year 2000 compliance before the end
of 1999 or that effective contingency plans will be developed or implemented. A
failure of the Company's computer systems or the failure of the Company's
vendors or customers to effectively upgrade their software and systems for
transition to the year 2000 could have a material adverse effect on the
Company's business, financial position and results of operations.
The Company has completed numerous acquisitions during recent periods and
is in the process of integrating the systems of the acquired businesses into the
Company's operations. Those systems are included in the Company's Year 2000
review and remediation project. The Company expects to complete additional
acquisitions prior to the end of 1999. During the process of evaluating
businesses for potential acquisition, and after any such acquisitions, the
Company will evaluate the extent of the Year 2000 problems associated with such
acquisitions and the cost and timing of remediation. No assurance can be given,
however, that the systems of any acquired business will be Year 2000 compliant
when acquired or will be capable of timely remediation.
The Company estimates that it will incur costs of between $7 million and
$10 million to become Year 2000 compliant, although the Company's evaluation of
the Year 2000 problem is not yet complete and actual costs may be significantly
higher. Costs associated with software modification are expensed by the Company
when incurred. None were incurred as of September 30, 1998.
Following the completion of the Company's Year 2000 assessment, the Company
plans to determine the nature and extent of any contingency plans that may be
required. Even if the Company's assessment is completed without identifying any
additional material non-compliant systems operated by, or in the control of, the
Company, or of third parties, the most reasonably likely worst case scenario
would be a systems failure beyond the control of the Company to remedy. Such a
failure could materially prevent the Company from operating its business. The
Company believes that such a failure would likely lead to lost revenues,
increased operating costs, loss of customers or other business interruptions of
a material nature, in addition to potential claims of, among other things,
mismanagement, misrepresentation or breach of contract. See "Risk
Factors--Dependence on Effective Information Systems," "--Year 2000 Technology
Risks," "Business--North American Operations--U.S. Operations" and "--European
Operations--General."
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<PAGE>
BUSINESS
OVERVIEW
The Company is a rapidly growing multinational telecommunications company
which provides a broad array of services, with a focus on international long
distance voice services, to small and medium-sized businesses in key markets.
The Company's services include international and national fixed and wireless,
calling card, fax, data, Internet, private line and other value-added
telecommunications services. The Company began operations in the United States
in 1995 and has since grown rapidly through acquisitions, strategic investments,
joint ventures and alliances and the start-up of its own operations in key
markets. The Company generates revenue in 19 countries in which approximately
70% of all international long distance telecommunications minutes were
originated in 1997.
COMPANY OPERATIONS
The Company conducts its operations in four principal regions: North
America, Europe, Asia/Pacific Rim and Latin America. The Company has developed a
different strategy for each region, driven in part by the pace of local
deregulation.
The following table shows the Company's principal operations by country,
the principal subsidiary conducting such operations, the percentage of each such
subsidiary owned, directly or indirectly, 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>
DATE OF
COMPANY'S ACQUISITION OR COMMENCEMENT
PERCENTAGE START-UP OF
COUNTRY OPERATING ENTITY OWNERSHIP DATE(1) OPERATIONS(2)
- ---------------- ---------------------------------------------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
United States RSL COM U.S.A., Inc. ......................... 97%(3) March 1995 May 1990
United Kingdom RSL COM Europe Ltd. .......................... 100% August 1995 May 1996
Sweden RSL COM Sweden AB. ........................... 100% November 1995 May 1996
Finland RSL COM Finland Oy............................ 100% November 1995 May 1996
France RSL COM France S.A. .......................... 100% May 1996 January 1994
Germany RSL COM Deutschland GmbH...................... 100% May 1996 November 1993
The Netherlands RSL COM Nederland B.V. ....................... 100% October 1996 October 1995
Australia RSL COM Australia Holdings Pty. Limited....... 91.5%(3)(4) October 1996 April 1997
Denmark RSL COM Danmark A/S........................... 100% November 1996 May 1997
Japan RSL COM Japan K.K. ........................... 100% March 1997 July 1998
Portugal Maxitel Servicos e Gestao de Telecomunicacoes, 39% April 1997 November 1997
SA..........................................
Italy RSL COM Italia S.r.l. ........................ 99.3%(3)(5) August 1997 December 1997
Venezuela RSL COM Venezuela C.A. ....................... 51%(6) August 1997 May 1992
Austria RSL COM Austria AG............................ 90%(3)(7) August 1997 March 1998
Spain RSL Communications Spain, S.A. ............... 90%(3) December 1997 June 1998
Switzerland RSL COM Schweiz AG............................ 78.5%(3) December 1997 August 1996
Belgium European Telecom S.A./N.V. ................... 90%(3) December 1997 April 1995
Luxembourg European Telecom SARL......................... 90%(8) December 1997 June 1998
Canada RSL COM Canada Holdings, Inc. ................ 100% July 1998 March 1993
Mexico RSL COM Mexico, S.A. ......................... 41%(3)(6) August 1998 December 1998
</TABLE>
- ------------------
(1) Acquisition date refers to the Company's initial purchase of an interest in
the operating entity.
(2) Such date refers to the date upon which the operating entity began or is
currently projected to begin generating revenues from the sale of its
facilities-based international telecommunications services, although certain
of the operating entities may have been generating revenues from other
activities prior to the date of the Company's investment herein. Projected
dates are forward-looking statements and there can be no assurance that such
operations will commence generating revenues on such dates, if at all, in
the event that, among other things, the Company does not receive regulatory
approval on a timely basis, switches cannot be installed or become
operational on a timely basis or the Company is unable to hire necessary
personnel.
(Footnotes continued on next page)
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(Footnotes continued from previous page)
(3) Minority shareholders have certain rights to acquire Class A Common Stock.
Any exercise of such right would result in an increase in the Company's
ownership interest in the relevant subsidiary to up to 100%. See "Certain
Rights to Acquire Class A Common Stock."
(4) RSL COM Asia Limited ("RSL Asia"), a 91.5% owned subsidiary of the Company,
owns 100% of RSL COM Australia Holdings Pty Limited ("RSL Australia").
(5) In July 1998, as a consequence of a capital increase in RSL Com Italia
S.r.l. ("RSL Italy") that was funded by the Company but not by the minority
shareholders of RSL Italy, the Company's interest in RSL Italy was increased
to 99.3%. Beginning on July 14, 2000, however, RSL Italy's minority
shareholders will have a call option which would reduce the Company's
ownership interest in RSL Italy to 85% of (i) the entire capital, if at that
time RSL Italy will have no additional shareholders, or (ii) the capital
then held in the aggregate by the Company and the present minority
shareholders, if at that time RSL Italy will have additional shareholders.
(6) RSL COM Latin America, Ltd. ("RSL Latin America"), a 51% owned subsidiary of
the Company, owns (i) 100% of RSL COM Venezuela C.A. and (ii) 80% of RSL COM
Mexico, S.A.
(7) The Minority Interestholder (as defined herein) of RSL COM Austria AG ("RSL
Austria") was granted the right to increase his ownership interest in RSL
Austria to up to 24.9%, subject to certain conditions, which have been
satisfied. The Company is in the process of evaluating the number of shares
of RSL Austria required to be issued to such Minority Interestholder.
(8) European Telecom S.A./N.V. ("RSL Belgium"), a 90% owned subsidiary of the
Company, owns 100% of European Telecom SARL ("RSL Luxembourg").
NORTH AMERICA. The Company began operations in the U.S. in 1995 through RSL
USA. The U.S. is the largest and one of the most deregulated telecommunications
markets in the world. Through acquisitions and the development of existing
infrastructure, the Company has diversified its customer base and increased the
scale of operations in the U.S. to compete more effectively with larger
telecommunications services providers. In connection with this expansion, the
Company has hired additional experienced management, implemented new managerial
and financial controls and introduced a new marketing plan with an emphasis on
cross-selling services.
Through recent acquisitions, the Company has enhanced its U.S. network and
expanded the range of services offered to its customers. In July 1998, the
Company acquired the business of Westinghouse Communications ("WestComm") from
CBS Corporation for $90 million. WestComm provides voice telephony, data
services (including frame relay and TCP/IP networks) and Internet access to a
customer base consisting primarily of small to medium-sized businesses through a
network of six national switches. The Company is integrating WestComm's network,
complementary customer base and sales and distribution channels with the
Company's existing operations, and plans to offer to certain existing customers
the expanded range of WestComm services, including data and Internet services.
In addition, the Company has recently expanded its North American
operations and, as a result, will soon be able to terminate traffic on RSL-NET
in certain regions of Canada and Mexico, the two largest country destinations
for U.S. originated traffic. In July 1998, the Company acquired Westel
Telecommunications Ltd. ("Westel") from British Columbia Railway Company for
approximately $38 million. Westel is a telecommunications company that provides
a broad range of enhanced telecommunications services, including long distance,
data, private line and Internet access throughout British Columbia. Also, the
Company, through certain subsidiaries of RSL Latin America, has entered into
agreements for the acquisition of switches and fiber optic cable covering 14
cities in Mexico, which are expected to be fully installed by the end of 1998.
EUROPE. The Company began European operations in 1996, when many Member
States of the EU were in the initial stages of deregulation, and currently has
operations in 14 countries in Europe. In anticipation of deregulation, the
Company has established a significant presence in most major EU markets through
a series of acquisitions. Pursuing its "first to market" entry strategy, the
Company has made significant investments in advance of customer acquisition to
establish operations, retain qualified personnel and build a recognized brand
name. In the fully deregulated European markets in which it operates, the
Company (i) has been permitted to interconnect its switches directly with the
local exchange network, instead of through more expensive means, such as leased
lines or dial-in access, and (ii) has linked, or is in the process of linking,
with RSL-NET through owned international transmission facilities directly,
instead of entering into long-term lease agreements for international capacity
at a high fixed cost or purchasing per-minute of use termination rates from the
dominant
40
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carrier. The Company will continue to make significant investments to acquire
its own international transmission facilities where such facilities are
available and ownership of such facilities is cost effective and warranted by
traffic patterns.
The Company has recently completed a number of alliances and acquisitions
in Europe that will significantly expand its distribution channels and broaden
its customer base and product offerings. In June 1998, the Company entered into
a marketing and distribution services agreement with Metro Holding AG ("Metro
Holding"), the management holding company for Metro AG, one of the largest
retailers in Europe. Under this agreement, Metro Holding will assist the Company
in promoting, marketing, selling and distributing the Company's services through
Metro AG's wholesale and retail operations in Europe. This arrangement is
designed to provide the Company access to Metro AG's extensive distribution
network and customer base (which includes a large number of small and medium-
sized businesses) and is expected to significantly accelerate the Company's
penetration into key European markets. In connection with its alliance with the
Company, Metro Holding initially acquired a 12.5% equity interest (with an
option to acquire an additional 7.5% interest) in RSL Europe. Subsequently,
Metro Holding converted all of its interest in RSL Europe (including its option)
into 1,607,142 shares of Class A Common Stock and purchased an equal number of
Class A Common Stock from certain shareholders of the Company. In the aggregate,
Metro Holding acquired approximately 7.2% of the outstanding stock of the
Company, which it is required to hold until at least April 1, 2001.
In May 1998, the Company acquired a minority interest in Telegate Holding
GmbH ("Telegate Holding"), the management holding company for Telegate AG
("Telegate"), Europe's third largest directory information provider, for
approximately $33.6 million. Metro Holding and certain of its affiliates also
own a minority interest in Telegate Holding. The Company, together with
Telegate, plans to expand Telegate's services and provide international
directory services and call completion throughout Europe utilizing RSL-NET. The
Company will, in certain circumstances, be required to issue shares of Class A
Common Stock to Metro Holding and its affiliates in exchange for their interests
in Telegate Holding (the "Telegate Exchange"). See "Risk Factors--Shares
Eligible for Future Sale," "Certain Rights to Acquire Class A Common Stock" and
"Shares Eligible for Future Sale."
In August 1998, the Company acquired the business of Motorola Tel.co in the
United Kingdom, Germany and Belgium from Motorola Inc. for approximately
$68.1 million. Motorola Tel.co resells wireless services and related products in
these countries to a base of over 360,000 subscribers. This transaction
significantly increases the number of direct customer relationships in Europe
and will allow the Company to cross-sell long distance and wireless services.
In January 1998, the Company purchased 90% of the equity of Telecenter Oy
("Telecenter"), an independent sales agent in Finland, for approximately $30.5
million.
ASIA/PACIFIC RIM. Most markets in the Asia/Pacific Rim region are in the
earliest stages of deregulation, with the notable exception of Australia, which
is at a significantly more advanced stage of deregulation. The Company began
operations in Australia in April 1997 and has established a significant presence
in that market. The Company also initiated start-up operations in Japan in July
1998.
In March 1998, the Company acquired the customer base of First Direct
Communications Pty, Limited ("First Direct") and Link Telecommunications Pty.
Ltd. ("Link"), two switchless mobile telecommunications resellers, for
approximately $18.0 million.
The Company is evaluating acquisition opportunities in other Asia/Pacific
Rim markets consistent with its global strategy.
LATIN AMERICA. Most markets in Latin America are in the earliest stages of
deregulation. The Company's strategy is to develop, through local operating
companies formed in conjunction with local partners, a pan-Latin American
network and operations spanning Central and South America and the Caribbean. In
mid-1997, the Company formed a joint venture to pursue this strategy with
entities
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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. Revenues for 1997 from the
Company's Latin American operations accounted for less than 1% of the Company's
consolidated revenues for 1997.
INDUSTRY OVERVIEW
International telecommunications involve the transmission of voice and data
from the domestic telephone network of one country to that of another. According
to industry sources, international long distance switched telecommunications
traffic worldwide increased from 28 billion minutes in 1989 to 81.8 billion
minutes in 1997 and is projected to reach between approximately 128.7 and
158.6 billion minutes by the year 2001. The market for these services is highly
concentrated in more developed countries, with Europe and the United States
accounting for approximately 41% and 28%, respectively, of the international
long distance telecommunications minutes originated worldwide in 1997.
The International telecommunications industry has experienced a compounded
growth in total minutes of 14.3% per annum from 1989 to 1997. The industry has
been undergoing rapid change due to the continued deregulation of the
telecommunications market, the construction of additional infrastructure and the
introduction of new technologies, which has resulted in increased competition
and demand for telecommunications services worldwide. Forecasts by the
International Telecommunication Union (the "ITU"), a worldwide
telecommunications organization under the auspices of the United Nations,
projects this trend to continue with an annual growth rate between approximately
12% and 18% through the year 2001.
The size of each market of international long distance call origination in
which the Company currently operates or is in the process of commencing
operations, based on minutes of traffic originated in 1997, is set forth below.
The Company believes that it has a market share of significantly less than 1% in
each of these markets.
<TABLE>
<CAPTION>
MILLIONS OF PERCENTAGE OF 1997
COUNTRY OF MINUTES OF USE GLOBAL INTERNATIONAL
OPERATION ORIGINATED(1) TRAFFIC ORIGINATED
- ------------------- -------------- --------------------
<S> <C> <C>
USA................ 22,700 27.8
UK................. 5,800 7.1
Germany............ 5,333 6.5
Canada............. 4,286 5.2
France............. 3,545 4.3
Italy.............. 2,352 2.9
Switzerland........ 2,164 2.6
Japan.............. 1,792 2.2
The Netherlands.... 1,535 1.9
Australia.......... 1,510 1.8
Belgium............ 1,340 1.6
Mexico............. 1,200 1.5
Spain(2)........... 1,189 1.5
Sweden............. 1,140 1.4
Austria............ 996 1.2
Denmark............ 628 0.8
Portugal........... 393 0.5
Finland............ 372 0.5
Luxembourg......... 249 0.3
Venezuela.......... 159 0.2
------ ------
58,683 71.8%
</TABLE>
(Footnotes on next page)
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(Footnotes from previous page)
- ------------------
(1) All data, with the exception of U.S. outbound traffic, were taken from
Telegeography 1999, which is published by Telegeography, Inc. and the
International Telecommunication Union (the "ITU"). U.S. data were derived
from FCC Rule Section 43.61 filings which are publicly available.
(2) Minutes for Spain reflect 1996 traffic.
The increasing pace of deregulation in telecommunications is evidenced by
the recent GBT Agreement. The GBT Agreement, signed by 69 countries, calls for
relaxed restrictions on foreign ownership and a commitment to deregulate
telecommunications and allow competition. Of the 69 signatories to the GBT
Agreement, 65 have agreed to adopt certain regulatory principles which call for
deregulation of telecommunications markets and the initiation of competition
based on the following actions: (i) pro-competitive regulation, (ii) creation of
favorable interconnect terms, (iii) standard licensing criteria, (iv)
establishment of an independent regulator, and (v) non-discriminatory allocation
of scarce resources (e.g., rights of way, frequencies, telephone numbers). Each
of the signatory nations which adopted these principles has set a different
timetable for the enactment of such principles, although there can be no
assurance of when or if such principles will be enacted. In November 1997 the
FCC revised its rules to implement commitments made by the U.S. under the GBT
Agreement.
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 and IP networks through the use of special access servers,
although the quality of the call is not yet comparable to the quality of calls
made over traditional cable lines. In part as a result of these technological
innovations, lack of capacity is a less significant barrier to entry for new
international telephone companies and the transmission costs per minute of an
international call have decreased substantially.
Deregulation and privatization of telecommunications services and the onset
of competition have also resulted in (i) the broadening of service offerings,
including advanced and enhanced services (such as global voicemail, faxmail and
electronic mail, itemized and multicurrency billing and the ability to allow
customers to pay for long distance calls made from any telephone using a single
account (e.g., calling cards)) and (ii) lower end-user prices. These factors
have contributed to an increase in the 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.
U.S. INTERNATIONAL LONG DISTANCE MARKET
The U.S. international long distance switched telecommunications market
accounted for approximately 28% of global international long distance call
originations in 1997 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 1990 to
approximately $13.9 billion (18.9 billion minutes) in 1996. The growth of the
U.S.-originated international long distance market was initially attributable to
deregulation and the decrease in prices which accompanied the onset of
competition. Deregulation and the resulting competition also led to improvement
in service offerings and customer service. More recently, in addition to further
U.S. deregulation, the growth of the U.S.-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.
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The profitability of the traditional U.S.-originated international long
distance market is principally driven by the difference between settlement rates
(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. 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.
EUROPEAN INTERNATIONAL LONG DISTANCE MARKET
The European international long distance market is the largest in the
world, accounting for approximately 33 billion minutes or approximately 41% of
minutes of use originated in 1997.
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 some European markets are not able to
obtain a number of value-added features taken for granted in the United States,
such as itemized billing, touch tone dialing, voice mail and other enhanced
services. Deregulation, together with significant advances in technology that
have decreased the cost of providing services and allowed the provision of more
sophisticated value-added features, have made it possible for other telephone
companies to compete with the PTTs in providing international voice
telecommunications services.
A 1990 EC directive (the "1990 Directive") required each Member State to
liberalize by 1992 all telephony services offered over its PSTN, with the
exception of basic "voice telephony" and specified other services. The effect of
the 1990 Directive was that value-added services and the delivery of voice
telephony to closed user groups (i.e., to a specified group of people) were
liberalized to the extent that they do not come within the 1990 Directive's
definition of basic "voice telephony." Different interpretations as to whether a
service should be regarded as a value-added service or as a basic "voice
telephony" service, and as to what constitutes a closed user group, have led to
variations among the Member States as to what services may be delivered and the
manner in which they can be provided. In addition, certain Member States are
late in enacting the relevant legislation implementing the 1990 Directive, which
has created further regulatory uncertainty. Under a 1996 EC directive (the "Full
Competition Directive"), Member States were required to liberalize "Open Voice
Telephony Services," effective January 1, 1998, except for certain Member States
who were granted extentions for a specified period of time. However, some of the
EU countries in which the Company operates did not meet the January 1, 1998
requirement of the Full Competition Directive and there can be no assurance
regarding the timing or extent of liberalization in any particular country or
the EU in general. See "--European Operations--General" for a more detailed
discussion of the Full Competition Directive and related regulatory matters.
In response to these European regulatory changes, a number of different
competitors, including the Company, are emerging to compete with the European
PTTs. At one end of the scale, the large U.S. telecommunications service
providers and European PTTs have begun to form "mega-carrier" alliances to
compete in offering value-added services and the resale of calling services
across Europe. At the other end of the scale, a number of competitors have
emerged that primarily provide long distance "call back" telephone service.
Other companies are developing networks in Europe to service specific markets.
The Company believes, along with many industry observers, that the
deregulation currently underway in many countries in continental Europe will
lead to market developments similar to those that occurred in the United States
and the United Kingdom upon deregulation of long distance telecommunications
services. Such deregulation in the United States and the United Kingdom has
resulted in an increase in call traffic and the emergence of multiple new
telecommunications services providers of varying sizes. In addition, significant
reductions in prices, particularly for domestic long
44
<PAGE>
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.
ASIA/PACIFIC RIM INTERNATIONAL LONG DISTANCE MARKET
Deregulation is spreading throughout many of the major markets in Asia and
the Pacific Rim. A significant number of countries in these regions are
signatories of the GBT Agreement and have committed to open their markets to
competition. Australia, the Philippines and New Zealand have already opened
their markets to full competition and Hong Kong, Indonesia, Japan, South Korea
and Malaysia have legalized the provision of value added services. Singapore
licensed two new operators in 1998.
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 has granted two
long distance operating licenses to local companies, ending the monopoly of
Colombia's PTT. In addition, various Latin American countries have completely or
partially privatized their national carriers, including Argentina, Brazil,
Chile, Mexico, Peru and Venezuela. Venezuela has also legalized value-added
services and has targeted January 1, 2000 as the date for deregulation. Brazil
privatized its PTT, Telebras, in July 1998, and has also established an
independent regulator, ANATEL, to oversee its telecommunications industry.
In Mexico, the former PTT has been privatized and its exclusive long
distance concession was modified in 1990 to allow other participants to render
long distance services as of August 1996. Additionally, the PTT has been
required to interconnect with the networks of competitors since January 1997.
Competition in Mexico has been initiated and an independent regulator has been
established.
Peru opened its market to competition in August 1998, ending the monopoly
of its PTT, Telefonica del Peru, one year earlier than scheduled.
OTHER MARKETS
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.
45
<PAGE>
INTERNATIONAL LONG DISTANCE MECHANICS
A long distance telephone call generally consists of three segments:
origination, transport and termination.
[Graphic]
A typical international long distance call originates on a local exchange
network or private line and is carried to the international gateway switch of a
long distance carrier. The call is then transported along a fiber optic cable or
a satellite connection to an international gateway switch in the terminating
country and finally to another local exchange network or private line where the
call is terminated. A domestic long distance call is similar to an international
long distance call, but typically involves only one long distance carrier, which
transports the call on fiber, microwave radio or via a satellite connection
within the country of origination and termination. Generally, only a small
number of carriers are licensed by a foreign country for international long
distance and, in many countries, only the PTT is licensed to provide
international long distance service. Although the Company is licensed or
otherwise permitted (or not prohibited) to operate as an international long
distance carrier in most of its current markets, the range of services that may
be offered pending further deregulation is, in certain countries, limited to
value-added services and closed-user group services. See "--European
Operations--General." Any carrier that desires to transport switched calls to or
from a particular country must, in addition to obtaining a license or other
permission (if required), enter into operating agreements or other arrangements
with the PTT or another international carrier in that country or lease capacity
from a carrier that already has such arrangements.
ORIGINATION
The Company can originate calls in all countries where it currently has
revenue-generating operations and route them to its local switch through a
dedicated telephone line between the customer and the Company's switch (commonly
known as "direct access"). In addition, depending on local regulations, the
Company can originate calls by using the PSTN. In the United States, all
licensed long distance carriers are provided with "equal access," which allows
such carriers to directly interconnect with the PSTN on the same basis. As a
result of equal access, all long distance calls from a customer are routed
directly to the Company's local switch without requiring the customer to dial
any special access numbers. This is accomplished by the local telephone company
in the customer's territory programming its network to direct all of the
Company's customers' long distance calls to the selected
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<PAGE>
switch. Outside the United States, certain restrictions require the Company to
utilize one of the following methods to originate a call via the PSTN.
PREFIX DIALING. Prefix dialing allows a customer to access the Company's
switch via the PSTN by dialing a multiple digit access code (the "prefix")
assigned to the Company prior to dialing the destination telephone number.
Prefix dialing requires direct interconnection with the operator of the PSTN,
typically the PTT or another major carrier, in order to allow the PSTN to
recognize the prefix and direct the call to the Company's switch. In order to
make the use of prefix dialing service transparent to the customer, the Company
can either program the customer's telephone system or install an auto-dialer
device to automatically dial the prefix on behalf of the customer when
appropriate. The auto-dialer device is purchased, installed and maintained by
the Company.
In Europe, prefix dialing is currently provided by all of the Company's
operations except in Portugal, The Netherlands, Italy, France and Spain, where
it is either not currently permitted or otherwise not implemented by the Company
in such countries. Prefix dialing was scheduled to be provided in the remainder
of the EU after January 1, 1998, when deregulation was required under the Full
Competition Directive, but such schedule has not been met and is unlikely to be
met, for the most part, until the end of 1998, at the earliest. See "Risk
Factors--Government Regulatory Restrictions." In France, RSL France has been
granted a four digit prefix by the French national telecommunications regulatory
authority and has received authorization, pursuant to article L33.1 and L34.1 of
the Postal and Telecommunications Code, to operate a public network. 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 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 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. A carrier from each country owns a half circuit of a cable,
essentially dividing the ownership of the cable extending between two countries
into two equal components. 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
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<PAGE>
holder and an owner of MIUs is that the IRU holder is not entitled to
participate in management decisions relating to the cable system. In the event
that the Company commences utilizing its remaining operating agreements, it will
have to either invest in additional IRUs or MIUs, or acquire satellite capacity,
to enable it to connect to a carrier in such countries. Additionally, any
carrier may generally lease circuits on a cable from another carrier with an MIU
or IRU. Satellite circuits are also obtained on a leased basis.
Traditionally, international long distance traffic is exchanged under
bilateral operating agreements between international carriers which own MIUs or
IRUs on the same fiber optic cable system in two countries or through leased
satellite capacity. Operating agreements provide for the termination of traffic
in, and return of traffic to, the carriers' respective countries at negotiated
accounting rates. Operating agreements typically provide that carriers will
return to their correspondents a percentage of the minutes received from such
correspondents ("return traffic"). In the United States, this percentage is set
by the FCC to be the relative ratio of U.S. inbound traffic to U.S. outbound
traffic to each country. In addition, operating agreements provide for network
coordination and accounting and settlement procedures between the carriers.
Accounting rates are reciprocal between each party to an operating
agreement. For example, if a foreign carrier charges a U.S. carrier $0.30 per
minute to terminate a call in the foreign country, the U.S. carrier would charge
the foreign carrier the same $0.30 per minute to terminate a call in the United
States. All U.S. carriers face a single accounting rate for each country unless
otherwise permitted by the FCC.
The term "settlement" rates arises because carriers pay each other for
traffic exchanged utilizing the accounting rate structure on a net basis
determined by the difference between inbound and outbound traffic between them.
Settlement rates differ between countries. For example, a U.S. carrier may have
a settlement rate of $.30 to terminate a call in one country and $.35 in another
country while a U.K. carrier may have settlement rates of $.45 and $.40 to
terminate calls in the same countries. By linking its Local Operators over owned
and leased facilities, the Company bypasses this traditional settlement process
and lowers its cost of transporting its international traffic.
The FCC has established a policy that effectively prohibits foreign
carriers from discriminating among U.S. carriers (the "International Settlements
Policy"). The International Settlements Policy requires: (1) the equal division
of accounting rates; (2) non-discriminatory treatment of U.S. carriers; and
(3) proportionate return of inbound traffic. In December 1996, the FCC modified
its rules to allow alternative payment arrangements that deviate from the
International Settlements Policy between any U.S. carrier and any foreign
correspondent in a country that satisfies the FCC's effective competitive
opportunities test. The FCC also stated that it would allow alternative
settlement arrangements between a U.S. carrier and a foreign correspondent in a
country that does not satisfy the effective competitive opportunities test, if
the U.S. carrier can demonstrate that deviation from the International
Settlements Policy will promote market-oriented pricing and competition while
precluding abuse of market power by the foreign correspondent. For further
information regarding settlement rates, see "--North American Operations--U.S.
Operations--Regulatory Environment."
The GBT Agreement requires signatories to open their telecommunications
markets to competition. Consistent with the commitments made by the U.S. under
the GBT Agreement, the FCC has revised its rules to establish an open entry
standard for applicants from World Trade Organization member countries seeking
authority to provide international telecommunications service in the U.S., and
has adopted a rebuttable presumption that the U.S. affiliates of a foreign
carrier with less than 50% market share in its home market should be treated as
non-dominant. These open entry policies will apply to applicants of all World
Trade Organization member countries, including those who are not signatories to
the GBT Agreement.
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.
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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 Communications Corporation 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."
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.
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 strategy is to capitalize on the growth, deregulation and
profitability of the international long distance market. The key elements of
this strategy are as follows:
FOCUS ON PROVIDING INTERNATIONAL LONG DISTANCE SERVICES
The international long distance public switched telecommunications market
generated an estimated $65.9 billion in revenue and 81.8 billion minutes in
1997. Minutes of use are projected to grow at a rate of between approximately
12% and approximately 18% per annum through the year 2001, while prices are
expected to decline, resulting in substantially slower growth in revenues. The
Company currently has significantly less than a 1% share of this market. 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
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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 1996 for U.S.-originated
traffic averaged $.31 per minute of international use, compared to a 1995 gross
profit of $.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 1996, per minute settlement
payments by United States based carriers to foreign PTTs fell approximately 39%
from $.70 to $.43. In September 1997, the FCC adopted new lower benchmark rates
for these settlement payments. Despite declining costs, dominant carriers and
PTTs have maintained high end-user rates for international long distance
services, allowing them to provide domestic services at lower rates. The Company
believes that as settlement rates and costs for purchased capacity continue to
decline, international long distance should continue to provide high revenue and
gross profit per minute, although increased competition may, to a certain
extent, moderate such revenues and gross profits. The foregoing is a
forward-looking statement and there can be no assurances in this regard. See
"--Industry Overview."
IDENTIFY AND ENTER KEY MARKETS AHEAD OF FULL DEREGULATION
The Company seeks to identify markets that originate or terminate
significant levels of international traffic and are being deregulated. The
Company then seeks to enter these markets ahead of full deregulation to gain
competitive advantages over carriers that enter after deregulation is complete.
These advantages include (i) developing multiple sales and distribution channels
and a customer base prior to widespread competition, (ii) acquiring experienced
management, including technical and marketing personnel, and (iii) achieving
name recognition as an early competitor to the incumbent PTTs. The Company's
Local Operator in each market is managed independently, with centralized
strategic, financial and network support. The Company expects each Local
Operator to be independently profitable.
The Company believes that its early entry into deregulating markets has
provided, and will continue to 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 itself cannot secure successfully the license.
In countries that are in the process of deregulating, competition is often
restricted to a limited number of specific services. In such cases, the Company
employs a two-stage market penetration strategy whereby initially the Company
takes advantage of current market conditions and, within the context of its
established strategy and service offerings, provides the fullest range of
services permissible under local regulation. The Company thereby gains an early
toehold in the market, affording it the opportunity to become a recognized
international carrier and to begin to build its own marketing channels and
customer base prior to the opening of markets to broader competition.
Subsequently, as deregulation permits, the Company expands its service
offerings, thereby giving the Company the opportunity to increase the amount of
business it does with its existing customers and to increase its market
penetration by building on its name recognition, marketing channels and expanded
service offerings to attract additional customers. However, there can be no
assurance regarding the timing or extent of deregulation in any particular
country. See "Risk Factors--Government Regulatory Restrictions."
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TARGET SMALL AND MEDIUM-SIZED BUSINESSES
The Company focuses on offering high quality products and services to small
and medium-sized businesses that originate in excess of $500 per month in
international telephone calls. The Company believes that this segment accounts
for a significant percentage of international calling traffic in most markets
and offers significant market opportunities because it has traditionally been
underserved by the major global telecommunications carriers and the PTTs. By
offering a broad range of interrelated services and continuing its commitment to
provide high quality customer service, the Company seeks to strengthen its
direct relationships with a diverse and rapidly growing customer base and build
customer loyalty.
Small and medium-sized businesses account for the majority of all
businesses. For example, the EU estimated in 1996 that there were 15 million
small and medium-sized businesses in the EU and that businesses that employ
fewer than 100 workers in the aggregate accounted for more than one half of all
EU employment and almost half of all business revenue. In addition, Europe's
small to medium-sized businesses were projected to produce total
telecommunications revenues larger than those of the major multinational
business sector. For the six-month period ended June 30, 1998, approximately 25%
of the Company's revenues were derived from sales to other carriers, 57% were
derived from commercial customers, including small and medium-sized businesses,
and 18% were derived from calling card customers.
BUILD A COST COMPETITIVE GLOBAL NETWORK
By integrating its current and future owned switching facilities, known as
points of presence ("POPs"), into RSL-NET, the Company believes that it will be
able to originate, transport and terminate traffic utilizing its own network,
thereby bypassing the high costs associated with the transport of the
international portion of a call through a third party carrier. Substantially all
of the Local Operators have network switching facilities to provide
international voice and other telecommunications services in their markets. The
Company currently connects its facilities principally by a combination of
ownership interests in fiber optic systems and private leased lines. The Company
intends to continue to make significant investments in its own fiber routes and
other transmission facilities where such facilities become available and if such
investments are cost effective and warranted by traffic patterns.
The Company uses what it believes is state-of-the-art technology in its
switching facilities. The Ericsson switches used by the Company allow the
Company to interconnect its switches to existing PTT and carrier networks around
the world and to develop new services and upgrade network software on an
efficient basis.
EXPAND MARKETING AND DISTRIBUTION CHANNELS
The Company will continue to develop marketing and distribution channels to
expand its customer base, particularly in its target market of small to
medium-sized businesses. The Company has been innovative in seeking marketing
partners to better identify potential customers and penetrate markets on a
cost-efficient basis. Also, the Company capitalizes on cross-selling
opportunities as it adds new customer bases and products through acquisitions
and strategic alliances. In addition, the Company plans to introduce a universal
brand image to create worldwide name recognition.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES
The Company 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 experienced management. In addition, the Company seeks to
enter into strategic alliances that the Company believes will enable an
accelerated and cost effective expansion of its business. Recent examples
include:
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o In June 1998, the Company entered into a marketing and distribution
services agreement with Metro Holding, the management holding company for
Metro AG, one of the largest retailers in Europe with 750 operating units
in 18 European countries. This arrangement is designed to provide the
Company access to Metro AG's extensive distribution network and customer
base and is expected to significantly accelerate the Company's
penetration into key European markets.
o In July 1998, the Company acquired the business of WestComm from CBS
Corporation for $90 million. WestComm provides voice telephony, data
services (including frame relay and TCP/IP networks) and Internet access
through a network of six national switches. The WestComm acquisition
expands the range of the Company's services and enhances its ability to
originate and terminate U.S. long distance traffic.
o In July 1998, the Company acquired Westel from British Columbia Railway
Company ("BC Rail") for approximately $38 million. Westel is a
telecommunications company that provides a brand range of enhanced
telecommunications services through British Columbia, including long
distance, data, private line and Internet access. Westel significantly
expands the Company's presence in Canada, which is one of the key
destinations of U.S. originated long distance traffic.
o In August 1998, the Company acquired the business of Motorola Tel.co in
the United Kingdom, Germany and Belgium from Motorola Inc. for
approximately $68.1 million. Motorola Tel.co resells wireless services
and related products in these countries to a base of over 360,000
subscribers. This transaction significantly increases the number of
direct customer relationships in Europe and will allow the Company to
cross sell long distance and wireless services.
LEVERAGE EXPERTISE OF MANAGEMENT TEAM
The Company has attracted experienced management from the
telecommunications industry to facilitate the integration of its regional
operations. Many of its key managers have had significant experience with
incumbent providers and early competitors in deregulating markets. In addition,
the Company generally retains key management in the companies it acquires. As a
result, the Company believes that it is well positioned to manage the
integration of acquisitions and the rapid growth of its customer base and
network infrastructure.
EXPAND INTERNET-BASED TELEPHONY AND ON-LINE SERVICE OFFERINGS
Through Delta Three, the Company seeks to expand its IP telephony service
offerings by increasing its investment in Internet gateway servers and expanding
its sales and marketing channels. Delta Three uses IP protocol as a transmission
standard for voice communications over the public Internet and private
intranets, extranets and dedicated leased lines, at substantially reduced
transmission and termination costs. Delta Three allows customers to place long
distance and international phone calls over Internet or IP networks using
standard telephones without requiring additional equipment. Delta Three also
offers prepaid calling card services, PC to phone and phone to PC services to
retail customers, and termination to wholesale customers. In addition to
offering IP telephony services, the Company plans to develop value added
services on the Internet and to provide on-line customer service and billing.
The Company believes that Delta Three positions the Company at the forefront of
the rapidly emerging IP telephony industry. See "Business--Delta Three
Operations."
NETWORK
The Company generally utilizes a single switch technology platform for its
international telephony gateway switches comprised of state-of-the-art Ericsson
AXE-10 switches. The Company believes that a single switch platform gives the
Company a strategic advantage in developing new services and allows the Company
to upgrade network software on a more efficient basis when compared to those
other global carriers that employ multiple switch technologies. The Company is
also pursuing alternative transmission technologies such as the Internet and
managed IP networks in order to minimize its operating costs. See "--IP
Telephony Operation--General."
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OWNED FACILITIES
The Company's owned facilities include switches and interests in
international fiber optic cable systems. The Company's 17 international
telephony gateway switches are located in New York, Los Angeles, London,
Stockholm, Paris, Frankfurt, Helsinki, Vienna, Milan, Copenhagen, Lisbon,
Sydney, Zurich and Tokyo. In addition, the Company operates 16 national switches
throughout its operations. The Company's existing international telephony
gateway switches conform to international signaling and transmission standards
provided for in International Telegraph and Telephone Constructive Committee
("CCITT") recommendations and allow the Company to interconnect its network to
existing PTT and carrier networks around the world while maintaining quality and
dependable services. The Company's switch and related equipment purchases have
been financed by Ericsson, and the Company believes it has developed a favorable
working relationship with Ericsson which will enable the Company to benefit from
Ericsson financing for future Ericsson purchases, although there can be no
assurance that this will be the case. The Company's switching facilities are
easily expandable to accommodate growth.
The Company also owns capacity on various international digital fiber optic
cable systems. The Company's United States operations currently own IRUs on the
CANUS-1, CANTAT-3, PTAT-1, NPC, RIOJA 2, ODIN 1, RIOJA 3, ODIN 2, APCN,
JASURAUS, FLAG (various segments), Estepona-Tetouan, Gemini, Americas 1, and
Taino-Carib undersea fiber optic cable systems and owns MIUs in the ANTILLAS I,
TAT-12/13 and Southern Cross submarine cable systems. The Company also owns
capacity on the CMC and MCC terrestrial (Japan) fiber optic cable systems. The
Company has currently committed to purchase capacity in the submarine fiber
systems of Japan--USA, Pan American, MAYA and TAT-14. The Company also is
currently in negotiations to purchase capacity for its United States operations
in the TPC-5, Guam--Philippines, R-J-K, AC-1, PC-1, PAC-1, MAC and FLAG
(additional segments) undersea fiber optic cable systems. The Company's Swedish
operation owns IRUs in the CANUS-1, CANTAT-3, SWE-FIN, SWE-Latvia and KATTEGAT-1
submarine cables. The Company's United Kingdom operation owns IRUs on the
UK-NL14, CANTAT-3 and PTAT-1, GEMINI, CANUS-1, UK-GER 6, RIOJA 2 and RIOJA 3
undersea fiber optic cable systems. The Company's Australian operation owns IRUs
in the APCN, JASAURUS, NPC and Southern Cross undersea fiber optic cable systems
and on the CMC and MCC terrestrial fiber optic cable systems.
The Company also, together with its joint venture partner in Mexico,
acquired switches and fiber cable covering 14 cities in Mexico, which are
expected to be fully installed by the end of 1998.
OPERATING AGREEMENTS
The Company's operating agreements provide the Company with 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 22 operating agreements (one of which allows the Company to transmit
traffic into three countries), which provide potential direct access to
Australia, Azerbaijan, Bolivia, Chile, Denmark, the Dominican Republic, Japan,
Jordan, Korea, Malaysia, Morocco, The Netherlands, New Zealand, Norway, the
Philippines, Russia, Srpska, Suriname, Sweden, Switzerland and the United
Kingdom. The Company currently only transmits and terminates traffic pursuant to
operating agreements in the Dominican Republic, the United Kingdom, Denmark, The
Netherlands, Russia, the Philippines and Norway. See "--U.S. Operations--U.S.
Network Architecture." The Company believes that these agreements constitute
significant assets and that the Company is one of only a limited number of
carriers within the United States that has been able to secure a significant
number of operating agreements with non-U.S. carriers. The Company's Swedish
operation currently utilizes two operating agreements which enable it to
exchange traffic with Denmark and Norway and the Company's Finnish operation
utilizes an operating agreement which enables it to exchange traffic with
Russia. 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.
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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.
While the Company intends to purchase or construct transmission facilities where
such facilities are available for purchase or may be constructed and such
purchase or construction is cost-effective and warranted by traffic patterns, a
significant percentage of its transmission facilities will continue to be
leased. 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,
each of which maintains separate least-cost routing systems. U.S. network
management is operated from the Company's facilities in New York, Los Angeles
and Pittsburgh. European network management is operated centrally from the
Company's switching center in London. See "Risk Factors--Risks Associated with
Rapidly Changing Industry," "--Dependence on Effective Information Systems" and
"--Year 2000 Technology Risks."
NETWORK STRATEGY
The Company has connected, or is in the process of connecting, its current
switches in all 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, MIUs or transmission capacity on a point-to-point fixed cost basis,
subject to local regulatory conditions. 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, IRUs, domestic circuits 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, according to
an FCC estimate in August of 1997, were up to 70% higher than the actual cost.
The Company expects that it will realize significant cost savings by routing an
increasing portion of its international traffic over its owned and leased
facilities as opposed to corresponding via operating agreements, in particular
once the markets in which the Company operates deregulate sufficiently to allow
interconnect. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Effect of Deregulation on European Cost of Services."
In addition, each of the Local Operators maintains an independent cost structure
for all other traffic. By directly linking its operations, the Company will be
better able to implement a least cost routing system. See "--International Long
Distance Mechanics," "Risk Factors--Short Operating History," "--Entrance into
Newly Opening Markets," "--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
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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 locally is accomplished through
transmission capacity leased on a per minute basis, except where the Company
provides private line service. As the Company's operations in a given country
grow, the Company generally will install additional POPs and invest in
transmission capacity (on a point-to-point fixed cost basis) to connect the new
POP to its international gateway switch. This will enable the Company to reduce
its dependence on relatively high cost-per-minute leases by reducing the
distance calls will travel over capacity leased on that basis.
PRODUCTS AND SERVICES
The Company offers a variety of fixed and wireless local, long distance and
international products and services to its customers, as well as certain
value-added services. Although the Company focuses on providing international
service, it also provides domestic long distance services, where permitted under
relevant regulations, to accommodate customer demands.
The Company provides the services described below to the extent permitted
by local regulation in each of its markets. See "Risk Factors--Government
Regulatory Restrictions" and "--Industry Overview," "--International Long
Distance Mechanics," "--North American Operations--U.S. Operations" and
"--European Operations--General."
LONG DISTANCE SERVICES
The Company provides domestic and international long distance services to
its customers. In nearly every country in which the Company operates in Europe,
the Company provides domestic long distance services. In the United States, the
Company is certified and tariffed or otherwise authorized to originate
intrastate, interexchange calls in 49 states and the District of Columbia and
can terminate calls throughout the United States.
PRIVATE LINE SERVICE
The Company can provide dedicated point-to-point connections to businesses
requiring dedicated private telephone lines for high volumes of voice and data
between the customer's offices in certain countries where the Company has
revenue generating operations.
CALLING CARDS
The Company's calling cards are either prepaid cards or post paid cards
(for which calls are billed in arrears). The Company's calling cards provide
international call access to or between many 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 a certain 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 in most of its existing
operations.
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 the United States, Sweden and Canada and, in the future,
intends to offer most of these services in all markets where it is allowed to do
so. The Company also intends to introduce the following services: (i)
video-teleconferencing, (ii) on-line billing services, (iii) consolidated
billing for all services offered by the Company, (iv) on-line directory
assistance, (v) on-line conference calling, and (vi) international directory
assistance. In addition, through
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Delta Three, the Company can offer international long distance voice service to
niche markets utilizing IP telephony 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. 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.
WIRELESS SERVICES
The Company provides wireless services to corporate, business and
residential subscribers. Through its agreements with network operators, the
Company provides subscribers with connection and access to wireless networks and
sells airtime services. The Company charges its subscribers for service
activation, monthly access, per-minute airtime and custom calling features, and
generally offers a variety of pricing options, most of which combine a fixed
monthly access fee and per-minute charges. Subscribers are also offered a wide
range of cellular telephones and accessories. Currently, the Company provides
wireless services in the United Kingdom, Germany, Belgium and Australia. The
Company intends to cross-sell long distance services to these subscribers.
DATA SERVICES
The Company offers a range of data transmission services to its customers
in certain countries, including frame relay, Internet access, remote access,
e-mail, packet switching, LAN integration and network and facilities management.
CUSTOMERS
SMALL AND MEDIUM-SIZED BUSINESSES. The Company focuses on offering high
quality products and services to small and medium-sized businesses with
significant international telephone usage (i.e., generally in excess of $500 per
month in international phone calls). The Company has focused on industries which
traditionally have significant volumes of international traffic. The Company
believes that small and medium-sized businesses have generally been underserved
by the major global telecommunications carriers and the PTTs, which have focused
on offering their lowest rates and best services primarily to higher volume
multinational business customers. The Company offers these companies
significantly discounted international calling rates as compared to the standard
rates charged by the major carriers and PTTs.
Small and medium-sized businesses account for the majority of all
businesses and the Company believes that in most markets they account for a
significant percentage of the international long distance traffic originated in
those markets. For example, the EU estimated that in 1996 there were 15 million
small and medium-sized businesses in the EU and that businesses that employ
fewer than 100 workers accounted for more than one half of all EU employment in
1996 and almost half of all business revenue. Consistent with that, it was
estimated in 1997 that in the United Kingdom, companies employing fewer than 250
people spent about $6 billion to $7 billion per year on telecommunications
services as compared to about $8 billion to $9 billion per year for businesses
employing in excess of 250 people and only $3 billion per year for the
multinationals.
CARRIERS. The Company offers international termination and transit traffic
services to other carriers, including resellers, on a wholesale basis, as a
"carriers' carrier." The Company's carrier customers as a group currently
provide the Company with a relatively stable customer base and thereby assist
the Company in projecting potential utilization of its network facilities. In
addition, the significant levels of traffic volume generated by such carrier
customers enable the Company to obtain large usage discounts based on volume
commitments. The Company believes that revenues from its carrier
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customers will continue to represent a significant portion of the Company's
overall revenues in the future. See "Risk Factors--Inability to Predict Traffic
Volume."
RESIDENTIAL CUSTOMERS. The Company targets residential customers in
neighborhoods with large immigrant populations and/or 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. Primarily as a result of the Westcomm acquisition, the
Company services a number of large corporations in the United States. The
Company also targets large corporations on those routes where the Company's cost
structure allows it to compete effectively. See "--North American
Operations--U.S. Operations."
MARKETING AND SALES
The Company has developed a wide range of marketing and distribution
channels focused on reaching a broad range of customers in the most
cost-effective manner. The Company markets its products and services through
(i) its direct sales forces, (ii) strategic alliances with companies that have
access to significant customer bases, (iii) networks of independent agents and
distributors, (iv) strategic alliances with resellers and (v) telemarketing
organizations. The Company's services are currently marketed independently by
the Local Operators in each country.
The Company continually seeks innovative ways to expand the scope of its
marketing channels and to enhance its ability to identify and retain customers.
For example, the Company has recently entered into a strategic alliance with
Metro Holding. The Company's alliance with Metro Holding will assist the Company
in promoting, marketing, selling and distributing the Company's services through
Metro AG's wholesale and retail operations in Europe. In addition, the Company
capitalizes on cross-selling opportunities as it adds new customer bases and
products through acquisitions and strategic alliances. Following its acquisition
of Motorola Tel.co, the Company intends to cross-sell its fixed wire and other
traditional long distance services to the Motorola Tel.co subscriber base and
Motorola Tel.co's wireless services to existing customers. The Company also
plans to introduce a universal brand image to create worldwide name recognition
for the Company.
Residential customers are targeted in neighborhoods with large immigrant
populations, utilizing resource materials and third party market research
companies, among other things, as resources for this information. Carriers
typically approach the Company directly to inquire about the Company's transit
and termination rates.
DIRECT SALES. Most Local Operators maintain their own direct sales force.
Generally, sales representatives are compensated primarily on a commission
basis. The Company intends to expand its direct sales force as it expands
existing operations and commences additional operations.
INDEPENDENT AGENTS. The Company also markets its services through an
indirect sales force comprised of independent agents. These agents include,
among others, companies which have a sales force or individuals marketing
related services such as telephone systems, copiers, fax machines or other
office equipment to the Company's targeted customer segments. The Company's
indirect sales force will be an increasingly important sales channel to access
the local market.
DISTRIBUTORS. The Company has relationships with a small number of
distributors in the United States as well as in certain countries in Europe for
the sale of prepaid cards and will seek such arrangements in its other markets.
In addition, through the acquisition of Motorola Tel.co, the Company has greatly
expanded its dealer network.
TELEMARKETING SALES. The Company's U.S. and European operations use the
services of independent telemarketing sales organizations in certain of their
markets. Telemarketing sales are targeted to cover small to medium-sized
business and niche residential customers. Commercial customers are offered long
distance services while residential customers are offered long distance services
and a blend of prepaid and similar products. The Company expects that its
telemarketing sales
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agents will become an increasingly important means to attract customers in
related markets, including in the U.S.
ON-LINE SALES. The Company intends to offer potential subscribers the
ability to subscribe on-line for the Company's services and to obtain on-line
billing, directory assistance and conference calling.
CUSTOMER MANAGEMENT
The Company strives to provide competitive pricing, high quality services
and superior customer care 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 Issuer directs the operations of its subsidiaries, including the
management of the growth of current operations, the expansion of operations into
new markets, the formation of potential joint ventures and strategic alliances
and the execution of acquisitions. Identification of key markets, determination
of the vehicles through which, as well as the manner in which, the Issuer will
enter such markets and oversight of the implementation of these plans is also
done at the Issuer level. The Issuer is continuously reviewing and considering
investment and acquisition opportunities. The Issuer 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
Issuer level, generally working together with local and regional management in
cases where the acquisitions supplement existing operations. In addition, the
Issuer seeks alliances with carriers to expand the scope of the Company's
network and improve its competitive profile.
The Issuer currently provides centralized financial services for all of the
Local Operators, including financial planning and analysis, cost control and
network management. The Issuer attempts to coordinate the acquisition of
additional transmission capacity (either leased or purchased) with the growth of
traffic volumes of each Local Operator. The Issuer assists in securing financing
and discounts for these expenditures as well as other capital expenditures
through its arrangements with particular vendors. The Issuer also maintains
global treasury functions, including the management of cash flows between the
Local Operators for the transmission of traffic between them, as well as the
allocation of working capital.
The Issuer expects to eventually link all of its switching facilities to a
central billing system administered at the Issuer level, and provide the billing
information to Local Operators which will then invoice the customers directly.
The invoice will be branded with the Issuer's name and will be payable to an
Issuer account in the Local Operator's country.
The Issuer 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 Issuer coordinates the routing of
traffic on RSL-NET to effect routing on a least cost basis. Least cost routing
involves the programming of the Issuer's switches to transport international
calls over the route which is most likely to produce the lowest cost to the
Issuer without compromising call quality. The Issuer consolidates the least cost
routing information of each of its Local Operators to allow them to take
advantage of each others' cost structure.
The Issuer is in the process of coordinating the marketing activities of
the Local Operators and plans to introduce a universal brand image to create
worldwide name recognition for the Issuer. In addition, the Issuer intends to
direct the service offerings of the Local Operators to enable the Issuer to
provide services to a single customer in more than one country. The Issuer
intends to then provide the
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customer with a single bill and designate a primary customer service
representative to address the customer's overall needs.
NORTH AMERICAN OPERATIONS
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 1996 were Canada, Mexico, the United Kingdom, Germany,
Japan, Hong Kong and France. The Company initiated its U.S. operations in March
1995 with its initial investment in RSL North America and has grown the business
significantly since then. The Company primarily operates in the United States
through RSL USA. 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's principal offices for its U.S.
operations are located in the New York, Los Angeles and Pittsburgh metropolitan
areas, and RSL USA maintains sales offices in 11 U.S. metropolitan areas.
During 1998, the Company acquired WestComm, which offers voice telephony
and data services (including frame relay and TCP/IP networks) and Internet
access to a customer base consisting primarily of small to medium-sized
businesses in the United States. WestComm operates six switches strategically
located in the United States and employs approximately 335 people. The Company
has the exclusive right to the use of the Westinghouse Communications brand name
and a non-exclusive right to the use of the Westinghouse logo in connection with
providing telecommunications services in the United States and Canada for three
years following the date of the acquisition.
SERVICES AND CUSTOMERS
The Company offers its customers in the United States international and
domestic long distance, private line, calling card, data, Internet access and
value added services. Since the first quarter of 1996, the Company has focused
its U.S. operations on providing international and domestic long distance
services to small and medium-sized businesses.
In addition, through RSL COM PrimeCall, Inc. ("RSL PrimeCall"), the Company
specializes in the provision of prepaid calling cards for niche ethnic markets.
MARKETING AND SALES
The Company markets its services and products in the United States through
a variety of channels, including direct sales and indirect sales through
independent agents and distributors and third-party telemarketing sales. The
Company's U.S. operations employ sales and marketing employees and have
relationships with master agents with an underlying network of independent
agents, distributors and telemarketing agents. The Company expects that its
telemarketing sales agents will become an increasingly important means to
attract customers in related markets, including in the U.S. In addition, the
Company employs a retail and wholesale sales force dedicated to the sale of
promotional post and prepaid card products. The Company currently employs
approximately sixty sales professionals experienced in designing and developing
integrated voice and data telecommunications solutions. The Company believes
that its engineering and network management capabilities, as well as its ongoing
service and support personnel, will allow it to attract and retain commercial
customers.
U.S. NETWORK ARCHITECTURE
The Company operates an Ericsson AXE-10 international gateway switch in New
York and Los Angeles. The Company's international telephony gateway switches
conform to CCITT recommendations and are directly connected to each other via
leased lines on a fixed cost, point-to-
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point basis. In 1998, the Company agreed to acquire an OC3 transport facility
from IXC Communications, Inc. for approximately $14 million. The Company also
operates seven domestic switches strategically located in the United States and
a prepaid card platform in New York. The Company's data network consists of a
Magellan Passport backbone with a ring network architecture for reliability. The
Magellan Passport network is connected to Telematics switches which concentrate
and collect the data from certain geographic regions in which the Company
conducts its business or, in some circumstances, from individual customers.
The Company's US operations own IRUs in the following fifteen undersea
fiber optic cable systems: CANUS-1, CANTAT-3, PTAT-1, NPC, RIOJA 2, RIOJA 3,
ODIN 1, ODIN 2, APCN, JASAURUS, FLAG (various segments), Estepona-Tetouan,
Gemini, America 1 and Taino-Carib systems. In addition, RSL USA owns MIUs on
three undersea fiber optic cable systems, which are the ANTILLAS I,
TAT-12/TAT-13 and Southern Cross systems. The Company also owns MIUs on the CMC
and MCC terrestrial (Japan) fiber optic cable systems. The Company has committed
to purchase capacity on the Japan-USA, Pan American, MAYA and TAT-14 undersea
fiber optic cable systems. The Company also is currently in negotiations to
purchase IRUs for its United States operations on the TPC-5, Guam-Philippines,
R-J-K, AC-1, PC-1, PAC-1, MAC and in the FLAG (additional segments) undersea
fiber optic cable systems.
The Company currently is a party to 22 operating agreements (one of which
allows the Company to transmit traffic into three countries), which provide
potential direct access from the U.S. to Australia, Azerbaijan, Bolivia, Chile,
Denmark, the Dominican Republic, Japan, Jordan, Korea, Malaysia, Morocco, The
Netherlands, New Zealand, Norway, the Philippines, Russia, the Republic of
Srpska, Suriname, Sweden, Switzerland 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 operating agreements in the Dominican
Republic, the United Kingdom, Denmark, The Netherlands, Russia, the Philippines
and Norway. The Company transmits call traffic bound for all other destinations
through leased capacity. The remaining operating agreements are inactive because
the Company has not yet invested in international transmission capacity for
those routes, in certain cases because call volume on such routes does not
warrant such an investment. By activating these operating agreements as well as
any additional operating agreements it may obtain, the Company believes it will
be able to significantly lower its costs of terminating international traffic.
The Company's failure to begin transmitting traffic pursuant to any such
operating agreement could lead to the termination of the agreement.
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 AS/400 hardware platform. The Company is utilizing
the EDS system in the U.S. to: (i) provide sophisticated billing information
that can be tailored to meet a specific customer's requirements, (ii) provide
high quality customer service, (iii) detect and reduce fraud, (iv) integrate
efficiently additions to its customer base and (v) provide real time traffic and
call detail management. The EDS IXPlus System is operated and maintained by the
Company in its Los Angeles office. The Company has also implemented a customer
care and trouble management system, as well as developed what it believes is 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'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
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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 billing and information systems purchased by the Company in
connection with its acquisition of WestComm are being integrated into the
Company's current operations.
The Company has reviewed the EDS IXPlus System in connection with the Year
2000 problem and the Company expects to receive from its vendor, at no
additional cost to the Company, a Year 2000 compliant version of the EDS IXPlus
System by the end of 1998. The Year 2000 compliant EDS system is expected to be
operational in early 1999. In addition, the Company's standardized desktop and
server configurations and software applications are already Year 2000 compliant.
See "Risk Factors--Dependence on Effective Information Systems" and "--Year 2000
Technology Risks."
COMPETITION
The Company competes with AT&T, Sprint, MCI WorldCom and other U.S.-based
and foreign carriers, many of which have considerably greater financial and
other resources than the Company. Certain of the larger U.S. 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 U.S. 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 competitors in the U.S.
market.
REGULATORY ENVIRONMENT
The Company's U.S. operations are subject to extensive federal and state
regulation. Federal laws and FCC regulations apply to interstate
telecommunications (including international telecommunications that originate or
terminate in the United States), while particular state regulatory authorities
have jurisdiction over telecommunications originating and terminating within the
state. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
domestic or international regulators or third parties will not raise material
issues with regard to the Company's compliance or noncompliance with applicable
regulations or that regulatory activities will not have a material adverse
effect on the Company.
FEDERAL. The FCC currently regulates the Company as a non-dominant carrier
with respect to both its domestic and international long distance services.
Generally, the FCC has chosen not to exercise its statutory power to closely
regulate the charges, practices or classifications of non-dominant carriers.
Nevertheless, the FCC acts upon complaints against such carriers for failure to
comply with statutory obligations or with the FCC's rules, regulations and
policies. The FCC also has the power to impose more stringent regulation
requirements on the Company, to change its regulatory classification, to impose
monetary forfeiture and to revoke its authority. In the current regulatory
atmosphere, the Company believes that the FCC is unlikely to do so with respect
to the Company's domestic service offerings. With respect to the Company's
international services, however, it is possible that the FCC could classify the
Company as dominant for the provision of services on specific international
routes on the basis of the Company's foreign ownership and affiliations or a
determination that the Company had the ability to discriminate against U.S.
competitors. In 1997, 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, 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 prices. Nonetheless, the FCC placed certain
conditions on AT&T's
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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, Australia, Sweden, The
Netherlands, Luxembourg, Norway, Denmark, France, Germany, Belgium, Austria,
Switzerland, Japan and the United Kingdom, and to provide international
telecommunication services by acquiring circuits on various undersea cables or
leasing satellite facilities. The FCC reserves the right to condition, modify or
revoke such domestic and international authority for violations of the
Communications Act or the FCC's regulations, rules or policies promulgated
thereunder. Although the Company believes the probability to be remote, a
rescission by the FCC of the Company's domestic or international authority or a
refusal by the FCC to grant additional international authority would have a
material adverse effect on the Company.
Both domestic and international non-dominant carriers must maintain tariffs
on file with the FCC. The Company must file tariffs containing detailed actual
rate schedules. In reliance on the FCC's past relaxed tariff filing requirements
for non-dominant domestic carriers, the Company and most of its competitors did
not maintain detailed rate schedules for domestic offerings in their tariffs, as
the FCC's rules currently require. Until the two year statute of limitations
expires, the Company could be held liable for damages for its past failure to
file tariffs containing actual rate schedules. The Company believes that such an
outcome is remote and would not have a material adverse effect on its financial
condition or results of operations. The Company has always been required to
include detailed rate schedules in its international tariffs.
In February 1996, the Telecommunications Act of 1996 was signed into law.
Under the Telecommunications Act, the RBOCs will be permitted to provide long
distance services in competition with the Company. The law includes safeguards
against anti-competitive conduct which could result from a RBOC having access to
all customers on its existing network as well as its ability to cross-subsidize
its services and discriminate in its favor against its competitors.
Except with respect to transit agreements, authorizations held under
Section 214 of the Communications Act (such as those held by the Company) for
international services are limited to providing services or using facilities
between the United States and countries specified in the authorizations. The
Company holds all necessary Section 214 authorizations for conducting its
present business but may need additional authority in the future. Additionally,
carriers may not lease private lines between the United States and an
international point for the purpose of offering switched services unless the FCC
has first determined that the foreign country affords resale opportunities to
United States carriers equivalent to those available under United States law.
The FCC has made such a determination with respect to New Zealand, Australia,
Canada, Sweden, The Netherlands, Luxembourg, Norway, Denmark, France, Germany,
Belgium, Austria, Switzerland, Japan 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 services. 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 telecommunications services. In light of the
disparate bargaining positions of the United States carriers, the FCC imposed
certain requirements to try to minimize the opportunities that dominant foreign
telecommunications providers would have to favor one United States carrier over
another. These policies include provisions of the International Settlement
Policy, which requires the equal division of accounting rates,
non-discriminatory treatment of U.S. carriers, and that return minutes from a
foreign carrier must be proportional to the traffic that the United States
carrier terminates to a foreign carrier. In
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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.
In September 1997, 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 of outbound and
inbound call volume. The settlement rate for terminating international calls was
estimated to be approximately 70% higher than the actual cost of terminating
international calls by the FCC in August of 1997. Three benchmarks were
established to fit the income level of foreign countries, with a low of $0.15
per minute for high income countries and a high of $0.23 per minute for low
income countries. Implementation periods, ranging from one year for high income
nations to five years for nations with less than one telephone line for every
100 inhabitants, were also adopted. The FCC also determined that it would
condition any carrier's authorization to provide international facilities-based
switched service from the United States to an affiliated market on the carrier's
foreign affiliate offering U.S. international carriers a settlement rate at or
below the relevant benchmark. If, after the carrier has commenced service to an
affiliated market, the FCC learns that the carrier's service offering has
distorted market performance, the FCC will take enforcement action. The new
benchmarks are intended to promote a competitive environment in which rates will
more closely reflect costs; officials also hope that the FCC's order will
encourage multilateral negotiations and lead to an international agreement to
reduce costs further.
The Commission's initiatives have had some measure of success: in the first
six months of 1998, the average accounting rate for calls originating from the
United States fell by 14.1%, almost doubling the rate of decline for the same
period in 1997. Moreover, an increasing number of foreign carriers, whose
countries account for over 50% of the total U.S. net settlement minutes, have
negotiated agreements with U.S. carriers that satisfy, or will satisfy, the
FCC's benchmark settlement rates.
The FCC has recently proposed to no longer require U.S. carriers to comply
with its International Settlements Policy with respect to arrangements between
U.S. carriers and foreign carriers that lack market power in WTO member
countries, and with foreign carriers in WTO member countries to which U.S.
carriers are authorized by the FCC to provide international simple resale. The
Commission has also proposed to modify its flexibility policy to allow carriers
to obtain authority to enter into flexible settlement arrangements for
agreements affecting less than 25% of the traffic on a particular route without
naming the foreign correspondent and without filing the terms and conditions of
the actual agreement.
The GBT Agreement, executed in February 1997, requires signatories to open
their telecommunications markets to competition. Consistent with the commitments
made by the U.S. under the GBT Agreement, the FCC has revised its rules to
establish an open entry standard for applicants from WTO member countries
seeking authority to provide international telecommunications service in the
U.S., and has adopted a rebuttable presumption that the U.S. affiliates of a
foreign carrier with less than 50% market share in its home market should be
treated as non-dominant. These open entry policies will apply to applicants of
all WTO member countries, including those who are not signatories to the GBT
Agreement.
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
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the Company to pay less than the full accounting rate it would have to pay if it
had a direct operating agreement with the terminating country. However, the
Company is unaware of any instance in which a terminating country has objected
with respect to any of the Company's traffic. If a terminating country objects
in the future to such transit arrangements, the Company may be required to
secure alternative arrangements.
STATE. The intrastate, long distance telecommunications operations of the
Company are also subject to various state laws, regulations, rules and policies.
Currently, the Company is certified and tariffed or otherwise authorized to
provide intrastate, interexchange service in 49 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. 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.
CANADIAN OPERATIONS
OVERVIEW
The Company operates in Canada through Westel and RSL COM Canada Inc. ("RSL
Canada") which operates the Canadian operations of WestComm. Westel began
commercial operations in Canada in 1993.
SERVICES AND CUSTOMERS
The Company offers its customers in Canada a broad range of enhanced
telecommunications services including long distance, data, private line and
Internet access throughout British Columbia and Southern Ontario, including
metropolitan Toronto. The Company's customer base in Canada consists of both
commercial and residential customers.
MARKETING AND SALES
The Company markets its services in Canada through a variety of channels,
including direct sales and indirect sales through independent agents and an
external telemarketing company, association groups and ethnic niche marketing.
CANADIAN NETWORK STRUCTURE
Westel operates a domestic switch in Vancouver. Westel leases capacity on
the network owned and operated by MK Network (as defined below) pursuant to a
long-term services agreement. MK Network employs a state-of-the-art Synchronous
Optical Network/Synchronous Digital Hierarchy microwave network adjacent to, and
extending beyond, the historical rail right-of-way of BC Rail. The network
employs a star configuration with a network operation center in Vancouver. This
low-cost network extends over 3,000 kilometers and serves 10 major population
centers including Greater Vancouver. In addition, Westel has installed an
Asynchronous Transfer Mode ("ATM") switching apparatus in six network nodes in
order to support its high speed data products.
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INFORMATION SYSTEMS AND BILLING
Westel's billing system, which was upgraded in 1996, provides it with the
ability, among other things, (i) to produce one invoice for multiple services
provided to a customer and (ii) to store and track customer usage. Westel's
critical information systems have been assessed for Year 2000 compliance and the
non-compliant systems are expected to be made compliant by the beginning of
1999.
COMPETITION
Westel's principal competitor in British Columbia is BC Telecom ("BCTel"),
the dominant local access and long distance provider in British Columbia. The
Company also faces competition from national telecommunications providers
including AT&T Canada Long Distance Services Company and Sprint Canada Inc., as
well as the separate regional telephone companies (similar to BCTel) in the
other provinces of Canada. The Company also faces increasing competition from
cable companies, such as Rogers Communications Inc. and Shaw Cable, cellular
service providers and Personal Communications Service (PCS) providers such as
Microcell Solutions, Mobility Canada and Clearnet.
REGULATORY ENVIRONMENT
The principal federal legislation governing telecommunications in Canada is
contained in the Telecommunications Act, effective as of October 1993 (the
"Telecom Act"). The Telecom Act defines a number of objectives of the Canadian
telecommunications policy, one of which is to promote Canadian ownership and
control of the telecommunications infrastructure. Generally, the Telecom Act
limits eligibility to operate as a telecommunications common carrier in Canada
to Canadian-owned and controlled corporations incorporated or continued under
the laws of Canada. The Radiocommunications Act (the "Radiocom Act"), which
governs the licensing and regulation of radio apparatus, has adopted the same
Canadian ownership and control restrictions set out in the Telecom Act. The
Telecom Act defines a "telecommunications common carrier" as a person owning and
operating transmission facilities (which is defined as any wire, cable, radio,
optical or other electromagnetic system for the transmission of
telecommunications services and which does not include switches).
The effect of the Telecom Act, the Radiocom Act and the regulations
promulgated under such Acts are to prohibit Canadian facilities-based carriers
from being controlled by non-Canadians and to set a maximum effective foreign
ownership level (directly and through a "qualified corporation" (as defined in
the regulations under the Telecom Act)) of such carriers at 46.7% of the voting
shares.
In compliance with the Telecom Act and the Radiocom Act, Westel transferred
(the "MK Network Transfer") its telecommunications facilities (as defined in the
Telecom Act) to MK Telecom Network Inc. ("MK Network"), an entity in which the
Company owns a 46.7% beneficial interest, effective as of the Company's closing
of the acquisition of Westel. MK Network is majority-owned and controlled, in
accordance with the Telecom Act and the Radiocom Act, by a Canadian citizen.
Concurrently with the consummation of the MK Network Transfer, Westel entered
into a long-term agreement with MK Network for the provision of
telecommunications services.
As a signatory to the WTO Agreement, Canada has agreed to end Teleglobe
Canada's monopoly on the sale of international long distance services to
customers in Canada commencing on October 1, 1998 with full deregulation
expected to be effective by the beginning of the year 2000. Since October 1,
1998, the Company has been permitted to file an application with the Canadian
Radio-television and Telecommunications Commission (the "CRTC") for the issuance
of an international telecommunications service license. The Company expects to
make such a filing. Upon issuance of such a license to the Company, the Company
intends to offer international long distance services to its customers in
Canada.
While the Canadian telecommunications market continues to move towards full
deregulation, the CRTC retains a critical regulatory function in Canada. As a
reseller of telecommunications services, Westel is required to register with the
CRTC and to comply with a variety of CRTC mandated obligations (including the
requirement to make contribution payments to support the affordability of
universal local services), but is not subject to any Canadian foreign ownership
and control restrictions.
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Unlike the U.S. telecommunications market, the Canadian telecommunications
market does not contain a mandated structural separation between the incumbent
local service providers and long distance service providers. However, the CRTC
has implemented certain non-structural safeguards to encourage competition in
the provision of long distance services. In particular, the CRTC has required
incumbent local access providers to (i) resell capacity on their underlying
local facilities to third party carriers and (ii) provide interconnection
arrangements to competing long distance providers. As a result of the ability of
the incumbent local access providers to maintain a virtual monopoly in the
provision of local services, these telecommunications companies have been able
to secure the largest market shares in their respective operating territories
for the provision of long distance services.
EUROPEAN OPERATIONS--GENERAL
OVERVIEW
The Company began European operations in 1996, when most Member States of
the EU were in the initial stages of deregulation, and currently has operations
in 14 countries in Europe. In anticipation of deregulation, the Company has
established a significant presence in most major EU markets through a series of
acquisitions commencing in 1995. Pursuing its "first to market" entry strategy,
the Company has made significant investments in advance of customer acquisition
to establish operations, retain qualified personnel and build a recognized name.
In the fully deregulated European markets in which it operates, the Company
(i) has been permitted to interconnect its switches directly with the local
exchange network, instead of through more expensive means, such as leased lines
or dial-in access, and (ii) has linked, or is in the process of linking, with
RSL-NET through owned international transmission facilities directly, instead of
entering into long-term lease agreements for international capacity at a high
fixed cost or purchasing per-minute of use termination rates from the dominant
carrier. The Company intends to make significant investments to acquire its own
international transmission facilities where such facilities are available and
ownership of such facilities is cost effective and warranted by traffic
patterns.
The Company has recently completed a number of alliances and acquisitions
in Europe that will significantly expand its distribution channels and broaden
its customer base and product offerings. See "--Overview--Europe."
INFORMATION SERVICES, SYSTEMS AND BILLING
RSL Europe has developed its own proprietary information and billing system
employing a Hewlett Packard 9000 UNIX server and a Sybase, Inc. ("Sybase")
developed customized software package (collectively, the "System"). The System
provides for billing, customer service, management information, financial
reporting and related functions. The Company has invested significant resources
into the development of the System and the Company's management worked closely
with Sybase to develop software which reflects the experiences of the Company's
management in the telecommunications industry. The System has been designed to
be easily integrated into the operations of each of its current, planned and
future European Local Operators and may ultimately be used as the centralized
information system for the Company. The System currently provides centralized
billing, customer service, and information systems to several of the Company's
European entities. 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.
The Company has reviewed the System in connection with the Year 2000
problem and has determined that the System is Year 2000 compliant. The Company's
standardized desktop and server configurations and software applications in
Europe are also Year 2000 compliant. The Company is in the process of reviewing
its Ericsson international telephony gateway and domestic switches in Europe
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in connection with the Year 2000 problem and the Company expects that its
switches will be Year 2000 compliant by June 30, 1999. See "Risk
Factors--Dependence on Effective Information Systems" and "--Year 2000
Technology Risks."
In connection with the acquisition of Motorola Tel.co, the Company acquired
the proprietary information and billing system developed by Motorola Tel.co.
This billing system is a uniform billing platform that has been customized to
address the specific requirements of each of the Company's cellular operations
in Europe. The Year 2000 compliant version of this billing system is expected to
be operational in early 1999. The Company is in the process of reviewing its
existing billing System and that of its cellular operations and expects to
implement an integration of the two systems during 1999.
REGULATORY ENVIRONMENT
Most 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 EC through one or more directives issued thereby. In
the latter case, such an EC directive would be addressed to each Member State of
the EU, calling for such legislative body to implement such directive through
the passage of national legislation or otherwise.
The Company has developed a two stage market penetration strategy to
capitalize on the 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 relevant local regulation. The Company thereby seeks
to become a recognized carrier in the targeted countries as its operations grow.
The second step, as deregulation permits, is to build on its name recognition,
marketing channels and existing customer base in the market to expand its
service offerings to both existing and new customers. By the time that the
telecommunications markets throughout Europe are open to broader competition,
the Company intends to have established Local Operators in all major European
telecommunications markets. However, there can be no assurance regarding the
timing or extent of deregulation in any particular country. See "Risk Factors--
Government Regulatory Restrictions."
The EC issued, in 1997, an interconnect directive (the "Interconnect
Directive"), which is expected to be implemented in various countries at
different times during 1998 and is expected to require the incumbent PTTs to
interconnect to other carriers. 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 cost-oriented transparent 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 effective implementation of
this or any EC directive by Member States is subject to substantial delay. See
"Risk Factors--Government Regulatory Restrictions."
The EC also issued in 1997 a Directive designed to harmonize licensing
procedures in the EU (the "Licensing Directive"). Among other things, the
Licensing Directive prevents Member States from limiting the number of new
entrants unless required to ensure efficient use of radio frequencies/numbers.
The Licensing Directive encourages the use of general authorizations rather than
individual licenses, but specifically allows Member States to grant individual
licenses for the provision of voice telephony services. Member States were
required to implement the Licensing Directive by January 1, 1998 and most Member
States have introduced implementing measures. Notwithstanding the general intent
of the Licensing Directive, the licensing regimes vary considerably across
Member States as do the requirements that must be satisfied for the grant of a
license leading to potential expense and delay.
Member States have limited flexibility in interpreting EC directives. If
the EC determines that a Member State's legislation has not properly implemented
an EC directive, the EC may commence legal proceedings in the European Court of
Justice. This process is time consuming. Accordingly, while a
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date has been set for the liberalization of voice telephony services generally
within the EU, the actual date on which liberalization actually occurs could be
months or years later. See "Risk Factors--Government Regulatory Restrictions."
There also may be practical considerations in implementing a directive
which could result in a delay of its implementation, as there are considerable
doubts as to the preparedness of many EC countries for wide-ranging change. For
example, notwithstanding the time parameters set down by relevant Directives,
the negotiation and implementation 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
capacity, prices and billing are to be expected.
In an attempt to speed the market entry of new operators despite the
obstacles referred to above, the Full Competition Directive allowed alternative
entities to the PTTs (typically utility and cable television companies) to
supply infrastructure, beginning July 1, 1996. This permits the Company to
purchase cable capacity from companies other than the local PTTs as such
companies build transmission facilities. To date, however, there has not been
substantial construction of such facilities by competitors to the PTTs in many
EU countries, although several Member States have enacted national legislation
to adopt the Full Competition Directive.
Although interconnect has been implemented in most countries in Europe, as
discussed above, there are practical difficulties in securing commercial
agreements with the incumbent PTTs. In European countries where interconnect has
not been implemented, the current regulatory scheme, nevertheless, provides an
opportunity for the Company to provide a range of services immediately in such
countries, while putting in place adequate infrastructure to capitalize on final
deregulation when it occurs. The Company provides value-added services and, in
certain EC countries beginning later 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."
U.K. OPERATIONS
OVERVIEW
The Company's U.K. operations began generating revenues in May 1996.
SERVICES AND CUSTOMERS
The Company offers its customers in the United Kingdom international and
domestic long distance services, as well as wireless services. Customers access
the fixed wire long distance 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 C&W.
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. Oftel has stated
that preselect will be introduced in the UK market in 2000. In anticipation of
this move, the Company intends to install at least five local switches to
facilitate the offering of local services. The Company is able to offer its
customers a comprehensive set of wireless service offerings through its
agreements with multiple network operators in the United Kingdom. The Company's
customer base in the United Kingdom consists primarily of carriers, commercial
customers and prepaid account customers, as well as certain residential
customers. The Company's current commercial customers include multinationals and
large national companies, as well as small and medium-sized businesses.
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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 also relies heavily on its network of 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. In addition, through the acquisition of
Motorola Tel.co, the Company has greatly expanded its dealer network and certain
of these dealers have long-term agreements with the Company.
U.K. NETWORK ARCHITECTURE
The Company operates two Ericsson switches in the United Kingdom: an
international gateway switch and a domestic switch, both located in London. The
Company intends to connect its local switches with leased fiber that the Company
believes is available at economical rates. Prior to December 1996, the Company
was prohibited from owning interests in fiber optic cable coming in or out of
the United Kingdom. As a result, the Company had been transmitting call traffic
bound for destinations outside of the United Kingdom through leased capacity
provided by British Telecom and C&W. The Company's United Kingdom operation owns
IRUs on the UK-NL14, CANTAT-3 and PTAT-1, GEMINI, CANUS-1, UK-GER 6, RIOJA 2 and
RIOJA 3 undersea fiber optic cable systems. The Company intends to invest in its
own transmission facilities where such facilities become available and if such
investments are cost effective and warranted by traffic patterns.
COMPETITION
The Company's principal competitors in the United Kingdom are British
Telecom, the dominant supplier of telecommunications services in the United
Kingdom, and C&W. 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 MCI WorldCom, Esprit and
Global One. The Company also competes in the wireless service market with the
four wireless network operators (Vodafone, CellNet, Orange and One-to-One), as
well as other wireless service providers.
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 C&W. In addition, the Company holds an International Simple Voice Resale
("ISVR") license in the United Kingdom. An ISVR license allows the Company to
resell international private lines, as well as interconnect with, and lease
capacity at wholesale rates from, British Telecom and C&W.
With respect to the provision of wireless services, the regulatory
environment in the United Kingdom has been under review by Oftel for more than
two years following the publication of Oftel's consultative document Fair
Trading in Mobile Service Provision in May 1996. This was followed by a
statement titled Fair Trading in Mobile Service Provision in April 1997. An
important development resulting from these regulatory statements is that Oftel
will, when competition among network operators is in the opinion of Oftel fully
effective, amend the licenses issued to Vodafone and CellNet to remove the
requirement that these two network operators offer wireless services to service
providers. These policy statements are currently under review. If Oftel has not
modified its position by the end of 1998, the Company believes, although no
assurances can be made in this regard, that applications for judicial review
will be filed by independent service providers.
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GERMAN OPERATIONS
OVERVIEW
RSL COM Deutschland GmbH ("RSL Germany") was formed in April 1996 for the
purpose of acquiring Sprint's international voice business in Germany. Sprint,
which commenced its German voice business in 1993, was required to divest itself
of its German and French international voice businesses pursuant to the terms of
the Global One joint venture agreement.
The Company is in the process of establishing a network of eight national
switches in Germany connected by leased lines. The Company's capital expansion
plan includes installing remote POPs and the purchase of domestic circuits in
order to interconnect its German national network.
SERVICES AND CUSTOMERS
The Company offers its customers in Germany domestic and international
fixed wire long distance and wireless services. The Company's customers in
Germany are provided with fixed wire long distance services by direct access and
prefix dialing. The Company is able to offer its customers a comprehensive set
of wireless service offerings through its agreements with multiple network
operators in Germany. The Company's current customer base in Germany consists of
small, medium-sized and large business customers, residential customers and
calling card customers. Following receipt of its Category 4 license, RSL Germany
commenced the use of its interconnect and began operating pursuant to such
license. RSL Germany has also applied for a Class 3 Infrastructure License.
MARKETING AND SALES
The Company employs direct sales and marketing employees in Germany. The
Company currently has five sales offices in Germany, located in Munich, Hamburg,
Wiehl, Stuttgart and in Frankfurt. RSL Germany is expanding its direct sales
force as a part of its growth strategy by adding additional sales
representatives. The Company currently markets its services through a variety of
channels including indirect sales, resellers and agents. The Company has
expanded its network of independent sales agents in Germany through the
acquisition of Motorola Tel.co.
GERMAN NETWORK ARCHITECTURE
RSL Germany currently operates an Ericsson AXE 10 international gateway
switch which is connected directly to the Company's international telephony
gateway switches in London, New York, Paris and Vienna. The Company is in the
process of installing an additional seven Ericsson AXE switches. International
transmission facilities are currently leased from other carriers. The Company
has interconnect agreements with other carriers for excess and termination of
its international traffic. The Company is currently in the process of
negotiating with German carriers and certain prospective developers of
telecommunications infrastructure to purchase or lease capacity to meet its
demands in the near future with respect to German-originated traffic.
COMPETITION
In Germany, the Company competes with facilities-based carriers, wireless
network operators 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 MCI WorldCom, call-back providers,
such as TelePassport, and wireless network operators, such as Mannesmann
Mobilfunk and E-Plus Mobilfunk. After deregulation on January 1, 1998,
alternative networks became available to route and terminate voice traffic.
REGULATORY ENVIRONMENT
Effective January 1, 1998, the German telecommunications market was fully
liberalized. The Telecommunications Act (Telekommunikationsgesetz) ("TKG"),
which became effective on August 1, 1996, implements the telecommunications
policy of the EU into national law. The TKG called for the
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immediate liberalization of public switched voice telephony with effect as of
January 1, 1998. Accordingly, public switched voice telephony services,
previously provided by Deutsche Telekom, may now be provided on the basis of
self-operated networks.
Pursuant to the TKG, a license is required in order to operate transmission
lines for public use and to provide voice telephony services. RSL Germany was
issued a Category 4 license on a nationwide basis to transmit voice traffic via
the Company's international telecommunications network. As of March 1998,
Category 4 licenses have been granted to 49 companies in Germany.
To monitor licensing, rate and interconnection regulation as well as
numbering and customer protection, the TKG established the Regulatory Authority
for Telecommunications and Post. The Regulatory Authority deals primarily with
interconnection issues. The TKG and the respective ordinance (Network Access
Ordinance "Netzugangsverordnung" or "NZV") provide that any public
telecommunications network operator is obliged to offer interconnection at the
request of other operators of such networks. Therefore, market dominating
providers, such as Deutsche Telekom, must allow other providers access to their
telecommunications networks. RSL Germany has entered into an interconnection
agreement with Deutsche Telekom and therefore is able to accept calls from and
terminate calls with Deutsche Telekom and other third party networks, thereby
facilitating the offering of national and international telecommunication
services via the RSL Germany network.
DUTCH OPERATIONS
OVERVIEW
The Company operates in The Netherlands through RSL COM Nederland B.V.
("RSL Netherlands"). RSL Netherlands is an international carrier with switches
installed in Rotterdam and Amsterdam. RSL Netherlands began generating revenues
in October 1995.
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. The Company's customer base in The Netherlands
consists primarily of commercial and calling card customers.
MARKETING AND SALES
The Company markets its services in The Netherlands through a variety of
channels, including direct sales through representatives, indirect sales through
independent agents and telemarketing sales. 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 cards through independent
distributors.
DUTCH NETWORK ARCHITECTURE
In The Netherlands, the Company operates two Nortel Meridian switches,
directly linked by leased capacity, from its offices in Rotterdam and Amsterdam.
The Company is currently in the process of installing in The Netherlands an
Ericsson AXE-10 gateway switch. 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 MCI WorldCom and from mega-carriers including Concert and Global One.
Assuming deregulation occurs in 1998, it is expected that alternative
networks currently under construction will become available to route and
terminate voice traffic.
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REGULATORY ENVIRONMENT
As of July 1, 1997, restrictions on voice telephony services over cable
infrastructure were liberalized, in effect bringing about full liberalization of
the telecommunications market in The Netherlands.
Under the current licensing regime, two new licensees, other than the Dutch
PTT, may operate nationwide fixed telecommunications networks: Telfort, a joint
venture between British Telecom and the Dutch Railway Company, and Enertel, a
consortium of Dutch electricity companies and a large Dutch cable television
company. Furthermore, hundreds of licenses to operate regional fixed networks
have been granted mainly to electricity and cable television companies.
Nevertheless, neither the use of leased lines capacity and other leased
facilities, nor the services provided by the Company, requires a license.
A new telecommunications act has been approved by both houses of the Dutch
parliament, and has been signed by the Queen. The exact date of the new law's
effectiveness is still under discussion. 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 may be required to obtain a registration with
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.
FRENCH OPERATIONS
OVERVIEW
RSL COM France S.A. ("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.
SERVICES AND CUSTOMERS
The Company offers its customers in France international and domestic long
distance services and national long distance services, both fixed-to-mobile and
fixed-to-fixed, utilizing direct access over leased lines and dial-in access. In
May 1998, RSL France was granted L.33.1 and L.34.1 licenses which entitle it to
own and operate a public network in 12 out of 18 regions of France and to
provide telephone services throughout France. In addition, RSL France is no
longer restricted from providing its services to the public.
Direct access is provided via a leased line connection between the
customer's phone system and the Company's switches. The Company's French
customer base consists of carrier customers and direct access and dial-in access
commercial customers. The Company's customers in France include small and
medium-sized businesses, residential and calling card customers.
MARKETING AND SALES
The Company markets its services through a variety of channels, including
direct sales and indirect sales through independent agents as well as private
installers and consultants. The Company's French operation employs sales
representatives and has relationships with various independent agents. The
Company intends to expand its direct sales force and agent network as a part of
its growth strategy.
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FRENCH NETWORK ARCHITECTURE
RSL France operates an Ericsson AXE-10 and AXE10 CCP international
telephony gateway switch in its main switching center located at Nanterre. It
also operates on AXE10 SSP at Marseilles which provides interconnection with
France Telecom. The services are currently available in 12 regions in France
pursuant to L.33.1 and L.34.1 Licenses. RSL France also operates five POPs
located as follows: two in Paris, and one each in Marseilles, Nice and Toulouse.
A new wide band network using the latest optic fiber technology (SDH/STM16)
is being built.
COMPETITION
The Company's principal competitor in France is France Telecom, the
dominant supplier of telecommunications services in France, and the Modulance
Partenaire International 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 and who are interconnected to France Telecom), such as
Worldcom, COLT, AT&T, CEGETEL, and Bouygues, and from resellers, including
Omnicom and Esprit. Upon deregulation, alternative networks currently under
construction are expected to become available to route and terminate traffic
domestically.
REGULATORY ENVIRONMENT
In accordance with the Telecommunications Laws passed in July 1996, the
liberalization process is regulated by a new government authority, the French
Telecommunications Authority ("Autoritede Regulation des Telecommunications"),
which was established in January 1997. The telecommunications market in France
was scheduled to be liberalized on January 1, 1998. RSL France obtained an
authorization to operate a public network and to offer public telephony pursuant
to articles L.33.1 and L.34.1 of the Postal and Telecommunications Code on May
12, 1998 and this authorization was published in the French Official Gazette on
May 30, 1998. Since then, RSL France is legally authorized to operate a public
network and to offer telephony services to the public. Therefore, dial-in access
is no longer restricted to closed-user groups. To the extent that RSL France
obtained on May 12, 1998 its authorization pursuant to articles L.33.1 and
L.34.1 of the P & T Code, it is authorized to provide international and domestic
long distance services utilizing direct access or dial-in access in those areas
where the Company establishes POPs. These services are to be provided utilizing
direct access through interconnection with other operators of a public network
(i.e., operators holding an L.33.1 license).
Currently, France Telecom and Telecom Development are the only operators
capable of providing interconnection services on a national scale in France. New
operators of public networks should be able to interconnect with France
Telecom's PSTN as from the date they have obtained the authorization pursuant to
articles L.33.1 and/or L.34.1 of the P & T Code, from a strictly legal point of
view. In practice, interconnection with France Telecom for all new entrants
knows significant delay and RSL France expects to interconnect with France
Telecom, for the most part of the French territory, late 1998 only. However,
regulatory French law does not set forth any compulsory delay for France Telecom
to provide interconnection. In its contractual offer, France Telecom only
commits to make its best effort to provide interconnection within an 18 month
period as from the order.
The terms and conditions of interconnection offered by France Telecom will
provide for "direct interconnection" of calls originated by RSL France
subscribers to France Telecom subscribers throughout France, even where RSL
France has no POPs, while "indirect interconnection" of calls originated by
France Telecom subscribers to RSL France subscribers will be available only in
those areas where RSL France has POPs. Currently, POPs of RSL France are located
in Lille, Lyon, Toulouse, Marseilles and Nice.
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Under the terms of the authorization granted to RSL France, the French
government expects RSL France to commit approximately $12 million in capital
expenditures for infrastructure over the next three to five years.
In November 1997, RSL France entered into a joint venture agreement with
the Chamber of Commerce and Industry of Marseilles Provence (the "CCIMP") and
Teleport Marseilles Provence ("Teleport"), a licensed telecommunications service
provider in Marseilles, France, to promote international telecommunications
services in certain regions of France. Through Teleport, RSL France will be
permitted to provide, to a maximum of 20,000 users, telecommunications services
in Marseilles and in other regions of France. Beginning in October 1998, RSL
France expects to offer, pursuant to its L.33.1 and L.34.1 licenses, nationwide
services in Marseille through an interconnection link to France Telecom acquired
as a result of the joint venture with Teleport.
RSL France has filed a complaint with the governmental body in charge of
telecommuncations matters regarding certain effects caused by low retail
tariffs, that RSL France has alleged prevent competition and set barriers to
entry for entrants.
RSL France has requested the French Ministry to withdraw its approval of
certain France Telecom International French Ministry retail tariffs. The
Ministry has not yet ruled on such request.
SWEDISH OPERATIONS
OVERVIEW
The Company operates in Sweden through RSL COM Sweden AB ("RSL Sweden").
The Company acquired a majority interest in RSL Sweden 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.
SERVICES AND CUSTOMERS
The Company offers domestic and international long distance and value-added
services to its customers in Sweden. Customers access the Company's switch
utilizing prefix dialing and direct access. The Company's customer base in
Sweden consists primarily of commercial customers and residential customers.
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. The Company employs full-time sales and marketing employees
in Sweden. The Company primarily relies on its network of independent sales
agents to sell its long distance calling services in Sweden. In addition, the
Company sells its services through a chain of 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 telephony
gateway switch from its offices outside of Stockholm. RSL Sweden is connected to
RSL-NET by leased facilities. The Company's Swedish operation owns IRUs in the
CANUS-1, CANTAT-3, SWE-FIN, SWE-Latvia and KATTEGAT-1 submarine cables. RSL
Sweden currently has operating agreements with carriers in Denmark and Norway,
as well as direct connections to a carrier in Latvia and the Company's
operations in the United Kingdom, the United States and Finland.
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COMPETITION
The Company's principal competitor in Sweden is Telia, the dominant
supplier of telecommunications services in Sweden. The Company also faces
competition from emerging licensed public telephone operators (which are
constructing their own fiber networks), such as Tele 2 and MCI 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.
REGULATORY ENVIRONMENT
The Swedish telecommunications market was deregulated by the
Telecommunications Act of 1993. Pursuant to the Act, the Company, through RSL
Sweden, holds a full license to provide fixed wire telephony in the Swedish
market. As a licensed carrier, the Company may purchase IRUs or lease fixed
capacity from other providers, or utilize the PSTN to originate and terminate
its traffic. Presently, the Company's services are accessed primarily by prefix
dialing. However, the Telecommunications Act has recently been amended and the
Company believes that such amendments, which will be effective by the middle of
1999, will require the provider of the PSTN to offer pre-selected access to
other carriers.
FINNISH OPERATIONS
OVERVIEW
Finland is a strategically important market because it serves as a gateway
to Russia. The Company operates in Finland through RSL COM Finland Oy ("RSL
Finland"), a wholly-owned subsidiary of the Company. The Company acquired a
majority interest in RSL Finland 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.
SERVICES AND CUSTOMERS
The Company offers its customers in Finland international and domestic long
distance services utilizing direct access and prefix dialing. The Company's
customer base in Finland consists primarily of commercial and residential
customers. In addition, a majority of the Company's revenues in Finland are
derived from recurring rental and servicing fees related to the rental of
telecommunications terminal equipment, telecommunications systems and ancillary
equipment under multi-year contracts between business customers and the
Company's 90%-owned subsidiary, Telecenter Oy, an independent agent in Finland.
MARKETING AND SALES
The Company markets its services in Finland through a variety of channels,
including direct sales and indirect sales through independent agents. The
Company relies heavily on its direct sales to sell its long distance calling
services in Finland.
FINNISH NETWORK ARCHITECTURE
In Finland, the Company operates an Ericsson AXE-10 international telephony
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 Sonera Corporation (formally
known as Telecom Finland) ("Telecom Finland") and other carriers' international
circuits. RSL Finland utilizes an operating agreement with a Russian carrier and
is directly connected to RSL Sweden.
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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 Finnnet, Telia,
Global One and Faciliacom.
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. However, RSL Finland does not have
its own network of domestic transmission lines, except for a fiber optic network
in the city of Helsinki, expected to become operational in the beginning of
1999.
In April 1997, the New Telecommunications Market Act was enacted, which
removes the last restrictions applicable to telecommunications and enforces
competition. As a result, network operators are obligated to rent full network
capacity, including local loops, to other operators. In addition, the New
Telecommunications Market Act provides that companies will only need to hold a
license in order to provide services as a mobile phone network operator.
DANISH OPERATIONS
The Company operates in Denmark through RSL COM Denmark A/S ("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 international and domestic long
distance services utilizing prefix dialing. The services are offered to
commercial customers as a subscription service.
MARKETING AND SALES
The services are distributed through direct sales by the Company and by
appointed resellers. The Company's interconnect prefix, which was recently
installed, provides customers with the option of using the Company's direct
line, without requiring a physical connection.
DANISH NETWORK ARCHITECTURE
The Company has installed an Ericsson AXE-10 international telephony
gateway switch in Copenhagen. The Company routes all calls through Tele
Danmark's network via the interconnect agreement between the Company and Tele
Danmark and other Danish telecommunication providers.
COMPETITION
The Company's principal competitor in Denmark is Tele Danmark, the dominant
supplier of telecommunications services in Denmark. In January 1998, the Danish
government sold a controlling interest in Tele Danmark, to U.S.-based Ameritech.
The Company also faces competition from various other carriers, primarily Telia
(the Swedish PTT), the smaller Tele 2 (NetCom Systems), Mobilix A/S (the Danish
subsidiary of France Telecom) and Global One, which are all connected to Tele
Danmark's fixed line network via interconnect agreements. Recently, several of
these carriers have entered into agreements with Powercom, a subsidiary of two
Danish power suppliers, to offer telecommunications services over Powercom's
fixed line network, which has hitherto been used to manage power transmission.
Mobilix A/S has also entered into an agreement with the Danish national railway
agency to develop the agency's fixed line network for telecommunications
services.
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Tele Danmark offers full scale telephony in all areas. Telia and Mobilix
both hold mobile licenses, offer a variety of telecommunications services and
have the goal of eventually becoming full-scale operators.
REGULATORY ENVIRONMENT
All telecommunications services in Denmark were liberalized in 1996.
Currently, the Company may, through RSL Denmark, provide national and
international telephony in the Danish market, except wireless telephony, which
requires a license. Tele Danmark, in practice, still has an effective (but not
legal) monopoly on the ownership of fixed lines. Thus, the Company can only
construct its own fixed lines, lease fixed lines from Tele Danmark or operate
through interconnection agreements, but competition is growing on the market of
fixed lines, and it is expected that pending regulation may further limit Tele
Danmark's market control, although there can be no assurance in this regard.
Effective April 1, 1998, Tele Danmark implemented a new tariff structure which
basically results in a reduction of Tele Danmark's minute rates and an increase
in the price of the basic telephony subscription service. This amendment may
ultimately force RSL Denmark to lower its rates as a result of stronger price
competition.
PORTUGUESE OPERATIONS
The Company operates in Portugal through its 39% investment in Maxitel
Servicos e Gestao de Telecomunicacoes, SA ("Maxitel"). The Company made its
initial investment in Maxitel in April 1997. Maxitel commenced operations in the
international voice and data business in December 1994.
SERVICES AND CUSTOMERS
Maxitel offers international and long distance voice services to closed
user groups of companies utilizing autodialers and direct access. In addition,
Maxitel offers store and forward and real-time fax services.
MARKETING AND SALES
Maxitel markets its services through a direct sales force and is developing
an indirect sales force through independent agents. Maxitel operates primarily
in the Lisbon and Oporto areas.
PORTUGUESE NETWORK ARCHITECTURE
Maxitel operates an Ericsson AXE-10 international telephony gateway switch
in its offices in Lisbon and is in the process of converting its entire customer
terminal equipment to this new platform. The Oporto node is already working in
this new configuration. 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-wire voice telephony services were subject to a monopoly until March
1997. Under the terms of the current legislation it is possible for companies
other than Portugal Telecom to offer both national and international voice
services to closed user groups. Interconnection to the Portugal Telecom PSTN is
permitted for such services. The privatization process of Portugal Telecom was
concluded at the end of 1997 and the Portugese government maintains a 25%
interest in Portugal Telecom. Full deregulation is expected to occur by
January 1, 2000.
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ITALIAN OPERATIONS
OVERVIEW
The Company operates in Italy through RSL Italy in which it acquired an 85%
interest in August 1997. RSL Italy, under its former ownership, commenced
operations in 1995. In July 1998, as a consequence of a capital increase in RSL
Italy that was funded by the Company but not by the minority shareholders of RSL
Italy, the Company's interest in RSL Italy was increased to 99.30%. Beginning on
July 14, 2000, however, RSL Italy's minority shareholders will have a call
option right to purchase a quota which would reduce the Company's ownership
interest in RSL Italy to 85% of (i) the entire capital, if at that time RSL
Italy will have no additional shareholders, or (ii) the capital then held in the
aggregate by the Company and the present minority shareholders, if at that time
RSL Italy will have additional shareholders. In addition, in July 1998, RSL
Italy acquired 75% of the equity of Comesa ("Comesa"), a telecommunications
company located in Northern Italy and a subsidiary of RSL Italy.
SERVICES AND CUSTOMERS
RSL Italy offers its customers in Italy international and domestic long
distance services utilizing dial-in access via autodialers and dedicated access
lines. RSL Italy's current customer base consists primarily of small and
medium-sized businesses. RSL Italy markets its services also through Comesa.
MARKETING AND SALES
RSL Italy markets its services through a direct sales force and an indirect
sales force and has acquired a network of independent agents through Comesa.
ITALIAN NETWORK ARCHITECTURE
RSL Italy currently operates as a reseller, purchasing wholesale facilities
from other Italian carriers. RSL Italy has installed an Ericsson AXE-10
international telephony gateway switch and two AT&T Definity switches in Milan.
RSL Italy has also installed an Ericsson AXE-10 and three AT&T Definity switches
in the Rome area. Additionally, the Company intends to install 18 additional
AT&T Definity POPs and intends to lease and, if available and cost-effective and
warranted by traffic patterns, purchase, domestic circuits and IRUs. The Company
has linked RSL Italy with RSL-NET in London and in Paris.
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 British
Telecom and Global One. In addition, the Company competes with
telecommunications providers in the Italian market such as Infostrada (a joint
venture between Olivetti and Mannesmann) and Wind (a joint venture among
Deutsche Telecom, France Telecom and ENEL, the Italian energy public utility).
REGULATORY ENVIRONMENT
Under the current regime, certain domestic and international voice services
(such as those presently offered by RSL Italy) do not fall within the definition
of "voice telephony" as contained in Directive 90/388/EEC and construed by
Italian authorities. In order to render these voice services (the "Specified
Voice Services"), the would-be operator is required to file a declaration with,
or obtain an authorization from, the Italian Ministry of Communications. Whether
the would-be operator needs the declaration or the authorization depends on the
type of links to the PSTN actually necessary to render Specified Voice Services.
In fact, for Specified Voice Services to be offered through switched links to
the PSTN, the declaration is required, whereas the authorization is needed for
Specified Voice Services to be offered through dedicated links.
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As of January 1, 1998, domestic and international voice services that fall
within the above-mentioned definition of "voice telephony" can be rendered only
after having obtained an individual license from the Ministry of Communications
and the NRA, an independent body, established in 1998, which is taking over most
of the regulatory and monitoring functions of the Ministry of Communications.
Such license is necessary, inter alia, to establish and provide public
telecommunications networks.
In light of the above and in compliance with the Full Competition
Directive, the "voice telephony" monopoly in Italy has been abolished. However,
"voice telephony" is currently principally provided by Telecom Italia and a few
other telecommunications organizations (see "--Competition" above).
Specific rules to further implement the Full Competition Directive and
other subsequent EU Directives have been enacted with respect to significant
matters, including numbering, universal service, fees to be paid in connection
with individual licenses as well as interconnection. As to the latter, the
relevant legislation has been challenged by Telecom Italia through a request of
a temporary restraining order. The Court has postponed the decision on the
temporary restraining order, so that the challenged interconnection legislation
is now still valid and enforceable. The decision on the merits of the challenge
is expected not earlier than the end of 1998.
Further implementing legislation is expected to be enacted in the near
future with reference to other matters, including a regime that will replace the
current regulations on, among other things, the Specified Voice Services.
The effective liberalization of the Italian telecommunications market will
depend on the actual application of the rules enacted and to be enacted as well
as on the actual exercise of the powers and functions of the NRA, which is
taking over most of the regulatory and monitoring functions of the Ministry of
Communications.
RSL Italy has the approvals and authorizations required to offer its
domestic and international Specified Voice Services.
In addition, in July 1998, RSL Italy obtained an individual license to
establish a telecommunications network in order to provide "voice telephony"
services in Italy. RSL Italy is currently implementing the activities necessary
to benefit from the rights established and the obligations imposed by this
individual license.
AUSTRIAN OPERATIONS
OVERVIEW
The Company operates in Austria through RSL Austria in which it currently
holds a 90% interest. However, the Minority Interestholder (as defined herein)
of RSL Austria was granted the right to increase his ownership interest in RSL
Austria to up to 24.9%, subject to certain conditions which have been satisfied.
The Company is in the process of evaluating the number of shares of RSL Austria
required to be issued to such Minority Interestholder.
SERVICES AND CUSTOMERS
RSL Austria began offering international and national long distance voice
services utilizing autodialers, direct access, call by call and calling cards in
March 1998. RSL Austria's targeted customers are small to medium-sized
businesses.
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MARKETING AND SALES
RSL Austria markets its services through both a direct and indirect sales
force as well as independent agents.
AUSTRIAN NETWORK ARCHITECTURE
RSL Austria began offering services in March 1998 as a full licensed
operator. The Company has installed an Ericsson AXE-10 telephony international
gateway switch in Vienna which is operational. This international gateway switch
in Austria will enable RSL Austria to expand the products and services it
offers.
COMPETITION
RSL Austria's primary competitors in Austria are Telecom Austria (the
"TA"), the dominant supplier of telecommunications services in Austria, UTA and
others. The Company competes with the local Austrian affiliates of global
carriers such as Global One and Swisscom. In addition, the Company is competing
with resellers in the Austrian market.
REGULATORY ENVIRONMENT
New telecommunications legislation was passed in July 1997 which permitted
interconnection with the TA's PSTN beginning on January 1, 1998. Competition in
all voice telephony services is now permitted. Telecommunications services are
subject to licenses granted by an Austrian regulatory authority to applicants
with sufficient technical and economic facilities. The Company has been granted
a license to operate as a full service telecommunications provider of local,
long distance and international services in Austria. In February 1998, RSL
Austria signed an interconnection agreement with the TA.
SPANISH OPERATIONS
OVERVIEW
RSL Communications Spain, S.A. ("RSL Spain") was formed in December 1997.
The Company operates in Spain through RSL Europe which holds a 90% interest in
RSL Spain.
SERVICES AND CUSTOMERS
Only Telefonica de Espana, S.A. ("Telefonica de Espana"), Lnce and
Retevision, S.A. ("Retevision") are licensed to provide international long
distance services in Spain. The range of services that can currently be provided
by RSL Spain, pending further deregulation, is limited to closed-user group
services, resale of capacity, fax and Internet services.
MARKETING AND SALES
RSL Spain markets its services through both a direct and indirect sales
force.
SPANISH NETWORK ARCHITECTURE
The Company has installed an Ericsson AXE-10 international gateway switch
in Madrid, which is linked to Ericsson MD110 POPs in Barcelona, Valencia and
Mabella.
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COMPETITION
The Company's main competitor in Spain is Telefonica de Espana, the company
that has traditionally enjoyed a monopoly in the provision of telecommunications
services and the current dominant supplier of telecommunications services in
Spain. The Company also faces competition from Retevision, an emerging public
telephone operator which was granted the second nation-wide license to provide
voice telephony services, and which is in the process of building its own
network, and Lnce, which was awarded a third nation-wide license to provide
voice telephony services, but has not yet started to operate. Retevision,
started operations at the beginning of 1998. Cable operators have been
authorized to provide voice telephony services since January 1998. The Company
also faces competition from resellers, which at present, generally, have small
operations in Spain, and from mega-carriers interested in long distance services
upon deregulation of the market.
REGULATORY ENVIRONMENT
Market deregulation is expected in Spain by December 1, 1998. Spain was one
of the Member States which was granted a waiver of up to five years to implement
the Full Competition Directive. After negotiations to determine the specific
duration of the waiver period, the EC granted Spain an additional period, until
November 30, 1998, for the complete deregulation of voice telephony and public
telecommunications networks. Spain is now moving towards deregulation. Major
events in the Spanish telecommunications market have occurred in the last two
years, including (i) the complete privatization of Telefonica de Espana which
took place at the beginning of 1997, (ii) the licensing of Retevision and its
privatization, (iii) the third basic telephony license, granted in May 1998 to
Lnce and authorization to enable cable operators to provide voice telephony as
of December 1998, (iv) the third license for mobile telephone service granted to
Retevision (which had already been operating under a voice telephony license),
and (v) the creation of the Telecommunications Market Commission as a regulatory
independent entity.
The 1987 Telecommunications Act was previously enacted for a monopolistic
market. The General Telecommunications Act, a new telecommunications act, was
approved by the Parliament in April 1998. The legislation is intended to address
issues inherent to a competitive market such as a new licensing procedure,
universal service, definition of public service obligations, interconnection
rules, numbering, tariffs, etc., and will require further implementation by
means of regulations. Implementing regulations should be enacted during 1998, so
that the regulatory framework is in place by December 1, 1998.
Telecommunications services in Spain are subject to licenses granted by a
Spanish regulatory authority. In February 1998, RSL Spain was granted a license
to provide closed-user group services, resale of capacity, fax services and
internet services in Spain. RSL Spain has also applied for licenses to resell
telecommunications services and to provide value added services.
BELGIAN OPERATIONS
OVERVIEW
The Company primarily operates in Belgium through RSL Belgium, in which the
Company currently holds a 90% interest. In addition, the Company offers wireless
services to its customers through RSL Telco Belgium S.A./N.V. ("RSL Telco
Belgium"), a wholly owned subsidiary of the Company.
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SERVICES AND CUSTOMERS
The Company, through RSL Belgium and RSL Telco Belgium, offers its
customers in Belgium international long distance voice services utilizing
dial-in access via autodialers and wireless services. In addition to the dial-in
access services currently offered by RSL Belgium, RSL Belgium was granted a
license to offer international and domestic fixed wire long distance service.
RSL Belgium intends to commence offering its customers international and
domestic long distance fixed wire voice services utilizing pre-fix dialing
during 1999. Through existing agreements with each of the wireless network
operators in Belgium, the Company is able to offer its customers a comprehensive
set of wireless service offerings. The Company's customer base in Belgium
consists primarily of small and medium-sized businesses.
MARKETING AND SALES
The Company markets its services in Belgium through a direct and indirect
sales force as well as independent agents. RSL Belgium has offices in Zaventem,
Gent, Liege, Antwerp and Charleroi.
BELGIAN NETWORK ARCHITECTURE
RSL Belgium currently operates as a reseller, purchasing wholesale
facilities from other carriers operating in Belgium. The Company has installed
an Ericsson AXE-10 international telephony gateway switch in Belgium and
anticipates that the switch will become fully operational in the fourth quarter
of 1998.
COMPETITION
RSL Belgium's primary competitor is Belgacom, the former PTT and the
dominant supplier of telecommunications services in Belgium. RSL Belgium also
competes with local Belgian affiliates of global carriers, such as Global One
and Unisource, local resellers, as well as subsidiaries of other U.S. and
European telecommunication companies, such as WorldxChange, C&W Telemart, and
others. The Company also competes for wireless subscribers with the two Belgian
wireless network operators, Proximus and Mobistar, as well as other wireless
service providers.
REGULATORY ENVIRONMENT
The Belgian Parliament passed the first Belgian Telecommunications Act (the
"Belgian Act") in March 1991, in order to liberalize the Belgian
telecommunications market. Since then, the Belgian Act was amended on numerous
occasions, most recently in December 1997. On January 1, 1998, the last
remaining monopolies of Belgacom ceased to exist. The Belgian Act provides,
among other things, for regulations regarding licensing, rate and
interconnection regulation, universal service obligations, numbering and
customer protection. Since December 1997 and the summer of 1998, many of the
Royal Decrees necessary to implement the provisions of the Belgian Act have
become law. According to these Royal Decrees, providers of voice telephony
services must apply for a voice telephony license with the Belgian Institute for
Post and Telecommunications (the "BIPT") the Belgian regulatory authority. The
licenses are granted by the Minister for Telecommunications, upon recommendation
of the BIPT. Prior to this regime, which only existed since July 1998, such
providers had to apply for a temporary license. The Company applied for and
obtained such a temporary license and will apply for a new permanent voice
telephony license.
SWISS OPERATIONS
OVERVIEW
The Company operates in Switzerland through RSL COM Schweiz AG ("RSL
Switzerland") in which it currently holds a 78.5% interest. RSL Switzerland
started operations in 1995 as a long distance carrier for closed user groups.
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SERVICES AND CUSTOMERS
While in the past RSL Switzerland targeted multinationals and supplied
international voice and fax services, RSL Switzerland is, in addition to such
multinationals, currently targeting small to medium-sized businesses.
MARKETING AND SALES
RSL Switzerland markets its services through both a direct sales force and
an indirect sales force.
SWISS NETWORK ARCHITECTURE
The Company is in the process of installing an Ericsson AXE-10
international telephony gateway switch. Customer access will be over leased
lines or over the three carrier selection codes which were assigned to the
Company in December 1997.
COMPETITION
RSL Switzerland's primary competitors in Switzerland are Swisscom, Diax,
Sunrise, GlobalOne, Colt, MCI WorldCom, Equant and other smaller resellers.
REGULATORY ENVIRONMENT
The sale of value-added telecommunication services (data networks) as well
as telecommunications equipment such as telephones and fax machines was
liberalized in 1992. The transmission of voice for closed user groups has been
permitted since July 1, 1995. With the new law on telecommunication services
which came into force on January 1, 1998, Switzerland is a fully liberalized
telecommunications market.
LATIN AMERICAN OPERATIONS--GENERAL
RSL Latin America was formed in mid-1997 as a joint venture pursuant to a
shareholders agreement (the "Latin America Joint Venture Agreement"), between
the Company and Coral Gate Investments Ltd., a British Virgin Islands
corporation ("Coral Gate"), which is an affiliate of Inversiones Divtel, D.T.,
C.A. ("Divtel"), a Venezuelan corporation, and a member of the Cisneros Group.
RSL Latin America is 51% owned by RSL and 49% owned by the Cisneros Group. RSL
Latin America is in an early stage of its development and most of Latin America
is in the earliest stages of deregulation. As a result, the Company's Latin
American operations have not generated significant 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.
In August 1998, subject to completion of certain conditions and obtaining
authorization from the Mexican Anti-trust Commission, the Company acquired a 49%
interest in PCM Communicaciones S.A. de C.V. ("PCM"), a licensed long distance
telecommunications service provider in Mexico. Pursuant to Mexican regulatory
requirements and a joint venture agreement with the majority shareholders of
PCM, PCM will develop a telecommunications network in Mexico and RSL Mexico will
market and sell domestic and international long distance telecommunications
services primarily to small and medium-sized businesses in Mexico. Also in
August 1998, the Company together with PCM, acquired switches and fiber cable
covering 14 cities in Mexico, which are expected to be fully installed by the
end of 1998.
Since most Latin American countries currently restrict competition to a
limited number of specific services, the Company has developed a two stage
market penetration strategy to capitalize on the current and future
opportunities in Latin America. The first step is to take advantage of current
market conditions and, within the parameters of the Company's product line, to
provide the fullest range of services permissible under the local regulation.
The Company seeks to build a customer base within its
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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
The Company operates in Venezuela through RSL COM Venezuela C.A. ("RSL
Venezuela"), acquired in connection with the Latin America Joint Venture
Agreement. RSL Venezuela was organized in 1992.
SERVICES AND CUSTOMERS
RSL Venezuela offers its customers in Venezuela international long distance
voice services utilizing dedicated access along with prepaid and postpaid cards
and provides value-added telecommunications services. RSL Venezuela's customer
base consists primarily of small and medium-sized businesses.
MARKETING AND SALES
RSL Venezuela markets its services through a direct sales force and
telemarketing and uses distributors to market its prepaid calling card products.
VENEZUELAN NETWORK ARCHITECTURE
RSL Venezuela 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
RSL Venezuela's primary competitor is CANTV, the dominant supplier of
telecommunications services in Venezuela. RSL Venezuela also competes with local
Venezuelan affiliates of global carriers, such as British Telecom, Global One
and Mercury, regional competitors, such as 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 November 2000. However, certain value-added
services are open to competition, although a concession from Conatel is
required. RSL Venezuela 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. RSL Venezuela is not required to obtain a
concession to provide prepaid and post paid card services.
RSL Latin America, which is 51% owned by the Company and 49% owned by the
Cisneros Group, filed an application to register its investment in RSL Venezuela
with the Venezuelan Office of the Superintendent of Foreign Investments ("SIEX")
pursuant to Venezuelan foreign investment regulations. RSL Latin America is
awaiting receipt of a certificate of registration from SIEX.
ASIA/PACIFIC RIM OPERATIONS--GENERAL
The Company carries on its Asian operations through RSL Asia, a 91.5%-owned
subsidiary of the Company and RSL COM Asia/Pacific Ltd. ("RSL Asia/Pacific"), a
wholly-owned subsidiary of the Company based in Hong Kong. In October 1996, RSL
Asia established RSL Australia to carry on its Australian operations. In March
1997, the Company incorporated RSL Japan as a wholly-owned subsidiary of RSL
Asia/Pacific to initiate the Company's operations in Japan. RSL Asia and RSL
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Asia/Pacific intend to capitalize on the trend toward deregulation within the
region to establish operations in key countries.
The Company has hired a managing director to oversee and develop RSL
Japan's operations. In January 1998, RSL Japan was granted an International
Simple Resale license by Japan's Ministry of Ports and Telecommunications (the
"MPT") to resell international telephony, fax and data services to and from
Japan. RSL Japan has also received a Type II value added network provider
license and expects to provide such services in the third quarter of 1998. RSL
Japan may apply for a Type I license in Japan to provide facilities-based
international long distance service. The Company has installed an Ericsson
AXE-10 international telephony gateway switch in its offices in Tokyo. The
Company's Tokyo switch is currently connected to the Company's Australian
switch.
AUSTRALIAN OPERATIONS
OVERVIEW
The Company operates in Australia through RSL Australia, a wholly-owned
subsidiary of RSL Asia. The Company began generating revenues in Australia in
April 1997.
SERVICES AND CUSTOMERS
As a result of its acquisition of the customer bases of several Australian
resellers, the Company's fixed wire customer base in Australia has grown
significantly and consists primarily of commercial customers. The Company offers
these customers local services and domestic and international long distance
services. RSL Australia also offers prepaid cards and wireless telephony
services to residential customers. The Company recently entered the wireless
telephony business in Australia. The Company has commenced efforts to cross-sell
fixed wire services to its wireless subscribers and wireless services to its
fixed wire customers.
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 primarily from the fixed wire
customer base acquired from the Call Australia Group and the wireless telephony
customer bases acquired from First Direct Communications Pty., Limited and Link
Telecommunications Pty., Ltd. In addition, RSL Australia maintains an extensive
calling card distribution network.
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. In addition, RSL Australia operates a
prepaid card platform. The Company's Australian operation owns IRUs in the APCN,
JASAURUS, NPC and Southern Cross undersea fiber optic cable systems and on the
CMC and MCC terrestial fiber optic cable systems.
COMPETITION
The Company's principal competitors in Australia are the two licensed
general carriers Telstra Corporation Limited (the former PTT) and C & W Optus
Limited. Each of these competitors provides a bundle of services including
mobile, local, and domestic and international long distance. In addition, the
Company faces competition from switch-based and switchless resellers such as
AAPT Limited, Primus Limited, WorldCom Limited, One-Tel Limited, Macquarie
Corporate Pty Limited, Hutchison Telecommunications Pty Limited and Vodatone Pty
Limited.
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REGULATORY ENVIRONMENT
RSL Australia has been enrolled with the Australian Telecommunications
Authority ("Austel") under the provisions of the International Service Providers
Class License as a provider of services with double-ended interconnection. The
Telecommunications Act 1991 allows enrollment as a provider of services with
double-ended interconnection, provided that Austel is satisfied that the
services to be offered are in the public interest. Double-ended interconnection
allows the Company to interconnect with the Australian PSTN, to resell general
carrier services, and to transmit international calls over owned international
transmission facilities. Customers are able to access the Company's network from
the PSTN utilizing a four digit prefix code issued by Austel and via "national
access," a preselect and override code service for domestic and international
calls. International long distance services may be provided by the use of
satellite based facilities or international cable capacity. Full deregulation of
the Australian telecommunications market occurred in July 1997 with the repeal
of the Telecommunications Act 1991 and the introduction of the
Telecommunications Act 1997. RSL Australia can, at any time, apply for a general
carriers license under the new act, but obtaining such a license may impose
certain restrictions and costs rather than expand the scope of operations of RSL
Australia. Since there have been delays in implementing the new act, the Company
has continued to operate as it has under the old act pursuant to the
transitional provisions of the new act. See "Risk Factors--Government Regulatory
Restrictions."
IP TELEPHONY OPERATION--GENERAL
In mid-1997, the Company acquired Delta Three, a telecommunications
provider utilizing packet switched networks, such as the Internet and networks
based on Internet protocols, to provide telecommunications services and to
transmit voice communications.
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 communications, software and hardware developers have
developed technologies capable of allowing the Internet and managed IP networks
to be utilized for voice communications.
Delta Three offers services that provide real-time voice conversations over
the Internet and IP networks ("IP Telephony"). These services work by the use of
an Internet gateway server ("IP Telephony Gateway"), which provides a connection
between the PSTN and Delta Three's IP networks and converts analog voice signals
into digital signals. These signals are in turn compressed and split into
packets which are sent over the Internet or IP network like any other packets
and reassembled by a second IP Telephony Gateway as audio output at the
receiving end. The packets are converted back into analog format and then to the
telephone number dialed.
Certain Internet Telephony software today requires one or both parties to a
call to use computers that are connected to the Internet or an IP network at the
time of the call. In addition to these types of services, Delta Three provides
services that allow both parties to use ordinary telephones. Although current
Internet Telephony does not provide comparable sound quality to traditional long
distance service, the sound quality of IP Telephony has increased over the past
few years, and the Company expects such quality to continue to improve; however
there can be no assurance in this regard.
DELTA THREE OPERATIONS
OVERVIEW
Delta Three began operations in May 1996 and began offering commercial IP
telephony services in January 1997. Delta Three currently offers commercial
service between 23 countries and it plans to extend the service to additional
countries within the next two years.
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SERVICE AND CUSTOMERS
Delta Three utilizes the Internet and managed IP networks traditionally
used for data communications, as a transmission medium for ordinary telephone
calls. The primary service offered by Delta Three enables customers to place
long distance and international phone calls to be carried over the Internet
while using a standard telephone, without any additional equipment. Delta Three
also offers a service that enables customers to place long distance calls from a
personal computer to a standard telephone. Delta Three offers these services at
a price which is at a significant discount to standard international calls.
Delta Three operates as a wholesale carrier for international long distance
resellers on a point-to-point basis and as a retail carrier, servicing its own
network and marketing the use of its network to residential customers in
designated areas and corporations. Currently, most of the minutes sold by Delta
Three are sold to the Company on a wholesale basis. Delta Three recently entered
into a joint venture agreement with Quintel Entertainment, Inc., a direct sales
and marketing company, to market and sell Delta Three's services to customers in
the U.S. and Canada. Delta Three expects to significantly increase its retail
customers base as a result of this joint venture.
Delta Three currently provides IP Telephony service from the U.S., Europe,
Australia and Japan with termination capabilities to 23 points of presence
around the world utilizing RSL-NET.
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 is also
focused on providing high margin innovative value-added services in niche
markets. Delta Three utilizes the Web as an additional sales venue to offer
services to retail customers and is increasing its resources towards on-line
marketing and sales. Delta Three also offers the Company the ability to purchase
minutes wholesale at preferred rates.
DELTA THREE NETWORK
The Delta Three network consists of IP Telephony Gateways, primarily IPTC
Ericsson platforms, located within key metropolitan areas in target countries. A
Delta Three customer dials an access number where a Delta Three system prompts
the customer for an access code and the desired phone number. The system then
opens a connection with a remote IP Telephony Gateway and instructs the IP
Telephony Gateway to place a local call to the telephone the customer has
dialed. Once the local call is transmitted, the IP Telephony Gateway converts
the call into a form which can be routed over the Internet and transfers the
call to a second Internet Gateway. The IP Telephony Gateway 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. Delta Three has also entered into a co-development agreement
with Ericsson to develop IP Telephony Gateways and application technology.
REGULATORY ENVIRONMENT
While regulation still plays a significant role in traditional
telecommunications markets, the Internet is largely unregulated, permitting
business opportunities to flourish and to rapidly follow technological
developments. To date, the FCC has never directly exercised regulatory
jurisdiction over Internet-based services. The rapid development of the
Internet, 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 IP 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
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carriers are subject, are not imposed on providers of IP 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/or
foreign regulators will not regulate IP Telephony or Internet service providers
in the future. In a recent Report to Congress, the FCC indicated that certain
forms of phone-to-phone Internet Telephony may bear the characteristics of
telecommunications, as opposed to information, services, thereby subjecting them
to regulation as common carrier offerings.
The level of regulation of IP Telephony differs significantly from country
to country and, in many countries, IP Telephony is not regulated any differently
than other Internet service. In some countries IP Telephony is illegal. There
can be no assurance that regulation of IP Telephony will not increase around the
world. See "Risk Factors--Government Regulatory Restrictions."
EMPLOYEES
As of September 1, 1998, the Company employed approximately 2,000 people,
including officers, administrative and salaried selling personnel. The Company
considers its relationship with its employees to be good.
PROPERTIES
The Company's principal office is at Clarendon House, Church Street,
Hamilton, Bermuda.
The Company maintains executive offices at 767 Fifth Avenue, New York, New
York, where the Company occupies approximately 11,000 square feet under a lease
which expires on January 31, 2002. The lease provides for annual lease payments
of $767,000.
The Company also maintains a 3,040 square foot office at 60 Hudson Street,
New York, New York which houses the Company's international telephony gateway
and domestic switches located in New York. The lease extends until March 2006
and provides for annual lease payments of $312,240.
The Company has entered into a lease to maintain a 14,000 square foot
office at 430 Park Avenue, New York, New York for RSL USA's Eastern United
States offices. The lease extends until June 29, 2001 and provides for annual
lease payments of $375,000.
The Company maintains a 15,000 square foot office at 5550 Topanga Canyon
Boulevard, Woodland Hills, California which houses RSL USA's western offices.
The lease for such space extends until January 15, 2003 and provides for annual
lease payments of $333,000.
The Company, as a result of the acquisition of WestComm, leases office
space in Pittsburgh, Pennsylvania and various other sales offices for annualized
aggregate rent of approximately $1.8 million. The lease for the principal office
in Pittsburgh extends until July 31, 2008.
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 $90,000 until October 2000 and
may be increased thereafter.
The Company maintains office space at Victoria House, London Square, Cross
Lanes, Guildford, Surrey, which is RSL Europe's headquarters. The lease extends
until August 20, 2006 and provides for annual lease payments of approximately
$245,000, which may increase in December 1999 and December 2004.
The Company maintains additional office space for RSL Europe at 21/27
Tabernacle Street, London, England. The lease extends until 2008 and provides
for annual lease payments of approximately $420,000, and may be increased in
July 2003. The space is rent free until April 1999.
In addition, the Company maintains offices with respect to its other
foreign operations, for which the aggregate annual lease payments equal
approximately $3.0 million.
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The Company, through its direct and indirect subsidiaries, also leases
additional office spaces for its operations.
LEGAL PROCEEDINGS
In mid-1997 AT&T filed with the FCC an opposition to the Company's requests
for modification of the International Settlement Policy to implement the
Company's accounting rates for international long distance service between the
United States and each of Denmark, the Dominican Republic, Finland, Norway and
the United Kingdom. AT&T has alleged, inter alia, that the requests violate the
principles underlying the International Settlement Policy and the FCC's
non-discrimination policy. The Company does not believe that the FCC's
resolution of this matter reasonably can be expected to have a material adverse
effect on its business or results of operations.
In April 1997, the Attorney General of the State of Illinois filed a
complaint against LDM arising from alleged instances of unauthorized changes in
subscribers' selections of interexchange carriers ("slamming"). In October 1997,
the Attorney General of the State of New Jersey served a subpoena on LDM seeking
information also relating to various slamming complaints lodged against LDM.
Both the Illinois complaint and the New Jersey subpoena relate to alleged
activity by LDM occurring prior to its acquisition by RSL USA. In March 1998 and
in May 1998, the Attorney General of the State of Florida served a subpoena on
each of LDM and RSL USA, respectively, seeking information relating to slamming
in connection with the unauthorized changing or combining of local and long
distance telephone service providers or billing for telephone related services.
The Florida subpoenas relate to alleged activity by LDM which would have
primarily occurred prior to LDM's acquisition by RSL USA. Pursuant to the terms
of the stock purchase agreement between RSL USA and the shareholders of LDM, RSL
USA is entitled to indemnification for losses, costs and expenses as a result
of, among other things, "slamming" and related matters. The Company does not
believe that the resolution of these matters reasonably can be expected to have
a material adverse effect on its business or results of operations.
A subpoena, relating to alleged slamming activities, has also been issued
by the Attorney General of the State of New Jersey against Cyberlink. There are
also pending against LDM and Cyberlink before the FCC and various state public
service commissions informal complaints relating to alleged slamming activities.
The Company does not believe that the resolution of these matters reasonably can
be expected to have a material adverse effect on its business or results of
operations.
The Company also is, from time to time, a party to litigation that arises
in the normal course of its business operations. The Company is not presently a
party to any such litigation that the Company believes could reasonably be
expected to have a material adverse effect on its business or results of
operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information concerning directors and executive officers of the
Company and certain of its subsidiaries is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------- ------- ----------------------------------------------
<S> <C> <C>
Ronald S. Lauder.............................. 54 Director and Chairman of the Board
Itzhak Fisher................................. 42 Director, Chief Executive Officer and
President
Jacob Z. Schuster............................. 49 Director, Executive Vice President, Chief
Financial Officer, Assistant Secretary and
Treasurer
Richard E. Williams........................... 46 Chief Executive Officer and President of RSL
Europe
Adrian Coote.................................. 44 Managing Director of RSL Australia
Edmond J. Thomas.............................. 55 Chief Executive Officer and President of RSL
USA
Karen van de Vrande........................... 48 Vice President of Marketing
Nir Tarlovsky................................. 32 Vice President of Business Development
Nesim N. Bildirici............................ 31 Vice President of Mergers and Acquisitions
Mark J. Hirschhorn............................ 34 Vice President--Finance, Global Controller and
Assistant Secretary
Roland T. Mallcott............................ 51 Vice President of Engineering
Andrew C. Shields............................. 41 Vice President of International Carrier
Relations
Elie C. Wurtman............................... 29 Vice President of Emerging Technologies
Avery S. Fischer.............................. 31 Legal Counsel
Michael Ashford............................... 52 Secretary
Gustavo A. Cisneros........................... 53 Director
Fred H. Langhammer............................ 54 Director
Leonard A. Lauder............................. 65 Director
Eugene A. Sekulow............................. 67 Director
Nicolas G. Trollope........................... 51 Director
</TABLE>
All directors hold office, subject to death, removal or resignation, until
the next annual meeting of shareholders and thereafter until their successors
have been elected and qualified. Officers of the Company serve at the pleasure
of their respective Boards of Directors, subject to any written arrangements
with the Company. See "--Employment Arrangements." Set forth below is certain
information with respect to the directors, executive officers and other senior
management of the Company.
Ronald S. Lauder co-founded the Company, has served as its Chairman since
1994 and is the principal and controlling shareholder of the Company. 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
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served as Deputy Assistant Secretary of Defense for European and NATO affairs.
From 1986 to 1987, Mr. Lauder served as U.S. Ambassador to Austria. Mr. Lauder
is a director of Estee Lauder. He is Chairman of the Board of Trustees of the
Museum of Modern Art, Treasurer of the World Jewish Congress, a member of the
Board of Governors of the Joseph H. Lauder Institute of Management and
International Studies at the University of Pennsylvania and a member of the
Visiting Committee of the Wharton School at the University of Pennsylvania.
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. 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 Clal, 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. Mr. Fisher previously was a consultant to Mobil Oil Corporation, in the
telecommunications field. In addition, 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.
Jacob Z. Schuster has been a director, Secretary or Assistant Secretary,
Treasurer and Executive Vice President of the Company since 1994 and has been
Chief Financial Officer of the Company since February 1997. From 1986 to 1992,
Mr. Schuster was a General Partner and the Treasurer of Goldman, Sachs & Co.
("Goldman Sachs"). Mr. Schuster has been President and Treasurer of RSL
Management Corporation ("RSL Management") since November 1995 and Executive Vice
President of RSL Investments Corporation since March 1994. Mr. Schuster joined
Goldman Sachs in 1980, was made a General Partner in 1986 and served as
Treasurer of the firm from 1985 until his retirement from the firm in 1992. 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.
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 global data networks. Prior to
joining British Telecom Australasia, Mr. Coote served in various capacities at
Philips Telecommunications Systems.
Edmond J. Thomas has been Chief Executive Officer and President of RSL USA
since March 1998. From September 1997 until March 1998, Mr. Thomas was the Chief
Operating Officer of Bell Atlantic Global Networks, a division of Bell Atlantic
Corp. From 1994 until 1997, Mr. Thomas was Executive Vice President Science and
Technology of Nynex Corp. ("Nynex") and, from 1991 until 1994, he served as its
Vice President of Research and Development. Mr. Thomas also served as Nynex's
Corporate Director of Advanced Technology from 1986 to 1991. From 1981 until
1986, Mr. Thomas held several positions at New York Telephone. Prior to 1981,
Mr. Thomas served in various capacities at AT&T.
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.
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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 RSL North
America. 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's 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 R.S. Lauder, Gaspar & Co., L.P. ("RSLAG") and the Company.
Mr. Bildirici was a Managing Director of RSLAG from 1996 until recently. Prior
to joining RSLAG, Mr. Bildirici was an investment banker at Morgan Stanley & Co.
Incorporated from 1989 to 1991. From 1991 to 1993, Mr. Bildirici was a graduate
student at Harvard Business School, where he received his MBA.
Mark J. Hirschhorn has been Vice President-Finance of the Company since
August 1997 and has been Global Controller of the Company since January 1996.
Mr. Hirschhorn has also served as the Assistant Secretary of the Company since
September 1996. From October 1987 to December 1995, Mr. Hirschhorn was employed
at Deloitte & Touche LLP, most recently as a Senior Manager specializing in
emerging business and multinational consumer product companies.
Roland T. Mallcott has been Vice President of Engineering of the Company
since February 1997. From December 1995 until January 1997, Mr. Mallcott served
as Director of Joint Ventures of Concert, through British Telecom and MCI, in
Canada, Mexico and Germany. From January 1991 to December 1995, Mr. Mallcott
served as Director of Engineering and Operations for British Telecom (US)
responsible for building and managing the British Telecom and Concert global
data and voice networks. Prior to 1991, Mr. Mallcott served in various network
engineering capacities for British Telecom.
Andrew C. Shields has been Vice President of International Carrier
Relations since August 1997. From October 1993 until August 1997, Mr. Shields
served as Vice President of International Business Development of LCI
International, with responsibility for international business development and
international carrier relations. From June 1991 until October 1993, Mr. Shields
served as Director of Global Alliances for Northern Telecom, responsible for
international infrastructure expansion. Mr. Shields also served as Northern
Telecom's Director of International Marketing from June 1989 until June 1991.
From 1984 to 1989, Mr. Shields served as Senior Manager, International Relations
for MCI International, responsible for negotiating bilateral direct operating
agreements with international carriers. Mr. Shields also served in various
capacities at MCI International, MCI Telecommunications, and ITT World
Communications from 1979 to 1984.
Elie C. Wurtman has been Vice President of Emerging Technologies of the
Company since April 1998. Mr. Wurtman co-founded Delta Three, Inc. and has
served as its Chief Executive Officer and President since its inception in May
1996. He is also the founder of Ambient Corporation, a developer of smart card
technology and has been a member of its Board of Directors since November 1995.
From January 1995 until November 1995, Mr. Wurtman was Vice President of
Marketing of TTR Technologies Inc., a software security company. From September
1993 to December 1994, Mr. Wurtman was engaged in private real estate business.
Prior to 1993, Mr. Wurtman served in the Israeli Defense Forces as the Deputy
Commander of the Allenby Bridge border crossing between Israel and Jordan.
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.
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Michael Ashford, Secretary of the Company since May 1998, has been a
manager of Codan Services Limited, Hamilton, Bermuda, a corporate service
company associated with the law firm of Conyers, Dill & Pearman, Hamilton
Bermuda, Bermuda counsel to the Company, since 1989.
Gustavo A. Cisneros has been a director of the Company since March 1997.
For more than five years, Mr. Cisneros, together with other members of his
family or trusts established for their benefit, has owned direct or indirect
beneficial interests in certain companies that own or are engaged in a number of
diverse commercial enterprises principally in Venezuela, the United States,
Brazil, Chile and Mexico. Mr. Cisneros has also been the Chairman of the Board
of Directors of Pueblo Xtra International, Inc., a holding company which owns
all of the common stock of Pueblo International, Inc., a company engaged in the
business of operating supermarkets and video rental outlets, since June 1993 and
a Director of Univision Communications Inc., a Spanish-language television
broadcasting company, since May 1994.
Fred H. Langhammer, a director of the Company since September 1997, has
been President of Estee Lauder since 1995, Chief Operating Officer of Estee
Lauder since 1985, and a director of Estee Lauder since January 1996, and was
Executive Vice President of Estee Lauder from 1985 until 1995. Mr. Langhammer
joined Estee Lauder in 1975 as President of its operations in Japan. In 1982, he
was appointed Managing Director of Estee Lauder's operations in Germany. Prior
to joining Estee Lauder, Mr. Langhammer was General Manager of Dodwell (Japan),
a global trading company. He is a member of the Board of Directors of RJR
Nabisco Holdings Corp., the Cosmetics, Toiletries and Fragrance Association, an
industry group, and the American Institute for Contemporary German Studies at
Johns Hopkins University. He is also a Senior Fellow of the Foreign Policy
Association.
Leonard A. Lauder has been a director of the Company since March 1997.
Mr. Lauder is a principal shareholder and, since 1982, has served as Chief
Executive Officer of Estee Lauder and was 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 A. 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 1985 to 1993. 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. Mr. Trollope has been with Conyers, Dill & Pearman since 1975.
Mr. Trollope has served as a director of CME since June 1994 and also serves as
vice-president and secretary of CME.
Other than Ronald S. Lauder and Leonard A. Lauder, who are brothers, no
family relationship exists between any director or executive officer of the
Company.
COMMITTEES OF THE BOARD
The Company's Board of Directors (the "Board of Directors") has an
Executive Committee (the "Executive Committee"), a Compensation Committee (the
"Compensation Committee") and an Audit Committee (the "Audit Committee").
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EXECUTIVE COMMITTEE
The Executive Committee is composed of Ronald S. Lauder, Itzhak Fisher,
Jacob Z. Schuster and Eugene A. Sekulow. A majority of the members of the
Executive Committee must approve any action taken by the Executive Committee.
During the period between meetings of the Board of Directors, the Executive
Committee has all powers and authority of the Board of Directors to manage the
Company's business, except that the Executive Committee, acting alone, cannot
(i) amend the Company's Memorandum of Association or Bye-laws (which also
requires shareholder approval), (ii) adopt an agreement of merger or
consolidation or approve the sale, lease or exchange of all or substantially all
of the Company's property and assets, or (iii) approve or recommend to the
Company's shareholders a dissolution of the Company.
COMPENSATION COMMITTEE
The Compensation Committee is composed of Ronald S. Lauder, Gustavo A.
Cisneros and Eugene A. Sekulow. During a portion of 1997, Itzhak Fisher was a
member of the Compensation Committee. The Compensation Committee is responsible
for determining executive compensation policies and guidelines and for
administering the Company's stock option and compensation plans.
AUDIT COMMITTEE
The Audit Committee is currently composed of Ronald S. Lauder, Eugene A.
Sekulow and Fred H. Langhammer. The Audit Committee is charged with
(i) recommending the engagement of independent accountants to audit the
Company's financial statements, (ii) discussing the scope and results of the
audit with the independent accountants, (iii) reviewing the functions of the
Company's management and independent accountants pertaining to the Company's
financial statements and (iv) performing such other related duties and functions
as are deemed appropriate by the Audit Committee and the Board of Directors.
During a portion of 1997, Itzhak Fisher was a member of the Audit Committee.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes all plan and non-plan compensation awarded
to, earned by or paid to the Company's current Chief Executive Officer and four
other most highly compensated executive officers for services rendered in all
capacities to the Company in the last three fiscal years (together, the "Named
Executive Officers"). See "--Employment Arrangements."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL AWARDS
COMPENSATION SECURITIES
--------------------------- UNDERLYING
SALARY BONUS(1) OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR ($) ($) (NUMBER)
- -------------------------------------------------------------------- ---- ------- -------- -------------
<S> <C> <C> <C> <C>
Itzhak Fisher....................................................... 1997 400,000 650,000 432,856
President and Chief Executive Officer 1996 350,000 150,000 --
1995 250,000 75,000 --
Nir Tarlovsky....................................................... 1997 187,500 300,000 --
Vice President of Business Development 1996 178,000 75,000 --
1995 112,500 37,500 876,000
Richard E. Williams(2).............................................. 1997 240,000 165,000 350,400
President and Chief Executive Officer of RSL Europe 1996 172,000 50,000 --
1995 65,000 -- --
Nesim N. Bildirici(3)............................................... 1997 185,000 300,000 --
Vice President of Mergers and Acquisitions 1996 165,000 75,000 --
1995 81,000 32,000 --
Mark Hirschhorn..................................................... 1997 155,000 232,500 16,206
Vice President--Finance 1996 140,000 50,000 93,294
</TABLE>
(Footnotes on next page)
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(Footnotes from previous page)
- ------------------
(1) Annual bonuses are reported in the year earned, whether paid in that year or
in the following year. Bonuses for 1997 were determined pursuant to the 1997
Performance Plan described below and paid in the first quarter of 1998
following receipt of 1997 audited financial results.
(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" and "--Compensation Committee Interlocks and Insider
Participation."
No other annual compensation, restricted stock awards, stock appreciation
rights or long-term incentive plan payouts or other compensation (all as defined
in the regulations of the Commission) were awarded to, earned by or paid to the
Named Executive Officers during 1996 or 1997.
STOCK OPTION AND COMPENSATION PLANS
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
In April 1995, the Board of Directors of the Company authorized, and the
shareholders of the Company approved, the RSL Communications, Ltd. 1995 Stock
Option Plan (as later amended and restated, the "1995 Plan"). Under the 1995
Plan, the Company's Compensation Committee was authorized to grant options for
up to 2,847,000 shares of Class A Common Stock. As of December 31, 1997, the
Company had granted options to purchase 2,716,617 shares of 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. In connection with the IPO, the 1995 Plan was replaced
by the stock option plans described below. The Company has not granted further
options under the 1995 Plan since the IPO, and will not grant further options
under the 1995 Plan.
1997 STOCK INCENTIVE PLAN
In connection with the IPO, the Company adopted the RSL Communications,
Ltd. 1997 Stock Incentive Plan (the "1997 Plan"). Under the 1997 Plan, the
Company's Compensation Committee is authorized to grant options for up to
3,100,000 shares of Class A Stock. The purposes of the 1997 Plan are to foster
and promote the long-term financial success of the Company and materially
increase shareholder value by (i) motivating superior performance by means of
performance-related incentives, (ii) encouraging and providing for the
acquisition of an ownership interest in the Company by executive officers and
other key employees and (iii) enabling the Company to attract and retain the
services of an outstanding management team upon whose judgment, interest and
special effort the successful conduct of its operations is largely dependent.
The 1997 Plan reflects the Company's view that it is desirable to lengthen the
vesting period and shorten the terms of its options, and to have a "cost
capital" factor included in the pricing of the options.
The 1997 Plan is administered by the Compensation Committee and provides
for the grant of (i) incentive and non-incentive stock options to purchase Class
A Common Stock; (ii) stock appreciation rights ("SARs"), which may be granted in
tandem with stock options, in addition to stock options, or freestanding; (iii)
restricted stock and restricted units; (iv) incentive stock and incentive units;
(v) deferred stock units; and (vi) stock in lieu of cash (collectively,
"Awards"). As of the date of the IPO, the number of shares of Class A Common
Stock available for Awards granted under the 1997 Plan during its term was
approximately 7.0% of the total number of shares of Class A Common Stock
outstanding on a fully diluted basis (not including Roll-up Rights). The maximum
number of shares for which options or stock appreciation rights may be granted
to any one participant in a calendar year is 500,000. The Company granted to
Itzhak Fisher, pursuant to his new employment agreement and
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contingent on the completion of the Company's IPO, options to acquire 432,856
shares of Class A Common Stock under the 1997 Plan representing 1% of the Common
Stock, on a fully-diluted basis (not including Roll-up Rights). As of September
30, 1998, the Company had granted options to acquire 437,856 shares of Class A
Common Stock under the 1997 Plan and 164,250 shares of restricted stock under
the 1997 Plan which vests over three years. See "--Employment Arrangements." The
Company has also granted "restricted units" and SARs under the 1997 Plan to
certain key members of management. The number of shares of Class A Common Stock
into which these restricted units and SARs may be exercised, which is based on
the relative values of the Company's subsidiaries, cannot be determined at this
time.
1997 PERFORMANCE INCENTIVE COMPENSATION PLAN
In September 1997, prior to the IPO, the Company established the RSL
Communications, Ltd. 1997 Performance Incentive Plan (the "1997 Performance
Plan") to enable the Company and its subsidiaries to attract, retain, motivate
and reward the best qualified executive officers and key employees by providing
them with the opportunity to earn competitive compensation directly linked to
the Company's performance. The 1997 Performance Plan was effective for 1997 and
is effective for each of calendar years 1998, 1999 and 2000, unless extended or
earlier terminated by the Board of Directors. The Compensation Committee may
determine that any bonus payable under the 1997 Performance Plan be paid in
cash, in shares of Class A Common Stock or in any combination thereof, provided
that at least 50% of such bonus is required to be paid in cash. In addition, the
1997 Performance Plan permits a participant to elect to defer payment of his
bonus on terms and conditions established by the Compensation Committee. No more
than 400,000 shares of Class A Common Stock may be issued under the 1997
Performance Plan.
Under the 1997 Performance Plan, bonuses are payable if the Company meets
any one or more of the following performance criteria, which are set annually by
the Compensation Committee: (i) amount of or increase in consolidated EBITDA (as
defined) (which consists of earnings (loss) before interest, income taxes,
depreciation and amortization); (ii) revenues; (iii) earnings per share;
(iv) net income; (v) gross profit margin; (vi) maximum capital expenditures;
(vii) return on equity; and/or (viii) return on total capital.
With respect to calendar year 1997 only, a cash bonus pool of $2,675,000
was established by the Board of Directors and approved by the Company's
shareholders prior to the IPO. The Company achieved the specified performance
targets set by the Compensation Committee for 1997 and, under the 1997
Performance Plan, $650,000 was awarded to the Company's Chief Executive Officer,
Mr. Itzhak Fisher. Of the balance of funds remaining in the bonus pool,
approximately $1,250,000 was awarded to key employees of the Company and its
subsidiaries based upon the recommendation of Mr. Fisher and as approved by the
Compensation Committee and the Board of Directors (including $997,500 paid to
the other Named Executive Officers). The $775,000 balance of the $2,675,000 cash
bonus pool was not paid out. Pursuant to the terms of the 1997 Performance Plan,
the awards were paid promptly following the completion of the audit of the
Company's 1997 financial statements. The Compensation Committee determined that
all such bonuses for 1997 were to be paid in cash.
With respect to calendar years 1998 and thereafter, bonus amounts will be
determined as follows: if 100% of such pre-established target or targets are
achieved, participants will generally be eligible to receive a bonus equal to
their base salary for such year. If 120% of such target is achieved, the bonus
potentially payable to participants will generally equal twice their base salary
for such year and, if 80% of such target is achieved, 25% of such base salary.
In the case of the Company's chief executive officer, the amount of such
potential bonus will be 150% of base salary if 100% of the target is achieved,
250% of base salary if 120% of the target is achieved and 25% of such base
salary if 80% of the target is achieved. To the extent the Company's results
exceed 80% of the target but are less than 120% of the target, the amount of the
bonus payable to participants will be adjusted proportionately based on where
such results fall within the ranges set forth above. Any such bonus will consist
of two components. Fifty percent of the amount determined pursuant to the
formula described above will be payable if the applicable target is achieved. Up
to an additional 50% of such amount will be payable in
96
<PAGE>
the discretion of the Compensation Committee. In addition, the 1997 Performance
Plan permits the Compensation Committee to grant discretionary bonuses to
participants, notwithstanding that a bonus would not otherwise be payable under
the 1997 Performance Plan, to recognize extraordinary individual performance.
The Chief Executive Officer's bonus compensation is based upon an
employment agreement between the Company and Mr. Fisher which provides for
Mr. Fisher's participation in the 1997 Performance Plan as well as other long
term bonus compensation based on the Company's stock performance over time. See
"--Employment Arrangements."
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to grants of stock
options to purchase Class A Common Stock granted to the Named Executive Officers
during the fiscal year ended December 31, 1997. No stock appreciation rights
were granted by the Company to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
NUMBER OF % OF TOTAL
SECURITIES OPTION/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES EXERCISE OR GRANT DATE
GRANTED IN FISCAL BASE PRICE PRESENT VALUE
NAME (#) YEAR ($/SH) EXPIRATION DATE $ (1)
- ----------------------------------- ----------------- ------------ ----------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Itzhak Fisher(2)................... 432,856 29.7 22.00 10/5/04 4,297,105
Nir Tarlovsky...................... -- -- -- -- --
Richard E. Williams(3)............. 350,400 24.0 .00457 10/5/07 7,707,325
Mark Hirschhorn(4)................. 16,206 1.1 .00457 1/1/07 344,329
Nesim N. Bildirici................. -- -- -- -- --
</TABLE>
- ------------------
(1) The grant date present value has been calculated as of each grant date:
October 6, 1997, October 3, 1997 and January 1, 1997 for Itzhak Fisher,
Richard E. Williams and Mark J. Hirschhorn, respectively, using a variant of
the Black-Scholes pricing model. In applying the model, the Company assumed
a three-month volatility of 45%, a 5.62% risk-free rate of return and a
10-year option term. Since this model is assumption-based, it may not
accurately determine the options' present value. The true value of the
options, when and if exercised, will depend on the actual market price of
the Class A Common Stock on the date of exercise.
(2) Shares issuable upon the exercise of options granted under the 1997 Plan
pursuant to Mr. Fisher's employment agreement dated September 2, 1997. The
exercise price per share is initially $22.00 and is increased on the first
day of each calendar quarter after the date of grant, compounded annually,
equal to one-quarter of the yield to maturity on U.S. Treasury Securities
having a maturity, at the time of grant of the options, approximately equal
to seven years. Forty percent of the options are exercisable on
December 31, 2000, 70% are exercisable on December 31, 2001 and 100% are
exercisable on December 31, 2002.
(3) Shares of Class A Common Stock issuable upon the exercise of options issued
on October 6, 1997. In connection with an employment agreement dated as of
August 5, 1995 between Mr. Williams and the Company, Mr. Williams was
granted the RSL Europe Option Rights (as defined), which rights were
exchanged for the above-listed options.
(4) Shares of Class A Common Stock issuable upon the exercise of options granted
on January 1, 1997 under the 1995 Plan. The options became fully vested on
January 1, 1998.
97
<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 1997 by the Named
Executive Officers and the value at December 31, 1997 of unexercised stock
options held by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
VALUE OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED ON REALIZED FY-END (#) FY-END($)(2)
NAME EXERCISE (#) $(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- ------------------- ------------ --------------------------- ----------------------------
<S> <C> <C> <C> <C>
Itzhak Fisher............ 0 0 0/432,856 0/0
Nir Tarlovsky............ 509,580 13,121,452 0/366,420 0/8,061,073
Richard E. Williams...... 0 0 350,400/0 7,707,325/0
Mark Hirschhorn.......... 0 0 62,196/47,304 1,268,798/990,857
Nesim N. Bildirici....... 202,562 5,215,819 0/344,938 0/7,588,478
</TABLE>
- ------------------
(1) Represents the difference between the closing price of the Class A Common
Stock on the date of exercise (as quoted on The Nasdaq National Market, as
published in the Wall Street Journal) and the option exercise price
multiplied by the number of shares underlying the options exercised.
Mr. Tarlovsky and Mr. Bildirici have continued to hold the shares received
on exercise.
(2) The value of unexercised in-the-money options was calculated by multiplying
the number of underlying shares held by the difference between the closing
price of the Class A Common Stock on December 31, 1997 ($22.00 per share, as
quoted on The Nasdaq National Market, as published in the Wall Street
Journal) and the option exercise price.
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 encourages such directors to make investments in the Class A Common
Stock and compensates such directors for their services to the Company
principally through the grant of stock options and stock awards. The Company
also encourages such directors to hold their shares and options as long as they
are on the Board of Directors (except for transfers for estate and tax planning
and personal liquidity needs).
With respect to the ownership of Class A Common Stock, future directors
generally will be required, prior to joining the Board, to purchase, at the then
fair market value, shares of Class A Common Stock either in the market or, if
trading restrictions apply, from the Company.
DIRECTORS' PLAN
The purposes of RSL Communications 1997 Directors' Compensation Plan (the
"Directors' Plan") are to enable the Company to attract, retain and motivate the
best qualified directors and to enhance a long-term mutuality of interest
between the directors and shareholders of the Company by granting the Directors
shares of, and options to purchase shares of, Class A Common Stock. Under the
Directors' Plan, on the first business day following each annual meeting of the
Company's shareholders during the 10-year term of the Directors' Plan, each
non-employee director (including for these purposes the Chairman of the Board of
Directors), will be granted options to acquire a number of shares of Class A
Common Stock with an aggregate fair market value on the date of grant equal to
$50,000 ($150,000 in the case of Ronald S. Lauder in his capacity as Chairman of
the Board of Directors). Each such option will have a 10-year term. The exercise
price of the options initially will equal the fair market value of the Class A
Common Stock on the date of grant and will be increased on the first day of each
calendar quarter by an amount, compounded annually, equal to one-quarter of the
yield to maturity of United States Treasury Securities having a maturity, at the
time of grant of the options, approximately equal to the term of such options.
Options granted under the Directors' Plan become exercisable in five equal
annual installments commencing on the first anniversary of the date of grant.
The maximum number of shares that may be
98
<PAGE>
issued under the Directors' Plan is 250,000. As of September 30, 1998, the
Company had granted options to acquire 32,704 shares of Class A Common Stock
under the Directors' Plan.
KEY MAN LIFE INSURANCE
The Company maintains $5.0 million key man life insurance policies on the
lives of each of Itzhak Fisher and Richard E. Williams. The Company is the sole
beneficiary of such policies.
EMPLOYMENT ARRANGEMENTS
Each of the Company and RSL North America has entered into an employment
agreement with Itzhak Fisher, which commenced on October 6, 1997 and will
terminate on December 31, 2002. The employment agreements provide that
Mr. Fisher is to serve as President and Chief Executive Officer of the Company
and RSL North America and specify certain of his other duties and reporting
responsibilities. The Company is obligated to use its best efforts to ensure
that Mr. Fisher continues to serve as a director and member of the Executive
Committee of the Company and RSL North America is obligated to use its best
efforts to ensure that Mr. Fisher continues to serve as a director of RSL North
America. Under the employment agreements, Mr. Fisher is entitled to receive, in
the aggregate, a base salary of $400,000, increased by not less than $50,000 on
each January 1, commencing January 1, 1999, plus an additional amount based on
the increase in the consumer price index in the New York metropolitan area. In
no event may Mr. Fisher's base salary, in the aggregate, be less than $50,000
more than the aggregate base salary of any other executive officer of the
Company. The employment agreements also provide that Mr. Fisher is to be a
participant in the 1997 Performance Plan (which generally outlines the bonus
plan for 1997 and future years), and that Mr. Fisher is to receive additional
cash bonuses of $1,500,000 and $1,000,000 if the total return to the Company's
shareholders from the date of the closing of the IPO to December 31, 2000 and
December 31, 2002, respectively, exceeds the return to common shareholders of
(i) the companies included in the peer group or line of business index in the
Company's proxy statement for that period or (ii) if not included in such proxy
statement, a group of companies selected by the Executive and Compensation
Committees as representing investment opportunities comparable to the Company
for the same periods. If Mr. Fisher's employment is terminated for any reason
other than by the Company for Cause (as defined) or by Mr. Fisher without Good
Reason (as defined, including in the event of a change in control), Mr. Fisher
is entitled to a pro-rated bonus if the total return objective is achieved
through the date of such termination. Pursuant to the employment agreements,
upon the closing of the IPO, Mr. Fisher was granted options under the 1997 Plan
to purchase 432,856 shares of Class A Common Stock representing 1.0% of the
outstanding Common Stock on a fully-diluted basis. Forty percent of such options
will be exercisable on December 31, 2000, an additional 30% on December 31,
2001, and an additional 30% on December 31, 2002, except that all such options
will become exercisable in the event that Mr. Fisher's employment is terminated
by the Company without Cause or Mr. Fisher terminates his employment for Good
Reason or by reason of his death or Disability (as defined). The employment
agreement also contains noncompetition provisions applicable during the term of
the employment agreement and for one year thereafter. If Mr. Fisher's employment
is terminated by the Company without Cause, or by Mr. Fisher for Good Reason,
the employment agreements provide that Mr. Fisher is entitled to receive
benefits and his salary (in addition to any vested benefits and previously
earned but unpaid salary) for the balance of the term of the employment
agreement or for at least 12 months, whichever is longer, plus an amount equal
to his bonus under the 1997 Performance Plan for the immediately preceding year.
In the event of Mr. Fisher's death or Disability, he (or his representative or
estate or beneficiary) will be paid, in addition to any previously earned but
unpaid salary and vested benefits, 12 months salary (reduced, in the case of
disability, by any disability benefits he receives). If Mr. Fisher's employment
is terminated for any other reason, he is entitled to receive any previously
earned but unpaid salary and any vested benefits. In addition, if Mr. Fisher's
employment is terminated by the Company without Cause or by Mr. Fisher for Good
Reason or upon Mr. Fisher's death or Disability or the expiration of his
employment agreements, Mr. Fisher will be entitled to two demand registrations
of his shares in accordance with the terms of a registration rights agreement
among the Company and certain of its shareholders including Mr. Fisher.
99
<PAGE>
The Company is negotiating new employment agreements with three of its key
employees, Richard Williams, Nesim Bildirici and Nir Tarlovsky, and is
considering entering into new employment agreements with other key executive
officers. The Company has entered into an agreement with Codan Services Limited,
a corporate service company, located in Bermuda, of which Michael Ashford, the
Company's Secretary and a resident of Bermuda, is a manager. Mr. Ashford serves
as the Company's Secretary pursuant to such agreement.
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 most of its Local Operators.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee currently are Ronald S. Lauder,
Gustavo A. Cisneros and Eugene A. Sekulow. During the portion of 1997 prior to
the IPO, Andrew Gaspar, a former Board member who resigned on May 7, 1998, and
Itzhak Fisher were members of the Compensation Committee.
RSL Management, which is wholly-owned by Ronald S. Lauder, the Chairman of
the Board and the principal and controlling shareholder of the Company,
subleases an aggregate of 11,000 square feet of office space to the Company at
an annual rent of $767,000. RSL Management subleases such space from Estee
Lauder. Ronald S. Lauder is a principal shareholder of Estee Lauder, and
Leonard A. Lauder, a director of the Company, is also a principal shareholder
and the Chief Executive Officer of Estee Lauder. Ronald S. Lauder and
Leonard A. Lauder are brothers and Fred H. Langhammer, a director of the
Company, is the President and Chief Operating Officer of Estee Lauder. In
addition, RSL Management provided payroll and benefits services to the Company
for an annual fee of $6,000 for 1997. Jacob Z. Schuster, Chief Financial
Officer, Executive Vice President, Treasurer and a director of the Company, is
the President and Treasurer of RSL Management. In 1996, Mr. Schuster received
compensation only for his services to RSL Management (and such compensation was
paid by RSL Management). In 1997, Mr. Schuster received compensation from RSL
Management and the Company for services provided by him to each of RSL
Management and the Company. Effective January 1, 1998, Mr. Schuster devotes 75%
of his time to the Company and 25% of his time to RSL Management and is being
compensated by each of the Company and RSL Management on that basis.
Ronald S. Lauder, the Chairman of the Board of the Company and the
principal and controlling shareholder of the Company, personally guaranteed the
Company's revolving credit facility with The Chase Manhattan Bank (the
"Revolving Credit Facility") in August 1996. The commitment under the Revolving
Credit Facility was $7.5 million at June 30, 1998, which amount was permanently
reduced to $5 million at July 1, 1998.
As consideration for Mr. Lauder's guarantee of the Revolving Credit
Facility, Mr. Lauder received in September 1996, in the aggregate, the Lauder
Warrants to purchase 459,900 shares of Class B Common Stock of the Company at an
exercise price of $.00457 per share. The Lauder Warrants became exercisable on
October 3, 1997 and expire on October 3, 2007.
The Company entered into a consulting agreement as of September 1, 1995
with Eugene A. Sekulow, a director of the Company. The consulting agreement
expired August 31, 1997. The consulting agreement provided for Mr. Sekulow to
receive a $24,000 annual fee, as well as an annual grant of options to purchase
21,900 shares of Class A Common Stock, for services rendered as a consultant to
the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
100
<PAGE>
The lenders under the New Credit Facility are committed (subject to final
documentation), severally, and not jointly, to lend up to $35 million in the
aggregate to the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The New
Lenders include: (1) RSL Capital LLC, a New York limited liability company
("RSLC") of which the only member is Ronald S. Lauder, Chairman of the Company,
which committed to lend up to $20 million, (2) Leonard A. Lauder, a director of
the Company and brother of Ronald S. Lauder (or an entity controlled by Leonard
Lauder), who committed to lend up to $5.25 million, (3) Fisher Invesment
Partners, L.P., a Delaware limited partnership the sole general partner of which
is Itzhak Fisher, a director and President and Chief Executive Officer of the
Company, and the sole limited partner of which is the Fisher 1997 Family Trust,
which committed to lend up to $5.25 million, (4) Schuster Family Partners I,
L.P., a Delaware limited partnership, the sole general partner of which is Jacob
Z. Schuster, a director and Executive Vice President, Chief Financial Officer,
Assistant Secretary and Treasurer (Principal Financial Officer) of the Company,
and the limited partners of which are certain of Mr. Schuster's children, which
committed to lend up to $2.0 million, (5) Tarlovsky Investment Partners, L.P., a
Delaware limited partnership, the sole general partner of which is Nir
Tarlovsky, Vice President of Business Development of the Company, and the sole
limited partner of which is the Tarlovsky 1997 Family Trust, which committed to
lend up to $1.0 million, (6) Nesim Bildirici, Vice President of Mergers and
Acquisitions of the Company, who committed to lend up to $750,000 and (7) Elie
Wurtman, Vice President of Emerging Technologies of the Company, who committed
to lend up to $250,000. Amounts borrowed under the New Credit Facility will
accrue interest at LIBOR plus 5% per annum.
The law firm of Conyers, Dill & Pearman, of which Nicolas G. Trollope, a
director of the Company, is a partner, was engaged as the Company's counsel in
Bermuda for the fiscal year ended December 31, 1997 and will continue to be so
engaged for the fiscal year ending December 31, 1998. Mr. Trollope does not
receive compensation as a director; Conyers, Dill & Pearman was paid $47,881 in
1997.
Pursuant to an employment agreement, dated July 31, 1997, between the
Company and Andrew Shields, an executive officer of the Company, the Company
loaned Mr. Shields $100,000 in 1997, to facilitate his relocation to another
state at the Company's request. The principal amount of $100,000 and interest
bearing a rate of 6% is due on August 11, 2002 unless either Mr. Shields sells
shares of Common Stock with an aggregate value equal to or greater than $100,000
or Mr. Shield's employment is terminated, in which cases the note is payable on
demand.
For additional disclosure with respect to certain transactions between the
Company and certain of its directors, see "--Compensation Committee Interlocks
and Insider Participation."
101
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Class A Common Stock and the Class B Common Stock at
November 18, 1998 by (i) each person known by the Company to own beneficially
more than 5% of the outstanding shares of either the Class A Common Stock 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, (iii) the
Company's directors and executive officers as a group and (iv) each Selling
Shareholder. Except as indicated under "Selling Shareholders" on the table
below, the Named Executive Officers and Directors of the Company have indicated
that they have no intention as of the date of this Prospectus to register for
sale any of their shares of Common Stock. Nir Tarlovsky, Nesim N. Bildirici,
Richard Williams and Bukfenc, Inc. (the "Selling Shareholders") are the only
shareholders of the Company selling shares in the Offerings. Each Selling
Shareholder has granted the Underwriters an option for 30 days to purchase in
the aggregate up to the number of shares indicated below solely to cover any
over-allotments. None of the 7,000,000 shares of Class A Common Stock offered in
the Offerings are being offered by the Selling Shareholders. 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. Except
where otherwise indicated, the information below regarding post-Offerings share
ownership assumes the Underwriters have not exercised their over-allotment
options.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------------------------------------------------------------
CLASS A COMMON STOCK(1)
-----------------------------------------------------
DIRECTORS, EXECUTIVE
OFFICERS AND 5% PRE-OFFERINGS NUMBER POST-OFFERINGS CLASS B COMMON STOCK
SHAREHOLDERS AND ------------------- BEING ------------------- -----------------------
SELLING SHAREHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT NUMBER
- -------------------------- --------- ------- --------- --------- ------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald S. Lauder
(3)(4)(5)(6)(7)......... 1,363 * -- 1,363 * 17,134,760
Itzhak Fisher (3)(8)...... -- * -- -- * 4,171,205
Leonard A. Lauder
(3)(5)(6)(7)(9)......... 454 * -- 454 * 6,399,831
RSL Investments
Corporation (3)......... -- * -- -- * 9,348,563
E/L RSLG Media, Inc.
(3)..................... -- * -- -- * 1,786,350
Jacob Z. Schuster
(3)(10)................. 41,656 * -- 41,656 * 1,646,559
Gustavo A. Cisneros
(11).................... 1,409,083 7.6 -- 1,409,083 5.5 --
Coral Gate (12)........... 1,408,629 7.6 -- 1,408,629 5.5 --
Nir Tarlovsky (13)(14).... 717,804 3.9 50,000 717,804 2.8 270,301
Nesim N. Bildirici
(14)(15)................ 572,499 3.1 55,555 572,499 2.2 118,513
Mark J. Hirschhorn........ 51,605 * -- 51,605 * --
Eugene A. Sekulow (16).... 44,254 * -- 44,254 * --
Fred H. Langhammer (17)... 12,680 * -- 12,680 * --
Richard E. Williams
(14)(18)................ 350,400 1.9 225,000 350,400 1.4 --
Nicolas G. Trollope
(19).................... 1,000 * -- 1,000 * --
All directors and officers
as a group (20 persons)
(20).................... 3,581,481 18.9 330,555 3,581,481 13.8 26,784,322
Metro Holding AG (21)..... 3,214,284 17.4 -- 3,214,284 12.6 --
Andrew Gaspar
(5)(6)(22).............. 1,863,241 10.1 -- 1,863,241 7.3 --
Bukfenc, Inc. (14)(23).... 1,810,633 9.8 200,000 1,810,633 7.1 --
Essex Investment (24)..... 1,384,950 7.5 -- 1,384,950 5.4 --
<CAPTION>
OVERALL VOTING POWER AND OWNERSHIP OF COMMON STOCK
----------------------------------------------------------------
PRE-OFFERINGS POST-OFFERINGS
DIRECTORS, EXECUTIVE ------------------------------ -------------------------------
OFFICERS % OF % OF
AND 5% SHAREHOLDERS AND VOTING VOTING
SELLING SHAREHOLDERS PERCENT POWER(2) % OWNERSHIP(2) POWER % OWNERSHIP
- -------------------------- ----------------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Ronald S. Lauder
(3)(4)(5)(6)(7)......... 64.0 59.8 37.8 58.4 32.8
Itzhak Fisher (3)(8)...... 15.8 14.8 9.3 14.4 8.1
Leonard A. Lauder
(3)(5)(6)(7)(9)......... 24.3 22.7 14.3 22.2 12.4
RSL Investments
Corporation (3)......... 35.5 33.2 20.9 32.4 18.0
E/L RSLG Media, Inc.
(3)..................... 6.8 6.3 4.0 6.2 3.4
Jacob Z. Schuster
(3)(10)................. 6.3 5.9 3.8 5.7 3.3
Gustavo A. Cisneros
(11).................... * * 3.1 * 2.7
Coral Gate (12)........... * * 3.1 * 2.7
Nir Tarlovsky (13)(14).... 1.0 1.2 2.2 1.2 1.9
Nesim N. Bildirici
(14)(15)................ * * 1.5 * 1.3
Mark J. Hirschhorn........ * * * * *
Eugene A. Sekulow (16).... * * * * *
Fred H. Langhammer (17)... * * * * *
Richard E. Williams
(14)(18)................ * * * * *
Nicolas G. Trollope
(19).................... * * * * *
All directors and officers
as a group (20 persons)
(20).................... 100.0 94.6 66.4 92.4 57.6
Metro Holding AG (21)..... * 1.1 7.2 1.1 6.2
Andrew Gaspar
(5)(6)(22).............. * * 4.2 * 3.6
Bukfenc, Inc. (14)(23).... * * 4.0 * 3.5
Essex Investment (24)..... * * 3.1 * 2.7
</TABLE>
- ------------------
* Less than 1%.
(1) Except as required for the calculation of beneficial ownership pursuant to
Rule 13d-3 under Securities Act, the foregoing does not include
(i) 1,492,625 shares of Class A Common Stock issuable upon the exercise of
outstanding stock options, (ii) 26,328,590 shares of Class A Common Stock
issuable upon the conversion of the shares of Class B Common Stock,
(iii) 459,900 shares of Class A Common Stock issuable upon the conversion
of such shares of Class B Common Stock issuable pursuant to the Lauder
Warrants, (iv) 917,729 shares of Class A Common Stock issuable upon the
exercise of unexercised Warrants, (v) 109,500 shares of restricted stock,
granted pursuant to the Company's 1997 Stock Incentive Plan or (vi) shares
of Class A Common Stock issuable upon exercise of the Roll-Up Rights or
Incentive Units or in the Telegate Exchange. 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.
(2) Represents the percentage of total voting power and the percentage
ownership of the Class A Common Stock and the Class B Common Stock
beneficially owned as of September 30, 1998 by each identified shareholder
and all directors and executive officers as a group. The Class A Common
Stock and the Class B Common Stock are the only authorized classes of the
Company's capital stock with shares outstanding.
(3) The business address of each of the indicated holders of the Company's
securities is 767 Fifth Avenue, New York, New York 10153.
(4) Includes (a) 1,363 shares of Class A Common Stock issuable to Ronald S.
Lauder upon exercise of a like number of options granted to Mr. Lauder
under the Director's Plan, such options vested on October 6, 1998; (b)
261,407 shares of Class B Common Stock owned by RSLAG (see note 5);
(c) 909,090 shares of Class B Common Stock owned by Lauder Gaspar
(Footnotes continued on next page)
102
<PAGE>
(Footnotes continued from previous page)
Ventures LLC ("LGV") (see note 6); (d) 9,348,563 shares of Class B Common
Stock owned by RSL Investments Corporation, a corporation wholly-owned by
Mr. Lauder; (e) 1,786,350 shares of Class B Common Stock owned by EL/RSLG
Media, Inc. ("EL/RSLG") (see note 7); (f) 893,175 shares of Class B Common
Stock owned by RAJ Family Partners L.P., of which Mr. Lauder is a limited
partner and a shareholder of the general partner; (g) 3,476,275 shares of
Class B Common Stock owned directly by Ronald S. Lauder; and (h) 459,900
shares of Class B Common Stock issuable upon exercise of the Lauder
Warrants.
(5) Andrew Gaspar is president of the corporate general partner of RSLAG, which
is being liquidated. Ronald S. Lauder is directly and indirectly the owner
of a majority of the limited partnership interests in RSLAG. The general
partner of RSLAG has executed an irrevocable proxy in favor of Ronald S.
Lauder to vote Ronald S. Lauder's allocable interest in such shares as
directed by him. 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. The shares of
Class B Common Stock owned by RSLAG which may be deemed to be beneficially
owned by Ronald S. Lauder and Leonard A. Lauder are only included once in
the computation of shares beneficially owned by directors and executive
officers of the group.
(6) Andrew Gaspar is the former managing member of LGV, which is being
liquidated. Ronald S. Lauder is the Liquidating Trustee and a member with a
substantial ownership interest in LGV. The former managing member of LGV
executed an irrevocable proxy in favor of Ronald S. Lauder to vote Ronald
S. Lauder's allocable interest in such shares as directed by him. In
addition, Leonard A. Lauder is a member with a substantial ownership
interest in LGV. Ronald S. Lauder, Leonard A. Lauder and Andrew Gaspar each
disclaim beneficial ownership of some of such shares. The shares of
Class B Common Stock owned by LGV which may be deemed to be beneficially
owned by Ronald S. Lauder and Leonard A. Lauder are only included once in
the computation of shares beneficially owned by directors and executive
officers of the group.
(7) The 1995 Estee Lauder RSL Trust, of which Ronald S. Lauder is a trustee and
the beneficiary, and the 1995 Estee Lauder LAL Trust, of which Leonard A.
Lauder is a trustee and the beneficiary, each own 50% of EL/RSLG's
outstanding common stock. As such, Ronald S. Lauder and Leonard A. Lauder
may each be deemed to beneficially own all of the shares of Class B Common
Stock owned by EL/RSLG. Ronald S. Lauder and Leonard A. Lauder each
disclaim beneficial ownership of some of such shares. Such shares, however,
are only included once in the computation of shares beneficially owned by
directors and executive officers as a group.
(8) Such shares are owned by Fisher Investment Partners, L.P. Mr. Fisher
disclaims beneficial ownership of such shares.
(9) Includes (a) 454 shares of Class A common stock issuable upon the exercise
of a like number of options granted under the Directors' Plan, such options
vested on October 6, 1998; (b) an aggregate of 1,170,497 shares of Class B
Common Stock owned by RSLAG and LGV (see notes 5 and 6); (c) 2,196,558
shares of Class B Common Stock owned directly by Leonard A. Lauder;
(d) 4,866 shares of Class B Common Stock owned by Mr. Lauder's wife; (e)
348,385 shares of Class B Common Stock owned by LAL Family Partners, L.P.,
of which Mr. Lauder is a general partner; (f) 1,786,350 shares of Class B
Common Stock owned by EL/RSLG (see note 7); and (g) 893,175 shares of
Class B Common Stock owned by LWG Family Partners, L.P., a partnership
whose managing partner is a corporation which is one-third owned by
Mr. Lauder. Mr. Lauder disclaims beneficial ownership of the shares of
Class B Common Stock owned by his wife.
(10) Such shares are owned by Schuster Family Partners I, L.P. Mr. Schuster
disclaims beneficial ownership of such shares.
(11) Includes (a) 454 shares of Class A Common Stock issuable upon the exercise
of a like number of options granted under the Directors' Plan, such options
all vest on October 6, 1998; and (b) 1,408,629 shares are owned by Coral
Gate, an investment business company organized under the laws of the
British Virgin Islands, which is beneficially owned by Gustavo A. Cisneros
and his brother, Ricardo Cisneros. The business address for Gustavo
Cisneros is 36 East 61st Street, New York, New York 10021.
(12) Such shares are beneficially owned by Gustavo A. Cisneros and his brother,
Ricardo Cisneros. The business address of Coral Gate is 36 East 61st
Street, New York, New York 10021.
(13) 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 RSL
North America. See "--Management" for more information regarding Mr.
Tarlovsky. The shares of Class B Common Stock shown are owned by Tarlovsky
Investment Partners, L.P., of which Mr. Tarlovsky is the sole general
partner. If the Underwriters' over-allotment options are exercised in full
and Mr. Tarlovsky sells all of his shares offered, Mr. Tarlovsky intends to
convert 50,000 shares of Class B Common Stock into an equal number of
shares of Class A Common Stock. If the Underwriters' over-allotment options
are exercised in full and Tarlovsky Investment Partners sells all of its
shares offered, Mr. Tarlovsky's post-Offerings number of shares of Class A
Common Stock beneficially owned, percent ownership of Class A Common Stock,
number of shares of Class B Common Stock beneficially owned, percent
ownership of Class B Common Stock, percent overall voting power and percent
overall ownership would be 717,804, 2.7%, 220,301, less than 1%, 1.0% and
1.8%, respectively.
(14) Such Selling Shareholder will only sell the shares offered by such Selling
Shareholder in the event the Underwriters exercise their over-allotment
options.
(15) 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. Mr. Bildirici was employed by both RSLAG (see note
5) and the Company from August 1993 to December 1996 and a Managing
Director of RSLAG from 1996 until recently. See "Management" for more
information regarding Mr. Bildirici. If the Underwriters' over-allotment
options are exercised and Mr. Bildirici sells all of his shares offered,
Mr. Bildirici intends to convert 30,555 shares of Class B Common Stock into
an equal number of shares of Class A Common Stock. If the Underwriters'
over-allotment options are exercised in full and Mr. Bildirici sells all of
his shares offered, Mr. Bildirici's post-Offerings number of shares of
Class A Common Stock beneficially owned, percent ownership of Class A
Common Stock, number of shares of Class B Common Stock beneficially owned,
percent ownership of Class B Common Stock, percent overall voting power and
percent overall ownership would be 547,499, 2.1%, 87,958, less than 1%,
less than 1%, 1% and 1.2%, respectively.
(16) Includes (a) 454 shares of Class A Common Stock issuable upon the exercise
of a like number of options granted under the Director's Plan, such options
vested on October 6, 1998, and (b) 43,800 shares of Class A Common Stock
issuable upon the exercise of an equal number of presently exercisable
options granted to Mr. Sekulow under the 1995 Plan.
(17) Includes (a) 454 shares of Class A common stock issuable upon the exercise
of a like number of options granted under the Directors' Plan, such options
vested on October 6, 1998; and (b) 12,226 shares of Class A Common Stock
held by Mr. Langhammer directly.
(18) Consists of 350,400 shares of Class A Common Stock issuable upon the
exercise of an equal number of presently exercisable options granted to
Mr. Williams under the 1995 Plan. Richard E. Williams has served as
President and Chief Executive Officer of RSL Europe since August 1995. See
"Management" for more information regarding Mr. Williams. If the
Underwriters' over-allotment options are exercised in full and
Mr. Williams sells all of his shares offered, Mr. Williams post-
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Offerings number of shares of Class A Common Stock beneficially owned,
percent ownership of Class A Common Stock, percent overall voting power and
percent overall ownership would be 125,400, less than 1%, less than 1% and
less than 1%, respectively.
(19) Such shares are owned by The Proverbs Trust, a Bermuda trust, of which
Mr. Trollope and his wife are the trustees and beneficiaries.
(20) Includes 434,609 shares of Class A Common Stock issuable upon the exercise
of an equal number of options granted to certain of the directors and
executive officers as a group and 459,900 shares of Class B Common Stock
issuable upon the exercise of the Lauder Warrants. If the Underwriters'
over-allotment options are exercised and Messrs. Tarlovsky and Bildirici
sell all of their shares offered, Messrs. Tarlovsky and Bildirici intend to
convert an aggregate 80,555 shares of Class B Common Stock into an equal
number of shares of Class A Common Stock. If the Underwriters'
over-allotment options are exercised in full and Messrs. Tarlovsky,
Bildirici and Williams sell all of their shares offered, the post-Offerings
number of shares of Class A Common Stock beneficially owned, percent
ownership of Class A Common Stock, number of shares of Class B Common Stock
beneficially owned, percent ownership of Class B Common Stock, percent
overall voting power and percent overall ownership of all directors and
officers as a group would be 3,331,481, 12.6%, 26,703,767, 100.0%, 92.1%
and 56.4%, respectively.
(21) Such shares are owned by Ligapart, AG, a wholly owned subsidiary of Metro
Holding AG. The address for Metro Holding AG is Neuhofstrasse 4, CH-6340
Baar, Switzerland.
(22) Includes (a) 48,879 shares of Class A Common Stock owned directly by
Mr. Gaspar; (b) 1,810,633 shares of Class A Common Stock owned by Bukfenc,
Inc., a corporation wholly owned by Mr. Gaspar and members of his family
("Bukfenc") (see note 23); and (c) 3,729 shares of Class A Common Stock
owned by Bukfenc, LLC, a limited liability company, of which Mr. Gaspar and
members of his family are the only members. If the Underwriters'
over-allotment options are exercised in full and Bukfenc sells all of its
shares offered, Mr. Gaspar's post-Offerings number of shares of Class A
Common Stock beneficially owned, percent ownership of Class A Common Stock,
percent overall voting power and percent overall ownership would be
1,663,241, 6.3%, less than 1% and 3.2%, respectively. Mr. Gaspar served as
a director and Vice Chairman of the Board of Directors of the Company from
its inception in 1994 until May 1998. The address for Andrew Gaspar is 122
Salem Road, East Hills, New York, NY 11577.
(23) Bukfenc is a corporation wholly owned by Andrew Gaspar and members of his
family. The address for Bukfenc is 122 Salem Road, East Hills, New York, NY
11577. Andrew Gaspar served as a director and Vice Chairman of the Board of
the Company from its inception until May 1998. Mr. Gaspar is the former
managing member of LGV (see note 6). Mr. Gaspar is the president of the
corporate general partner of RSLAG (see note 5). Both LGV and RSLAG are
being liquidated. If the Underwriters' over-allotment options are exercised
in full and Bukfenc sells all of its shares offered, Bukfenc's
post-Offerings number of shares of Class A Common Stock beneficially owned,
percent ownership of Class A Common Stock, percent overall voting power and
percent overall ownership would be 1,610,633, 6.1%, less than 1% and 3.1%,
respectively. LGV and RSLAG each have their business address at 767 Fifth
Avenue, New York, New York 10153. Mr. Gaspar's address is 1301 Avenue of
the Americas, New York, NY 10019.
(24) Information as to the shares owned by Essex Investment Company, an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, is as of March 31, 1998, and is taken from a Schedule 13G/A
filed with the Commission on August 8, 1998. The address for Essex
Investment Management Company is 125 High Street, Boston, Massachussetts
02110.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is qualified
in its entirety by reference to the provisions of the Company's Memorandum of
Association and Bye-Laws, copies of which have been filed with the Commission.
In connection with the initial public offering of Class A Common Stock
consummated in October 1997, the Company revised its capital structure to effect
a 2.19-for-one stock split and to increase the number of authorized shares of
Common Stock and of the Company's Preferred Stock (the "Preferred Stock"). As a
result, the Company is authorized to issue 438,000,000 shares of Common Stock,
which may be issued as shares of Class A Common Stock or Class B Common Stock.
The Company is also authorized to issue 65,700,000 shares of Preferred Stock.
The Company has in the past used and intends in the future to use shares of its
capital stock to pay for acquisitions.
CLASS A COMMON STOCK
As of November 18, 1998, 18,484,529 shares of Class A Common Stock were
issued and outstanding. 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
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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 payment of all debts and other liabilities and after
distribution in full of the preferential amounts to be distributed to holders of
Preferred Stock, if any.
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 November 18, 1998, there were 16 holders of Class B Common Stock and
26,328,590 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 after the payment of any dividends declared but unpaid on any shares of
Preferred Stock then outstanding. The holders of the Class B Common Stock have
no pre-emptive or cumulative voting rights. 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. On liquidation, dissolution or winding up of
the Company, the holders of the Class B Common Stock are entitled to receive,
pari passu with the holders of Class A Common Stock, pro rata the net assets of
the Company 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, if any.
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.
PREFERRED STOCK
As of the date of this Prospectus, the Company is authorized to issue
65,700,000 shares of Preferred Stock and no such shares are currently
outstanding.
WARRANTS
LAUDER WARRANTS
As consideration for, among other things, his guarantee of the Revolving
Credit Facility, Ronald S. Lauder received warrants to purchase 459,900 shares
of Class B Common Stock of the Company (the "Lauder Warrants"). The exercise
price ($.00457 per share, subject to adjustment), exercise period (through
October 3, 2007) and other terms of the Lauder Warrants are substantially the
same as the terms of the Warrants, other than with respect to the class of stock
which will be issued upon their exercise.
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WARRANTS ISSUED IN 1996 UNITS OFFERING
In October 1996, the Company issued an aggregate 300,000 Warrants to
purchase shares of Class A Common Stock (the "Warrants"). The Warrants were
issued pursuant to the Warrant Agreement, dated as of October 6, 1996 (the
"Warrant Agreement"), between the Company and The Chase Manhattan Bank, as
warrant agent (the "Warrant Agent").
Each Warrant is evidenced by a certificate and currently entitles the
holder thereof to purchase 3.975 shares of Class A Common Stock from the Company
at an exercise price of $.00457 per share, subject to adjustment as provided in
the Warrant Agreement. The Warrants may be exercised at any time prior to the
close of business on October 3, 2007. Warrants that are not exercised by such
date will expire.
As of November 18, 1998, 274,726 shares of Class A Common Stock have been
issued upon exercise of 69,113 Warrants and 917,729 shares of Class A Common
Stock are issuable upon exercise of the 230,875 unexercised Warrants.
CERTAIN TERMS
The Warrant Agreement contains provisions (to which there are certain
exceptions) adjusting the exercise price and the number of shares of Class A
Common Stock or other securities issuable upon exercise of a Warrant in the
event of (i) a division, consolidation or reclassification of the shares of
Class A Common Stock, (ii) the issuance of rights, options, warrants or
convertible or exchangeable securities to all holders of shares of Class A
Common Stock entitling such holders to subscribe for or purchase shares of Class
A Common Stock at a price per share which is lower than the then current value
per share of Class A Common Stock, subject to certain exceptions, (iii) the
issuance of shares of 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.
ANTI-TAKEOVER PROTECTIONS
The voting provisions of the Class B Common Stock and the ability of the
Company to issue 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 provisions 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.
DIFFERENCES IN CORPORATE LAW
The Companies Act 1981 of Bermuda differs in certain respects from laws
generally applicable to United States corporations and their shareholders. Set
forth below is a summary of certain significant provisions of The Companies Act
(including any modifications adopted pursuant to the Company's Bye-Laws)
applicable to the Company, which differ in certain respects from provisions of
Delaware corporate law. The following statements are summaries, and do not
purport to deal with all aspects of Bermuda law that may be relevant to the
Company and its shareholders.
Interested Directors. The Bye-Laws provide that any transaction entered
into by the Company in which a director has an interest is not voidable by the
Company nor can such director be liable to the Company for any profit realized
pursuant to such transaction provided the nature of the interest is disclosed at
the first opportunity at a meeting of directors, or in writing to the directors.
Following disclosure, a director may vote on any matter in which such director
has an interest. Under Delaware law no such transaction would be voidable if
(i) the material facts as to such interested director's relationship or
interests are disclosed or are known to the board of directors and the board in
good faith authorizes the transaction by the affirmative vote of a majority of
the disinterested directors, (ii) such material facts are disclosed or are known
to the stockholders entitled to vote on such transaction and
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the transaction is specifically approved in good faith by vote of the
stockholders or (iii) the transaction is fair as to the corporation as of the
time it is authorized, approved or ratified. Under Delaware law such an
interested director could be held liable for any transaction for which such
director derived an improper personal benefit.
Merger and Similar Arrangements. The Company may acquire the business of
another Bermuda company similarly exempt from Bermuda taxes or a company
incorporated outside Bermuda and carry on such business when it is within the
objects of its Memorandum of Association. The Company may amalgamate with
another Bermuda company or with a company incorporated in another jurisdiction
which permits such a company to amalgamate with a Bermuda company, subject to
shareholder approval. A shareholder may apply to a Bermuda court for a fair
valuation of such shareholder's shares if such shareholder is not satisfied that
fair value has been paid for such shares. The court ordinarily would not
disapprove the transaction on that ground absent evidence of fraud or bad faith.
Under Delaware law, with certain exceptions, any merger, consolidation or sale
of all or substantially all the assets of a corporation must be approved by the
board of directors and a majority of the outstanding shares entitled to vote.
Under Delaware law a stockholder of a corporation participating in certain major
corporate transactions may, under varying circumstances, be entitled to
appraisal rights pursuant to which such stockholder may receive cash in the
amount of the fair market value of the shares held by such stockholder (as
determined by a court or by agreement of the corporation and the stockholder) in
lieu of the consideration such stockholder would otherwise receive in the
transaction. Delaware law does not provide stockholders of a corporation with
voting or appraisal rights when the corporation acquires another business
through the issuance of its stock or other consideration (i) in exchange for the
assets of the business to be acquired, (ii) in exchange for the outstanding
stock of the corporation to be acquired or (iii) in a merger of the corporation
to be acquired with a subsidiary of the acquiring corporation.
Takeovers. Bermuda law provides that where an offer is made for shares of
another company and, within four months of the offer the holders of not less
than 90% of the shares which are the subject of the offer accept, the offeror
may by notice require the nontendering shareholders to transfer their shares on
the terms of the offer. Dissenting shareholders may apply to the court within
one month of the notice objecting to the transfer. The burden is on the
dissenting shareholders to show that the court should exercise its discretion to
enjoin the required transfer, which the court will be unlikely to do unless
there is evidence of fraud or bad faith or collusion as between the offeror and
the holders of the shares who have accepted the offer as a means of unfairly
forcing out minority shareholders. Delaware law provides that a parent
corporation, by resolution of its board of directors and without any shareholder
vote, may merge with any 90% or more owned subsidiary. Upon any such merger,
dissenting stockholders of the subsidiary would have appraisal rights.
Shareholder's Suit. The rights of shareholders under Bermuda law are not
as extensive as the rights of shareholders under legislation or judicial
precedent in many United States jurisdictions. Class actions and derivative
actions are generally not available to shareholders under the laws of Bermuda.
However, the Bermuda courts ordinarily would be expected to follow English case
law precedent, which would permit a shareholder to commence an action in the
name of the Company to remedy a wrong done to the Company where the act
complained of is alleged to be beyond the corporate power of the Company or is
illegal or would result in the violation of the Memorandum of Association and
Bye-Laws. Furthermore, consideration would be given by the court to acts that
are alleged to constitute a fraud against the minority shareholders or where an
act requires the approval of a greater percentage of the Company's shareholders
than actually approved it. The winning party in such an action generally would
be able to recover a portion of attorney's fees incurred in connection with such
action. Class actions and derivative actions generally are available to
stockholders under Delaware law, for among other things, breach of fiduciary
duty, corporate waste and actions not taken in accordance with applicable law.
In such actions, the court has discretion to permit the winning party to recover
attorney's fees incurred in connection with such action.
Indemnification of Directors. The Company may indemnify its directors or
officers in their capacity as such in respect of any loss arising or liability
attaching to them by virtue of any rule of law in respect
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of any negligence, default, breach of duty or breach of trust of which a
director or officer may be quilty in relation to the Company other than in
respect of his own fraud or dishonesty. Under Delaware law, a corporation may
adopt a provision eliminating or limiting the personal liability of a director
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for breaches of the director's duty of
loyalty, for acts or omissions not in good faith or which involve intentional
misconduct or knowing violations of law, for improper payment of dividends or
for any transaction from which the director derived an improper personal
benefit. Delaware law has provisions and limitations similar to Bermuda law
regarding indemnification by a corporation of its directors or officers, except
that under Delaware law the statutory rights to indemnification may not be as
limited.
Inspection of Corporate Records. Members of the general public have the
right to inspect the public documents of the Company available at the office of
the Registrar of Companies in Bermuda which will include the Memorandum of
Association (including its objects and powers) and any alteration to the
Memorandum of Association and documents relating to an increase or reduction of
authorized capital. The shareholders have the additional right to inspect the
Bye-Laws, minutes of general meetings and audited financial statements of the
Company, which must be presented to the annual general meeting of shareholders.
The register of shareholders of the Company is also open to inspection by
shareholders without charge, and to members of the public for a fee. The Company
is required to maintain its share register in Bermuda but may establish a branch
register outside Bermuda. The Company is required to keep at its registered
office a register of its directors and officers which is open for inspection by
members of the public without charge. Bermuda law does not, however, provide a
general right for shareholders to inspect or obtain copies of any other
corporate records. Delaware law permits any shareholder to inspect or obtain
copies of a corporation's shareholder list and its other books and records for
any purpose reasonably related to such person's interest as a shareholder.
CERTAIN PROVISIONS OF BERMUDA LAW
The Company has been designated as a non-resident under the Exchange
Control Act of 1972 (the "Control Act") by the Bermuda Monetary Authority whose
permission for the issuance of shares of Class A Common Stock has been obtained.
This designation allows the Company to engage in transactions in currencies
other than the Bermuda dollar. The permission of the Bermuda Monetary Authority
does not constitute a guarantee by the Bermuda Monetary Authority as to the
performance or creditworthiness of the Company and in giving such pemission the
Bermuda Monetary Authority will not be liable for the correctness of any
opinions expressed herein.
The transfer of shares of Class A Common Stock between persons regarded as
resident outside Bermuda for exchange control purposes and the issuance of such
shares after the completion of the Offerings to or by such persons may be
effected without specific consent under the Control Act and regulations
thereunder. Issues and transfers of shares involving any person regarded as
resident in Bermuda for exchange control purposes require specific prior
approval under the Control Act.
Owners of shares of Class A Common Stock who are regarded as resident
outside Bermuda for exchange control purposes 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 has it 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
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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 50 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.
CERTAIN RIGHTS TO ACQUIRE CLASS A COMMON STOCK
The Company has granted to a number of minority shareholders of its
subsidiaries (the "Minority Interestholders") options, exercisable on the
occurrence of certain events, to exchange their shares in the respective
subsidiaries for, in certain circumstances, shares of Class A Common Stock or,
in certain circumstances, cash (the "Roll-Up Rights"). In addition, the Company
has granted to a number of Minority Interestholders certain piggyback
registration rights with respect to shares of Class A Common Stock acquired
pursuant to an exercise of their Roll-Up Rights. As of the date of this
Prospectus, Roll-Up Rights were held by Minority Interestholders of the
following subsidiaries: RSL USA, RSL Asia, RSL Italy (and its subsidiary
Comesa), RSL Latin America, RSL Austria, RSL Spain, RSL Switzerland, Telecenter
Oy, RSL Belgium and PCM. In most cases, the outstanding Roll-Up Rights become
exercisable, without further condition, in annual installments beginning upon
expiration of a specified period after their respective dates of grant. In
addition, exercisability of certain Roll-Up Rights may be accelerated upon
public offering of Common Stock or a change of control of the Company or its
relevant subsidiary. None of these Roll-Up Rights are currently exercisable,
with the exception of those held by the Minority Interestholders of RSL Latin
America and RSL Austria. The number of shares of Class A Common Stock issuable
upon exercise of the Roll-Up Rights will be based upon valuations of the
minority interests and the Class A Common Stock at the time of exercise and,
consequently can not be determined at this time, but would likely be in the
aggregate material. Based on preliminary valuation studies of the relevant
subsidiaries as of September 30, 1998 and an average of the last reported sale
prices of Class A Common Stock on the Nasdaq National Market during the 30-day
period ending on such date, the outstanding Roll-Up Rights would have been
exercisable on such date for an estimate of between 2,500,000 and 2,750,000
shares of Class A Common Stock in the aggregate.
The Company has also granted to certain employees of its subsidiaries
options to acquire shares of such subsidiaries or similar rights (the "Incentive
Units"), some of which are currently exercisable and to exchange such Incentive
Units for shares of Class A Common Stock or, in certain circumstances, at the
Company's option, cash. All shares of Class A Common Stock issuable upon
exchange of Incentive Units will be issued under the 1997 Plan. The Company
believes that the number of shares of Class A Common Stock issuable upon
exchange of currently exercisable Incentive Units, based on the average closing
price of the Class A Common Stock for the 30 day period prior to July 31, 1998,
will be no more than 400,000. See "Management--Stock Option and Compensation
Plans--1997 Stock Incentive Plan."
In addition, pursuant to the Telegate Exchange, the Company will, in
certain circumstances, be required to issue shares of Class A Common Stock to
Metro Holding and certain affiliates in exchange for their interests in Telegate
Holding, the management holding company for Telegate. See "Business--European
Operations--General." The number of shares of Class A Common Stock issuable in
the Telegate Exchange will be based on a valuation of the Telegate Holding
interests and the Class A Common Stock at the time of the exchange and,
consequently, can not be determined at this time, but would likely be material.
See "Risk Factors--Shares Eligible for Future Sale."
109
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITIES
Ericsson has provided to certain of the Company's subsidiaries financing
commitments to fund the purchase of additional switches and related equipment.
As of September 30, 1998, such commitments were in the aggregate limited to
approximately $75 million of which approximately $7.3 million 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. In addition, the
Company has a Revolving Credit Facility with The Chase Manhattan Bank and a
revolving credit facility with Coast Business Credit, of which $3.9 million and
$2.8 million, respectively, was available at June 30, 1998 under commitments of
$7.5 million and $10.0 million, respectively. The Commitment under the Revolving
Credit Agreement with Chase Manhattan Bank was permanently reduced to
$5 million at July 1, 1998.
1996 NOTES
GENERAL
On October 3, 1996, the RSL PLC issued $300.0 million of 12 1/4% Senior
Notes pursuant to the Indenture, dated October 3, 1996 (the "1996 Indenture"),
among RSL PLC, the Issuer and The Chase Manhattan Bank, as trustee, which were
exchanged on May 22, 1997 for $300.0 million of substantially identical notes
that had been registered under the Securities Act (the "1996 Notes"), of which
$172.5 million in aggregate principal amount remain outstanding as of the date
of this Prospectus. The 1996 Notes are unconditionally guaranteed by the Issuer.
PRINCIPAL, MATURITY AND INTEREST
The 1996 Notes are limited in aggregate principal amount to $300.0 million
and will mature on October 3, 2006. Interest on the 1996 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. RSL PLC used $102.8 million of the net proceeds of the
1996 Notes to purchase a portfolio of securities, initially consisting of U.S.
government securities (including any securities substituted in respect thereof,
the "Pledged Securities"), to pledge as security for payment of interest on the
principal of the 1996 Notes. Proceeds from the Pledged Securities may be used by
RSL PLC to make interest payments on the 1996 Notes through November 15, 1999.
RANKING
The 1996 Notes are unsecured senior obligations of RSL PLC, rank pari passu
in right of payment with all existing and future senior obligations of RSL PLC,
and rank senior in right of payment to all future subordinated obligations of
the Issuer.
REDEMPTION
The 1996 Notes are not redeemable prior to November 15, 2001. Thereafter,
the 1996 Notes are subject to redemption at the option of RSL PLC, in whole or
in part, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the 12-month period beginning on November 15
of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------------------------- ----------
<S> <C>
2001..................................................................................... 106.125%
2002..................................................................................... 103.0625%
2003 and thereafter...................................................................... 100.000%
</TABLE>
110
<PAGE>
COVENANTS
The 1996 Indenture restricts, among other things, the Company's ability to
incur additional indebtedness, pay dividends or make certain other restricted
payments, incur certain liens to secure pari passu or subordinated indebtedness,
engage in any sale and leaseback transaction, sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of the assets of the Company,
enter into certain transactions with affiliates, or incur indebtedness that is
subordinated in right of payment to any senior indebtedness and senior in right
of payment to the 1996 Notes. The 1996 Indenture permits, under certain
circumstances, the Issuer's subsidiaries to be deemed unrestricted subsidiaries
and thus not subject to the restrictions of the 1996 Indenture.
EVENTS OF DEFAULT
The 1996 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 Issuer or certain of its subsidiaries.
U.S. DOLLAR NOTES
GENERAL
On February 27, 1998, RSL PLC issued (i) $200 million of Senior Notes (the
"Old Senior Notes") pursuant to an Indenture, dated as of February 27, 1998 (the
"Senior Notes Indenture"), between RSL PLC, the Issuer and The Chase Manhattan
Bank, as trustee, and (ii) $328.1 million principal amount at maturity of Senior
Discount Notes (the "Old Discount Notes") pursuant to an Indenture, dated as of
February 27, 1998 (the "Senior Discount Notes Indenture" and, together with the
Senior Notes Indenture, the "U.S. Dollar Notes Indentures"), among RSL PLC, the
Issuer and The Chase Manhattan Bank, as trustee. On June 19, 1998, the Old
Senior Notes were exchanged for $200 million of substantially identical notes
that had been registered under the Securities Act (the "Senior Notes") and on
June 29, 1998, the Old Discount Notes were exchanged for $328.1 million
principal amount at maturity of substantially identical notes that had been
registered under the Securities Act (the "Senior Discount Notes" and, together
with the Senior Notes, the "U.S. Dollar Notes"). The U.S. Dollar Notes are
unconditionally guaranteed by the Issuer.
PRINCIPAL, MATURITY AND INTEREST
The U.S. Dollar Notes are initially limited in aggregate principal amount
at maturity to $528.1 million and will mature on March 1, 2008. Interest on the
Senior Notes accrues at 9 1/8% per annum and is payable semiannually on March 1
and September 1 of each year, commencing September 1, 1998. No interest will be
payable on the Senior Discount Notes prior to September 1, 2003. From and after
March 1, 2003, interest on the Senior Discount Notes will accrue at 10 1/8% on
the principal amount at maturity of such notes and is payable semiannually on
March 1 and September 1 of each year, commencing September 1, 2003. Interest on
the U.S. Dollar Notes is computed on the basis of a 360-day year comprised of
twelve 30-day months.
RANKING
The U.S. Dollar Notes are unsecured senior obligations of RSL PLC and the
Issuer, rank pari passu in right of payment with (i) the 1996 Notes, (ii) the DM
Notes and (iii) all existing and future senior obligations of RSL PLC and the
Issuer, and rank senior in right of payment to all future subordinated
obligations of RSL PLC and the Issuer.
111
<PAGE>
REDEMPTION
The U.S. Dollar Notes are not redeemable prior to March 1, 2003.
Thereafter, the U.S. Dollar Notes are subject to redemption at the option of RSL
PLC, in whole or in part, at the redemption prices (expressed as percentages of
stated principal amount) set forth below plus accrued and unpaid interest
thereon to (but excluding) the applicable redemption date, if redeemed during
the 12-month period beginning on March 1 of the years indicated below:
SENIOR NOTES
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 104.562%
2004................................................................................ 103.042%
2005................................................................................ 101.521%
2006 and thereafter................................................................. 100.000%
</TABLE>
SENIOR DISCOUNT NOTES
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 105.062%
2004................................................................................ 103.375%
2005................................................................................ 101.687%
2006 and thereafter................................................................. 100.000%
</TABLE>
In addition, at any time on or before March 1, 2001, in the event the
Issuer receives net cash proceeds from the public or private sale of its common
stock, RSL PLC (to the extent RSL PLC receives such proceeds and has not used
such proceeds, directly or indirectly, to redeem or repurchase other securities
pursuant to optional redemption provisions) may, at its option, apply an amount
equal to any such net cash proceeds or any portion thereof to redeem up to
33 1/3% of the aggregate principal amount at maturity of the U.S. Dollar Notes
at a redemption price equal to 109.125% of the principal amount thereof, in the
case of the Senior Notes, and 110.125% of the accreted value, in the case of the
Senior Discount Notes, plus accrued and unpaid interest thereon, if any, to the
date of redemption, provided that at least 66 2/3% of aggregate principal amount
at maturity of the Senior Notes or Senior Discount Notes, as applicable, remains
outstanding immediately after such redemption.
COVENANTS
The U.S. Dollar Notes Indentures restrict, among other things, the
Company's ability to incur additional indebtedness, pay dividends or make
distributions in respect of its capital stock, make investments or certain other
restricted payments, create liens, sell assets, issue or sell capital stock of
certain subsidiaries, enter into transactions with stockholders or affiliates or
effect a consolidation or merger.
EVENTS OF DEFAULT
The U.S. Dollar Notes Indentures contain standard events of default,
including (i) failure to pay principal of (or premium, if any, on) any U.S.
Dollar Note when due, (ii) failure to pay any interest on any U.S. Dollar Note
when due, continued for 30 days, (iii) failure to perform covenants or
agreements under the U.S. Dollar Notes Indentures or the U.S. Dollar Notes, (iv)
cross-defaults against certain other indebtedness, (v) failure to pay more than
$10.0 million of judgments that have not been stayed by appeal and (vi) certain
events of bankruptcy, insolvency or reorganization affecting the Issuer and
certain of its subsidiaries.
112
<PAGE>
DM NOTES
GENERAL
On March 15, 1998, RSL PLC issued DM 296.0 million principal amount at
maturity of 10% Senior Discount Notes (the "Old DM Notes") pursuant to an
Indenture, dated as of March 16, 1998 (the "DM Notes Indenture"), among RSL PLC,
the Issuer and The Chase Manhattan Bank, as trustee. On June 29, 1998, the Old
DM Notes were exchanged for DM 296.0 million principal amount at maturity of
substantially identical notes that had been registered under the Securities Act
(the "DM Notes" and, together with the U.S. Dollar Notes, the "1998 Notes"). The
DM Notes are unconditionally guaranteed by the Issuer.
PRINCIPAL, MATURITY AND INTEREST
The DM Notes are initially limited in aggregate principal amount at
maturity to DM296.0 million (approximately $99.1 million initial accreted value)
and will mature on March 15, 2008. No interest is payable on the DM Notes prior
to September 15, 2003. From and after March 15, 2003, interest on the DM Notes
will accrue on the principal amount at maturity of such notes at the rate of 10%
per annum and is payable semiannually on March 15 and September 15 of each year,
commencing September 15, 2003. Interest is computed on the basis of a 360-day
year comprised of twelve 30-day months.
RANKING
The DM Notes are unsecured senior obligations of RSL PLC and the Issuer,
rank pari passu in right of payment with (i) the 1996 Notes, (ii) the U.S.
Dollar Notes and (iii) all other existing and future senior obligations of RSL
PLC and the Issuer, and rank senior in right of payment to all future
subordinated obligations of RSL PLC and the Issuer.
REDEMPTION
The DM Notes are not redeemable prior to March 15, 2003. Thereafter, the DM
Notes are subject to redemption, at the option of RSL PLC, in whole or in part,
at the redemption prices (expressed as percentages of the principal amount
thereof) set forth below plus accrued interest to but excluding the redemption
date, if redeemed during the 12-month period beginning March 15 of the years
indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 105.000%
2004................................................................................ 103.333%
2005................................................................................ 101.667%
2006 and thereafter................................................................. 100.000%
</TABLE>
In addition, at any time prior to March 15, 2001, in the event the Issuer
receives net cash proceeds from the public or private sale of its common stock,
RSL PLC (to the extent RSL PLC receives such proceeds and has not used such
proceeds, directly or indirectly, to redeem or repurchase other securities
pursuant to optional redemption provisions) may, at its option, apply an amount
equal to any such net cash proceeds or any portion thereof to redeem, from time
to time, DM Notes in a principal amount at maturity of up to an aggregate amount
equal to 33 1/3% of the aggregate principal amount at maturity of the DM Notes,
provided, however, that DM Notes in an amount equal to at least 66 2/3% of the
aggregate principal amount at maturity of the DM Notes remain outstanding
immediately after such redemption.
COVENANTS; EVENTS OF DEFAULT
The DM Notes Indenture contains covenants and provides for events of
default which are identical in all material respects to the covenants and events
of default contained in the U.S. Dollar Notes Indentures.
113
<PAGE>
NEW NOTES
GENERAL
On November 9, 1998, the Company, through RSL PLC, issued the New Notes in
the New Notes Offering, pursuant to an Indenture, dated as of November 9, 1998
(the "New Notes Indenture"), among RSL PLC, the Issuer and The Chase Manhattan
Bank, as Trustee. The Company will be required to exchange the New Notes for
$100 million aggregate principal amount at maturity of substantially identical
notes that will be registered under the Securities Act. The New Notes are
unconditionally guaranteed by the Issuer.
PRINCIPAL, MATURITY AND INTEREST
The New Notes are initially limited in aggregate principal amount at
maturity to $100 million (approximately $94.5 million initial accreted value)
and will mature on November 1, 2008. Interest on the New Notes will accrue on
the principal amount at maturity of such notes at the rate of 12% per annum and
is payable semiannually on November 1 and May 1 of each year, commencing May 1,
1999. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months.
RANKING
The New Notes are unsecured senior obligations of RSL PLC and the Issuer,
rank pari passu in right of payment with (i) the 1996 Notes, (ii) the U.S.
Dollar Notes, (iii) the DM Notes and (iv) all other existing and future senior
obligations of RSL PLC and the Issuer, and rank senior in right of payment to
all future subordinated obligations of RSL PLC and the Issuer.
REDEMPTION
The New Notes are not redeemable prior to November 1, 2003. Thereafter, the
New Notes are subject to redemption, at the option of RSL PLC, in whole or in
part, at the redemption prices (expressed as percentage of the accreted value
thereof) set forth below plus accrued interest to but excluding the redemption
date, if redeemed during the 12-month period beginning November 1 of the years
indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 106%
2004................................................................................ 104%
2005................................................................................ 102%
2006 and thereafter................................................................. 100%
</TABLE>
In addition, at any time prior to November 1, 2001, and in the event the
Issuer receives net cash proceeds from the public or private sale of its common
stock, RSL PLC (to the extent RSL PLC receives such proceeds and has not used
such proceeds, directly or indirectly, to redeem or repurchase other securities
pursuant to optional redemption provided) may, at its option, apply an amount
equal to any such net cash proceeds or any portion thereof to redeem, from time
to time, New Notes in a principal amount at maturity of up to an aggregate
amount equal to 33 1/3% of the aggregate principal amount at maturity of the New
Notes, provided, however, that New Notes in an amount equal to at least 66% of
the aggregate principal amount at maturity of the New Notes remain outstanding
immediately after such redemption.
COVENANTS; EVENTS OF DEFAULT
The New Notes Indenture contains covenants and provides for events of
default which are identical in all material respects to the covenants and of
default contained in the U.S. Dollar Notes Indentures and the DM Notes
Indenture.
114
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Assuming all of the Shares offered hereby by the Company were sold, then as
of November 18, 1998, the Company would have 51,813,119 shares of Common Stock
outstanding, including 25,484,529 shares of Class A Common Stock (26,534,529
shares, if the Underwriters' over-allotment options are exercised in full) and
26,328,590 shares of Class B Common Stock (26,248,035 shares, if the
Underwriters' over-allotment options are exercised in full). Of such shares,
approximately 17,719,396 shares of Class A Common Stock (18,688,841 shares, if
the Underwriters' over-allotment options are exercised in full), including the
shares sold in the Offerings and in the IPO and the shares issued pursuant to
the Warrant Registration, in each case, other than those shares purchased by, or
issued to, affiliates of the Company, would be freely tradeable without
restriction or further registration under the Securities Act. The remaining
outstanding shares of Class A Common Stock and all outstanding shares of Class B
Common Stock would be restricted securities and subject to the volume and other
resale limitations of Rule 144. After a "lock up" period expiring 90 days after
the consummation of the Offerings, to which the Company's executive officers and
directors and certain other shareholders are subject pursuant to the
Underwriting Agreements, all such restricted securities would be eligible for
public sale, subject to the volume and other resale limitations of Rule 144. See
"Underwriting."
The foregoing does not include (i) 1,492,625 shares of Class A Common Stock
issuable upon the exercise of outstanding stock options, (ii) 26,328,590 shares
of Class A Common Stock issuable upon the conversion of the shares of Class B
Common Stock, (iii) 459,900 shares of Class B Common Stock issuable upon
exercise of the Lauder Warrants and 459,900 shares of Class A Common Stock
issuable upon the conversion of such shares of Class B Common Stock,
(iv) 917,729 shares of Class A Common Stock issuable upon exercise of
unexercised Warrants, (v) 109,500 shares of restricted stock, granted pursuant
to the Company's 1997 Stock Incentive Plan or (vi) shares of Class A Common
Stock issuable upon exercise of Roll-Up Rights, Incentive Units, the Telegate
Exchange or New Lender Warrants. See "Management--Stock Option and Compensation
Plans," "--Compensation of Directors--Directors' Plan," "Certain Relationships
and Related Transactions," "Description of Capital Stock--Warrants" and "Certain
Rights to Acquire Class A Common Stock." Upon issuance or vesting of such shares
issuable upon the exercise of options, vesting of stock awards or exercise of
Incentive Units (in each case, other than shares issued to affiliates of the
Company), such shares will be eligible for public sale without restriction. As
required by the registration rights agreement covering the Warrants, the Company
has registered under the Securities Act the shares of Class A Common Stock
issuable upon exercise of the Warrants (the "Warrant Registration") and, upon
issuance, such shares (other than shares issued to affiliates of the Company)
will be eligible for public sale without restriction. Such shares issuable upon
exercise of the Lauder Warrants, Roll-Up Rights or the Telegate Exchange will be
restricted securities and subject to the volume and other resale limitations of
Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate of the
Company, who has been deemed to have beneficially owned shares for at least one
year, is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the then outstanding number of shares
of Class A Common Stock of the Company or the average weekly trading volume in
shares of Class A Common Stock during the four calendar weeks preceding the
filing of the required notice of such sale. Sales under Rule 144 may also be
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. A person (or
persons whose shares are required to be aggregated) who is not deemed to have
been an affiliate of the Company during the three months preceding a sale, and
who has benefically owned shares 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.
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<PAGE>
Ronald S. Lauder, the Chairman of the Company's Board of Directors and its
largest and controlling shareholder, Itzhak Fisher, President and Chief
Executive Officer of the Company, the other holders of Class B Common Stock,
Coral Gate and the Company have entered into a Registration Rights Agreement
(the "Registration Rights Agreement"), pursuant to which Mr. Lauder has been
granted three demand registration rights exercisable at any time after April 4,
1998 and Mr. Fisher has been granted two demand registration rights exercisable
after termination of his employment with the Company, other than as a result of
a termination by the Company for Cause or a termination by Itzhak Fisher without
Good Reason (a "Qualified Severance Event"). Messrs. Lauder and Fisher, such
other holders of Class B Common Stock, Coral Gate and such additional holders of
Class A Common Stock as Mr. Lauder and Mr. Fisher may jointly designate to the
Company have an unlimited number of piggyback registration rights that will
allow such holders to include their shares of Class A Common Stock in any
registration statement filed by the Company, subject to certain limitations.
Prior to the occurrence of a Qualified Severance Event, Mr. Fisher may not
register any shares pursuant to his piggyback registration rights if, after
giving effect to the sale of such shares, Mr. Fisher and his Family Members (as
defined) would hold less than 70% of the shares of Class A Common Stock held by
them as a group as of the closing date of the IPO. Mr. Lauder, Mr. Fisher and
the other holders of Class B Common Stock may assign their rights under the
Registration Rights Agreement to their respective Family Members, Coral Gate and
Messrs. Gustavo and Ricardo Cisneros (the beneficial owners of Coral Gate) may
assign their rights to Family Members, and Mr. Lauder and Mr. Fisher may assign
their rights to lenders to whom they pledge any of their shares of Class A
Common Stock. The Company has agreed to pay all expenses (other than legal
expenses, underwriting discounts and commissions of the selling shareholders and
taxes payable by the selling shareholders) in connection with any registration
pursuant to the exercise of demand registration rights or piggyback registration
rights under the Registration Rights Agreement and has also agreed to indemnify
such persons against certain liabilities, including liabilities arising under
the Securities Act.
The Company has also granted to Metro Holding one demand registration right
exercisable after March 31, 2001 with respect to the shares of Class A Common
Stock currently beneficially owned by Metro Holding and any shares of Class A
Common Stock acquired pursuant to the Telegate Exchange.
In addition, the Company also has granted to a number of Minority
Interestholders certain piggyback registration rights with respect to shares of
Class A Common Stock issuable upon exercise of their Roll-Up Rights. In general,
if the Company files with the Commission a registration statement on Form S-3
under the Securities Act, which registration statement includes shares being
sold by or for the account of shareholders of the Company, the Company will, at
the option of any such Minority Interestholder who is then a registered owner of
Class A Common Stock and subject to certain limitations, register all or any
portion of such person's shares of Class A Common Stock concurrently with the
registration of such other securities. In addition, on or after the Company
becomes eligible to file a registration statement on Form S-3, Minority
Interestholders in RSL Latin America have demand registration rights with
respect to shares of Class A Common Stock acquired upon exercise of Roll-Up
Rights.
See "Risk Factors--Shares Eligible for Future Sale" for a discussion of the
potential adverse effect on the market price of the Class A Common Stock which
could result from the sale of substantial amounts of Class A Common Stock, or
the availability of shares for future sale.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Debevoise & Plimpton, U.S. counsel to the Company, the
following correctly describes certain material U.S. federal income tax
consequences to the Company and its subsidiaries and to the ownership and
disposition of Class A Common Stock by an initial U.S. and non-U.S. shareholder.
For purposes of this discussion, the term "U.S. shareholder" includes (i) a U.S.
citizen or resident, (ii) a U.S. corporation or other U.S. entity taxable as a
corporation, (iii) a trust if a U.S. court is
116
<PAGE>
able to exercise primary supervision over the administration of the trust and
one or more U.S. fiduciaries have the authority to control all substantial
decisions of the trust, and (iv) an estate that is subject to U.S. federal
income tax on its income regardless of its source. A "non-U.S. shareholder" is
any shareholder other than a U.S. shareholder. The discussion is based upon
provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code"),
its legislative history, judicial authority, current administrative rulings and
practice, and existing and proposed Treasury Regulations, all as in effect and
existing on the date hereof. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the conclusions
set forth below, possibly on a retroactive basis, which could adversely affect a
holder of Class A Common Stock. This discussion assumes that such Class A Common
Stock will be held as capital assets (as defined in Section 1221 of the Code) by
the holders thereof.
The following discussion generally does not address the tax consequences to
a person who holds (or will hold), directly or indirectly, shares in the Company
giving the holder the right to exercise 10% or more of the total voting power of
the Company's outstanding stock (a "10% Shareholder"). 10% Shareholders are
advised to consult their own tax advisors regarding the tax considerations
incident to an investment in the Class A Common Stock. In addition, this
discussion does not purport to deal with all aspects of U.S. federal income
taxation that might be relevant to particular holders in light of their personal
investment circumstances or status, nor does it discuss the U.S. federal income
tax consequences to certain types of holders that may be subject to special
rules under the U.S. federal income tax laws, such as financial institutions,
insurance companies, dealers in securities or foreign currency, tax-exempt
organizations, foreign corporations or nonresident alien individuals or persons
whose functional currency is not the U.S. dollar. Moreover, the effect of any
applicable state, local or foreign or other tax laws is not discussed.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PURCHASER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
SUCH PURCHASER'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF
THE OWNERSHIP AND DISPOSITION OF CLASS A COMMON STOCK.
TAXATION OF THE COMPANY AND ITS SUBSIDIARIES
In general, the Company and its foreign (non-U.S.) subsidiaries will be
subject to U.S. federal income tax only to the extent they have income which has
its source in the United States or is effectively connected with a U.S. trade or
business. Except with respect to interest on pledged securities and dividends
from domestic (U.S.) subsidiaries, 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. On the other hand, the domestic (U.S.) subsidiaries of the
Company will be subject to U.S. federal income tax on their worldwide income
regardless of its source (subject to reduction by allowable foreign tax
credits). Distributions by such U.S. subsidiaries to the Company or its foreign
subsidiaries generally will be subject to U.S. withholding taxes.
TAXATION OF U.S. SHAREHOLDERS
A U.S. shareholder receiving a distribution on Class A Common Stock
generally will be required to include such distribution in gross income as a
taxable dividend to the extent such distribution is paid from the current or
accumulated earnings and profits of the Company as determined under U.S. federal
income tax principles. Distributions in excess of the earnings and profits of
the Company generally will first be treated, for U.S. federal income tax
purposes, as a nontaxable return of capital to the extent of the U.S.
shareholder's basis in the Class A Common Stock and then as gain from the sale
or exchange of a capital asset. Dividends received on the Class A Common Stock
by U.S. corporate shareholders will not be eligible for the corporate dividends
received deduction.
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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. In the case of non-corporate taxpayers, long-term capital gains from
the sale of Class A Common Stock will be taxed at a maximum federal rate of 20%.
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. If
any of the Company's foreign corporate subsidiaries were to derive any income
from U.S. sources, less than 50% of any such income can be expected to be from
passive sources. Accordingly, the Company believes that none of such foreign
subsidiaries will satisfy the foregoing income test and therefore none of them
will be classified as a PHC. In addition, since it is anticipated that the
Company's U.S. subsidiaries will derive most or all of their income from
non-passive sources, the Company further believes that none of such subsidiaries
will satisfy the foregoing income test and, thus, none of them will be
classified as a PHC. The Company intends to manage its affairs and the affairs
of its subsidiaries so as to attempt to avoid or minimize the imposition of the
PHC tax, to the extent such management of its affairs is consistent with its
other business goals.
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FOREIGN PERSONAL HOLDING COMPANIES
In general, if the Company or any of its foreign corporate subsidiaries
were to be classified as a FPHC the undistributed foreign personal holding
company income (generally, taxable income with certain adjustments) of the
Company or such subsidiary would be imputed to all of the U.S. shareholders who
were deemed to hold the Company's stock or the stock of such subsidiary on the
last day of its taxable year. Such income would be taxable to such persons as a
dividend, even if no cash dividend were actually paid. U.S. shareholders who
dispose of their Class A Common Stock prior to such date generally would not be
subject to U.S. federal income tax under these rules. If the Company were to
become an FPHC, U.S. shareholders who acquire Class A Common Stock from
decedents would, in certain circumstances, be denied the step-up of the income
tax basis for such Class A Common Stock to fair market value at the date of
death which would otherwise have been available and instead would have a tax
basis equal to the lower of the fair market value or the decedent's basis.
A foreign corporation will be classified as an FPHC if (i) five or fewer
individuals, who are U.S. citizens or residents, directly or indirectly, own
more than 50% of the corporation's stock (measured either by voting power or
value) (the "stockholder test") and (ii) the corporation receives at least 60%
of its gross income (regardless of source), as specifically adjusted, from
certain passive sources (the "income test"). After a corporation becomes an
FPHC, the income test percentage for each subsequent taxable year is reduced to
50%.
Five or fewer individuals who are U.S. citizens or residents currently own
a beneficial interest of more than 50% of the voting power of the outstanding
Class A Common Stock of the Company and its foreign corporate subsidiaries for
purposes of the FPHC rules, and the Company believes that the stockholder test
will likely be met on a going forward basis. The Company believes, however, that
neither the Company nor its foreign corporate subsidiaries, once profitable,
should be classified as a FPHC because the Company and each of the subsidiaries
should not then satisfy the foregoing income test.
While the Company currently believes that neither it nor any of its foreign
corporate subsidiaries would be classified as an FPHC once profitable, it is
possible that the Company or one or more of such subsidiaries would meet the
foregoing income test in a given taxable year and would qualify as a FPHC for
that year. If the Company concludes that it or any of its foreign corporate
subsidiaries would be classified as an FPHC for any profitable taxable year, the
Company intends to manage its affairs and the affairs of the subsidiaries so as
to attempt to avoid or minimize having income imputed to the U.S. shareholders
under these rules, to the extent such management of its affairs is consistent
with its other business goals.
PASSIVE FOREIGN INVESTMENT COMPANIES
If 75% or more of the gross income of the Company (taking into account
under an income "lookthrough" rule, the Company's pro rata share of the gross
income of any company of which the Company is considered to own 25% or more of
the stock by value) in a taxable year is passive income, or if at least 50% of
the average percentage of assets of the Company (also taken into account, under
an asset "look-through" rule, the pro rata share of the assets of any company of
which the Company is considered to own 25% or more of the stock by value) in a
taxable year produce or are held for the production of passive income, the
Company would be classified as a PFIC. Passive income for purposes of the PFIC
rules generally includes dividends, interest and other types of investment
income and would include amounts derived by reason of the investment of a
portion of the funds raised in the Offerings. If the Company were a PFIC at any
time during a U.S. shareholder's holding period, each U.S. shareholder
(regardless of the percentage of stock owned) would, upon certain distributions
by the Company and upon disposition of the Class A Common Stock at a gain, be
liable to pay tax plus an interest charge. The tax would be determined by
allocating such distribution or gain ratably to each day of the U.S.
shareholder's holding period for the Class A Common Stock. The amount allocated
to years prior to the taxable year of the distribution or disposition would be
taxed at the highest marginal rates for ordinary income for such years (if the
Company was a PFIC during such years). The U.S. shareholder
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<PAGE>
would also be liable for interest on the amount of such additional tax due with
respect to such prior years in which the Company was a PFIC. The amount
allocated to the current taxable year and any non-PFIC years would be taxed in
the same manner as other ordinary income earned in the current taxable year.
Under certain circumstances, if the Company were to become a PFIC,
distributions and dispositions in respect of shares in a direct or indirect
foreign corporate subsidiary of the Company may be attributed in whole or in
part to a U.S. investor, and such U.S. investor may be taxed under the PFIC
rules with respect to such distributions or dispositions.
If the Company were to become a PFIC, U.S. shareholders who acquire
Class A Common Stock from decedents could be denied the step-up of the income
tax basis for such Class A Common Stock to fair market value at the date of
death which would otherwise have been available and instead could have a tax
basis equal to the lower of the fair market value of the decedent's basis.
The above results may be eliminated (at least in part) if a U.S.
shareholder permanently elects to treat the Company as a "qualified electing
fund" ("QEF") for U.S. federal income tax purposes. A stockholder of a QEF is
required for each taxable year to include in income a pro rata share of the
ordinary income of the QEF as ordinary income and a pro rata share of the net
capital gain of the QEF as long-term capital gain. If a U.S. shareholder in a
PFIC has made a QEF election in a year subsequent to the year in which such
investor acquired an interest in the PFIC, the U.S. shareholder must agree in
the year of such election to either (1) recognize gain equal to such U.S.
shareholder's unrealized appreciation in such stock or (2) assuming the Company
is a controlled foreign corporation 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.
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. shareholder's adjusted
basis. If the stock declines in value during any year, such U.S. shareholder
will be entitled to a deduction from ordinary income the excess of such U.S.
shareholder's adjusted basis over the stock's value at the close of such year
but only to the extent of net mark-to-market gains previously included in
income. Any gain or loss on the sale of the stock of the PFIC will be ordinary
income or ordinary loss (but only to the extent of the previously included net
mark-to-market gains). In the case of a U.S. shareholder who makes this
mark-to-market election for PFIC stock as to which a QEF election was not in
effect during his period of ownership, a coordination rule applies to ensure
that the shareholder does not avoid the interest charge for periods prior to
this election. An election to mark-to-market applies to the year for which the
election is made and following years unless the PFIC stock ceases to be
marketable or the Internal Revenue Service consents to the revocation of such
election.
The Company intends to manage its business and the businesses of the
subsidiaries so as to attempt to avoid PFIC status to the extent such management
of its affairs is consistent with its other business goals. The Company will
notify U.S. shareholders in the event that it concludes that it will be treated
as a PFIC for any taxable year to enable U.S. shareholders to consider whether
to elect to treat the Company as a QEF for U.S. federal income tax purposes or
to make the mark-to-market election. In addition, the Company will, at the
request of a U.S. shareholder who elects to have the Company treated as a QEF,
comply with the applicable information reporting requirements. Recently issued
Treasury Regulations set forth rules on the filing of a protective statement by
a U.S. person who owns stock in a foreign corporation which is reasonably
believed by such person not to be a PFIC. The purpose of this protective
statement is to enable such person to make a retroactive QEF election in the
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<PAGE>
event that such foreign corporation is subsequently determined to be PFIC and to
permit the Internal Revenue Service ("IRS") to make an otherwise barred
assessment of tax under the QEF rules. In the event that the Company should be
determined to have been a PFIC, generally, a U.S. shareholder who has not filed
a protective statement may not make a retroactive QEF election except with the
consent of the IRS which may or may not be granted. Accordingly, U.S.
shareholders should consider with their own U.S. tax advisors whether the filing
of a protective statement with respect to Class A Common Stock in the Company is
advisable.
TAXATION OF NON-U.S. SHAREHOLDERS
A non-U.S. shareholder should not be subject to U.S. federal income tax on
distributions made with respect to, and gains realized from the disposition of,
Class A Common Stock unless such distributions or gains are attributable to an
office or fixed place of business maintained by such non-U.S. shareholder in the
U.S. A non-U.S. shareholder generally will not be subject to U.S. federal income
or withholding tax in respect of gain recognized in the disposition of Class A
Common Stock unless such non-U.S. shareholder is an individual present in the
U.S. for 183 or more days in the taxable year of disposition and certain other
requirements are met.
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 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
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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 final regulations on October 6, 1997
which, among other things, alter the information reporting and backup
withholding rules applicable to non-U.S. shareholders by providing 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 regulations are generally
effective with respect to dividends paid after December 31, 1999. The foregoing
discussion is not intended to be a complete discussion of the provisions of
these regulations, and prospective shareholders are urged to consult their tax
advisors with respect to the effect that these regulations would have on an
investment in Class A Common Stock.
CERTAIN BERMUDA TAX CONSIDERATIONS
In the opinion of Conyers, Dill & Pearman, the following correctly
describes a summary of certain material anticipated tax consequences of an
investment in the Class A Common Stock under current Bermuda tax laws. This
discussion does not address the tax consequences under non-Bermuda tax laws and,
accordingly, each prospective investor should consult his or her tax advisor
regarding the tax consequences of an investment in the Class A Common Stock. The
discussion is based upon laws and relevant interpretation thereof in effect as
of the date of this Prospectus, all of which are subject to change.
BERMUDA TAXATION
At the date hereof, there is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by the Company or its shareholders other than those who
are ordinarily resident in Bermuda. The Company is not subject to stamp or other
similar duty on the issue, transfer or redemption of its Class A Common Stock.
The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or to the shares or other
obligations of the Company until March 28, 2016 except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such shares or
other obligations of the Company or any real property or leasehold interests in
Bermuda owned by the Company. No reciprocal tax treaty affecting the Company
exists between Bermuda and the United States.
As an exempted company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares at a rate not exceeding $26,500 per annum.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereunder will be passed
upon for the Company by Conyers, Dill & Pearman, Hamilton, Bermuda.
EXPERTS
The Consolidated Financial Statements of RSL Communications, Ltd. as of
December 31, 1996 and 1997 and Consolidated Financial Statements and Financial
Statement Schedules for each of the three years in the period ended
December 31, 1997, and International Telecommunications Group, Ltd.
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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.
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
The Issuer 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 Issuer
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.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
RSL COMMUNICATIONS, LTD.
Independent Auditors' Report.............................................................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1997................................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1995, December 31, 1996 and
December 31, 1997....................................................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, December 31, 1996
and December 31, 1997................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, December 31, 1996 and
December 31, 1997....................................................................................... F-6
Notes to Consolidated Financial Statements................................................................ F-7
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1997 and
September 30, 1998...................................................................................... F-27
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 1997 and
September 30, 1998...................................................................................... F-28
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and
September 30, 1998...................................................................................... F-29
Notes to Condensed Consolidated Financial Statements...................................................... F-30
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD. AND SUBSIDIARIES
Independent Auditors' Report.............................................................................. F-35
Consolidated Statement of Operations and Accumulated Deficit for the Nine Months Ended September 30,
1995.................................................................................................... F-36
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995......................... F-37
Notes to Consolidated Financial Statements................................................................ F-38
</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, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
consolidated financial statement schedules listed in the Index as Item 16(b) in
Part II. 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, 1997 and 1996, and the results of their
operations and their cash flows for the three years ended December 31, 1997 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
FEBRUARY 18, 1998
F-2
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................................... $104,068 $144,894
Accounts receivable............................................................. 26,479 70,610
Marketable securities--available for sale....................................... 67,828 13,858
Prepaid expenses and other current assets....................................... 3,969 16,073
-------- --------
Total current assets.............................................................. 202,344 245,435
-------- --------
Restricted Marketable Securities--held to maturity................................ 104,370 68,836
-------- --------
Property and Equipment:
Telecommunications equipment.................................................... 29,925 63,998
Furniture, fixtures and other................................................... 5,926 21,583
-------- --------
35,851 85,581
Less accumulated depreciation................................................... (3,513) (13,804)
-------- --------
Property and equipment--net..................................................... 32,338 71,777
-------- --------
Goodwill and other intangible assets--net of accumulated amortization............. 87,605 214,983
-------- --------
Deposits and Other Assets......................................................... 1,312 4,633
-------- --------
Total Assets...................................................................... $427,969 $605,664
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................................ $ 49,370 $ 94,149
Accrued expenses................................................................ 12,701 49,965
Notes payable................................................................... 6,538 4,604
Deferred revenue................................................................ 3,570 5,368
Other liabilities............................................................... 5,236 8,271
-------- --------
Total current liabilities......................................................... 77,415 162,357
-------- --------
Other Liabilities--noncurrent..................................................... 15,286 --
-------- --------
Long-term Debt--less current portion.............................................. 6,032 --
-------- --------
Senior Notes, 12 1/4% due 2006, net............................................... 296,000 296,500
-------- --------
Capital Lease Obligations--less current portion................................... 12,393 20,108
-------- --------
Total Liabilities................................................................. 407,126 478,965
-------- --------
Commitments and Contingencies
Shareholders' Equity
Common stock, Class A--par value $0.00457; 0 and 10,872,568 issued
and outstanding at December 31, 1996 and 1997, respectively.................. -- 49
Common stock, Class B--par value $0.00457; 10,528,887 and 30,760,726, issued and
outstanding at December 31, 1996 and 1997, respectively...................... 48 141
Common stock Class C--par value $0.00457; no shares issued...................... -- --
Preferred stock par value $0.00457; 65,700,000 shares authorized, 9,243,866 and
0 shares issued and outstanding at December 31, 1996 and 1997,
respectively................................................................. 93 --
Warrants--Common Stock, exercise price of $0.00457.............................. 5,544 5,544
Additional paid-in capital...................................................... 65,064 274,192
Accumulated deficit............................................................. (47,740) (147,939)
Foreign currency translation adjustment......................................... (622) (5,288)
Deferred financing costs........................................................ (1,544) --
-------- --------
Total shareholders' equity........................................................ 20,843 126,699
-------- --------
Total Liabilities and Shareholders' Equity........................................ $427,969 $605,664
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ AND SHARES IN THOUSANDS, EXCEPT LOSS PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues.......................................................... $ 18,617 $ 113,257 $ 300,796
Operating costs and expenses
Cost of services (exclusive of depreciation and
amortization shown separately below)......................... 17,510 98,461 265,321
Selling, general and administrative expenses.................... 9,639 38,893 94,712
Depreciation and amortization................................... 849 6,655 21,819
-------- ---------- ----------
27,998 144,009 381,852
-------- ---------- ----------
Loss from operations.............................................. (9,381) (30,752) (81,056)
Interest income................................................... 173 3,976 13,826
Interest expense.................................................. (194) (11,359) (39,373)
Other income...................................................... -- 470 6,595
Minority interest................................................. -- (180) 210
Income taxes...................................................... -- (395) (401)
-------- ---------- ----------
Net loss.......................................................... $ (9,402) $ (38,240) $ (100,199)
========= ========== ==========
Loss per share.................................................... $ (1.67) $ (5.13) $ (5.27)
Weighted average number of shares of common stock
outstanding...................................................... 5,641 7,448 19,008
</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 PREFERRED COMMON STOCK
COMMON STOCK COMMON STOCK STOCK WARRANTS ADDITIONAL
-------------- -------------- -------------- -------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------ ------ ------ ------ ------ ------ ---------- -----------
<S> <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............... -- -- 6,411 29 -- -- -- -- 1,822 --
Net loss............. -- -- -- -- -- -- -- -- -- (9,402)
------ ---- ------ ---- ------ ---- ------ ------ -------- ---------
BALANCE,
December 31, 1995... -- -- 6,411 29 9,244 93 -- -- 15,083 (9,500)
Issuance of warrants
in connection with
Notes Offering...... -- -- -- -- -- -- 657 4,000 -- --
Issuance of warrants
in connection with
shareholder standby
facility and
revolving credit
facility............ -- -- -- -- -- -- 460 1,544 -- --
Issuance of Common
Stock............... -- -- 4,118 19 -- -- -- -- 49,981 --
Foreign Currency
Translation
Adjustment.......... -- -- -- -- -- -- -- -- -- --
Net loss............. -- -- -- -- -- -- -- -- -- (38,240)
------ ---- ------ ---- ------ ---- ------ ------ -------- ---------
BALANCE,
December 31, 1996... -- -- 10,529 48 9,244 93 1,117 5,544 65,064 (47,740)
Issuance of Class A
Common Stock........ 10,873 49 -- -- -- -- -- -- 209,128 --
Conversion of
Preferred Stock In
Exchange for
Class B Common
Stock............... -- -- 20,232 93 (9,244) (93) -- -- -- --
Foreign Currency
Translation
Adjustment.......... -- -- -- -- -- -- -- -- -- --
Amortization of
deferred financing
costs............... -- -- -- -- -- -- -- -- -- --
Net loss............. -- -- -- -- -- -- -- -- -- (100,199)
------ ---- ------ ---- ------ ---- ------ ------ -------- ---------
BALANCE
December 31, 1997... 10,873 $ 49 30,761 $141 -- $ -- 1,117 $5,544 $274,192 $(147,939)
====== ==== ====== ==== ====== ==== ===== ====== ======== =========
<CAPTION>
FOREIGN
CURRENCY DEFERRED
TRANSLATION FINANCING
ADJUSTMENT COSTS TOTAL
------------ --------- ---------
<S> <C> <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) -- (622)
Net loss............. -- -- (38,240)
------------ ------- ---------
BALANCE,
December 31, 1996... (622) (1,544) 20,843
Issuance of Class A
Common Stock........ -- -- 209,177
Conversion of
Preferred Stock In
Exchange for
Class B Common
Stock............... -- -- --
Foreign Currency
Translation
Adjustment.......... (4,666) -- (4,666)
Amortization of
deferred financing
costs............... -- 1,544 1,544
Net loss............. -- -- (100,199)
------------ ------- ---------
BALANCE
December 31, 1997... $ (5,288) $ -- $ 126,699
=========== ======= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss.......................................................... $ (9,402) $ (38,240) $ (100,199)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities, net of effects of purchase of
subsidiaries:
Accretion of interest receivable on restricted marketable
securities.................................................. -- (1,562) (5,504)
Depreciation and amortization................................. 848 6,655 21,819
Foreign currency transaction (gain)........................... -- (788) --
Loss on disposal of fixed assets.............................. -- 368 --
Provision for losses on accounts receivable................... 149 2,830 10,908
Reversal of accrued liabilities............................... -- -- (7,000)
Changes in assets and liabilities:
Increase in accounts receivable............................... (2,453) (17,034) (45,069)
Decrease (increase) in deposits and other assets.............. 366 (3,249) (2,929)
Decrease (increase) in prepaid expenses and other current
assets...................................................... 297 (925) (13,196)
Increase in accounts payable and accrued expenses............. 3,511 44,243 56,354
Increase (decrease) in deferred revenue and other current
liabilities................................................. 1,501 4,279 (2,155)
Increase (decrease) in other liabilities...................... 8,737 (7,052) (4,841)
---------- ---------- ----------
Net cash provided by (used in) operating activities............... 3,554 (10,475) (91,812)
---------- ---------- ----------
Cash flows used in investing activities:
Acquisition of subsidiaries..................................... (15,413) (38,552) (77,813)
Purchase of marketable securities............................... -- (82,529) --
Proceeds from marketable securities............................. -- 14,701 54,167
Purchase of restricted marketable securities.................... -- (102,808) --
Proceeds from maturities of restricted marketable securities.... -- -- 41,038
Purchase of property and equipment.............................. (1,124) (15,983) (36,357)
Proceeds from sale of equipment................................. -- 171 144
---------- ---------- ----------
Net cash used in investing activities............................. (16,537) (225,000) (18,821)
---------- ---------- ----------
Cash flows provided by financing activities:
Proceeds from issuance of common and preferred stock and
warrants...................................................... 15,205 50,000 182,160
Underwriting fees and expenses.................................. -- -- (14,618)
Proceeds from notes payable..................................... 3,000 -- --
Payment of notes payable........................................ -- (3,000) (3,348)
Proceeds from issuance of 12 1/4% Senior Notes and warrants..... -- 300,000 --
Payments of offering costs...................................... -- (10,989) --
Proceeds from long-term debt.................................... -- 44,000 --
Payments of long-term debt...................................... -- (44,598) (9,402)
Principal payments under capital lease obligations.............. (62) (382) (2,757)
---------- ---------- ----------
Net cash provided by financing activities......................... 18,143 335,031 152,035
---------- ---------- ----------
Increase in cash and cash equivalents............................. 5,160 99,556 41,402
Effects of foreign currency exchange rates on cash................ -- (651) (576)
Cash and cash equivalents at beginning of period.................. 3 5,163 104,068
---------- ---------- ----------
Cash and cash equivalents at end of period........................ $ 5,163 $ 104,068 $ 144,894
========== ========== ==========
Supplemental disclosure of cash flows information:
Cash paid for:
Interest...................................................... $ 31 $ 1,639 $ 41,285
========== ========== ==========
Supplemental schedule of noncash investing and financing
activities--
Assets acquired under capital lease obligations................. $ 4,950 $ 7,897 $ 13,060
========== ========== ==========
Issuance of notes to acquire stock.............................. $ -- $ 9,328 $ --
========== ========== ==========
Issuance of warrants for shareholder standby facility........... $ -- $ 1,544 $ --
========== ========== ==========
Issuance of Class A Common Stock................................ $ -- $ -- $ 41,635
========== =========== ==========
Acquisition cost included in current liabilities.................. $ -- $ -- $ 17,929
========== =========== ==========
</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, 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, Belgium, Germany, the Netherlands, Sweden,
Finland, Australia, Venezuela, Italy, Switzerland and Denmark. In 1996,
approximately 60% of the world's international long distance telecommunications
minutes originated in these markets.
2. ACQUISITIONS
1997 Acquisitions/New Operations
Delta Three, Inc.
During 1997, the Company acquired a majority interest in Delta Three, Inc.
("Delta Three"). The Company paid approximately $8.8 million for approximately
72% ownership of the Company and agreed to acquire an additional 26% interest
during 1998. In connection with this transaction, the Company recorded
approximately $3.8 million in goodwill.
Maxitel
In April 1997, RSL Com Europe Ltd ("RSL Europe") acquired a 30.4% interest
in Maxitel, a Portuguese international telecommunications carrier, and has since
increased its ownership interest in Maxitel to 39%. The total investment in
Maxitel is approximately $2.1 million.
Pacific Star Communications Limited
In April 1997, the Company acquired substantially all of the commercial
customer contracts of Pacific Star Communications Limited, an Australian based
company. The Company paid approximately $1.5 million in cash and recorded this
amount as a customer base.
Newtelco
In August 1997, RSL Europe purchased 90% of the stock of Newtelco Telekom
AG ("RSL Austria"), an Austrian start-up telecommunications company for an
$800,000 investment in the company.
RSL Com Italia S.r.l
In August 1997, RSL Europe acquired 85% of the stock in RSL Italy ("RSL
Italy"), an Italian telecommunications reseller. The Company paid approximately
$1.7 million for its investment in RSL Italy.
F-7
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
2. ACQUISITIONS--(CONTINUED)
EZI Phonecard Holdings Pty. Limited
In October 1997, RSL Com Australia Holdings Pty. Ltd. ("RSL Australia")
acquired 85% of EZI Phonecard Holdings Pty. Limited for approximately $200,000
in cash and the assumption of net liabilities of $1.3 million. In connection
with this purchase, RSL Australia recorded approximately $1.5 million of
goodwill.
Call Australia Group
In October 1997, the Company through its wholly-owned subsidiary, RSL
Australia acquired 100% of the issued capital of each of Call Australia Pty.
Ltd., Associated Service Providers Pty. Limited, Digiplus Pty. Limited, Power
Serve Communications Consultants Pty. Limited, Talk 2000 Networks Pty. Limited
and Telephone Bill Pty. Limited (collectively the "Call Australia Group"),
leading Australian switchless resellers, for approximately $24.5 million. In
connection with this purchase, RSL Australia recorded approximately $24.5
million of goodwill.
LDM Systems, Inc.
In October 1997, the Company acquired 100% of the outstanding common stock
of LDM Systems, Inc. ("LDM"). The total purchase price was $14.9 million. In
connection with this acquisition, the Company recorded an equal amount of
goodwill.
Callcom AG fur TeleKommunikation
In December 1997, RSL Europe acquired a 78.5% interest in Callcom AG fur
TeleKommunikation ("RSL Switzerland"). The Company invested approximately $2.1
million in cash in RSL Switzerland for common shares.
European Telecom S.A./N.V.
In December 1997, RSL Europe acquired 90% of European Telecom S.A./N.V.
("RSL Belgium") which in turn owns 100% of European Telecom SARL (RSL
Luxemburg). The Company paid approximately $18.6 million for this acquisition
and recorded an equal amount of goodwill.
1996 Acquisitions/New Operations
Certain Assets of Sprint in France and Germany
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 $7.9 million of goodwill.
Belnet Nederland B.V.
In October 1996, the Company acquired 38,710 shares of Belnet Nederland
B.V. ("Belnet/RSL"), representing 75% of the outstanding stock for
$10.0 million and the assumption of liabilities of $500,000. In 1997, the
Company acquired the remaining shares for approximately $7.3 million. In
F-8
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
2. ACQUISITIONS--(CONTINUED)
connection with the purchase of Belnet/RSL, the Company recorded approximately
$15.6 million of goodwill.
Incom (UK) Limited
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 RSL COM North America, Inc. (formerly
known as International Telecommunications Group, Ltd.) ("RSL North America")
(the "Purchased Shares"). In addition, 3,333 voting shares of RSL North America
currently held by Incom were exchanged for an equal number of non-voting shares.
In connection with this acquisition, the Company recorded approximately $3.8
million of goodwill.
1995 Acquisitions/New Operations
On March 10, 1995, the Company entered into a stock purchase agreement (the
"Agreement") with RSL North America and RSL COM U.S.A., Inc. (formerly known as
International Telecommunications Corporation) ("RSL USA"), pursuant to which the
Company initially purchased from RSL North America 66,667 shares of RSL North
America's Series A convertible preferred stock (which represented 25% of RSL
North America's then outstanding stock, including common and preferred shares)
for $4.8 million. The Company subsequently purchased additional shares of RSL
North America's common stock at various times during 1995, 1996 and 1997 for a
total purchase price of cash, secured notes, issuance of shares and the
assumption of net liabilities aggregating $12.9 million at December 31, 1995,
cumulatively aggregating (inclusive of an aggregate $12.9 million at
December 31, 1995) $25.0 million at December 31, 1996, and cumulatively
aggregating (inclusive of an aggregate $25.0 million at December 31, 1996)
$87.3 million at December 31, 1997, resulting in recorded goodwill in the
aggregate of $85.5 million at December 31, 1997. At December 31, 1995, 1996 and
1997, the Company's ownership interest in RSL North America was 50.1%, 87% and
100%, respectively.
Effective September 1, 1995, RSL North America'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 $7.2 million. In addition,
through March 1997, the Company acquired the remaining outstanding shares.
The total purchase price consisted of approximately $9.5 million, and
assumption of net liabilities of $21.1 million. In connection with the purchase
of Cyberlink, the Company recorded approximately $30.6 million 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% of the Cyberlink Europe shares for approximately $2.1 million
and the assumption of liabilities. The total cash paid was approximately $3.7
million. In connection with the purchase of Cyberlink Europe, the Company
recorded approximately $5.4 million of goodwill.
F-9
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
2. ACQUISITIONS--(CONTINUED)
Accounting Treatment
For all years, the acquisitions, unless otherwise stated, have been
accounted for by the purchase method of accounting and, accordingly, the
purchase prices have been allocated to the assets acquired, primarily fixed
assets and accounts receivable, and liabilities assumed based on their estimated
fair values at the dates of acquisition. The excess of the purchase price over
the estimated fair values of the net assets acquired has been recorded as
goodwill, which is amortized over fifteen years. The valuation of all of the
Company's acquired assets and liabilities from inception through December 31,
1997 is final except for the final valuation to be made of litigation reserves
and carrier liabilities in connection with the LDM acquisition.
The following presents the unaudited pro forma consolidated statements of
operations data of the Company for the years ended December 31, 1996 and 1997 as
though the acquisitions of RSL COM France, RSL COM Germany, Belnet/RSL, LDM,
Call Australia Group, and EZI had occurred on January 1, 1996. All other
acquisitions had insignificant operations prior to the date of acquisition. The
consolidated statements do not necessarily represent what the Company's results
of operations would have been had such acquisitions actually occurred on such
date.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
(UNAUDITED)
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C>
Revenues...................................................... $ 203,075 $ 371,757
--------- ---------
--------- ---------
Net loss...................................................... $ (40,916) $(103,697)
--------- ---------
--------- ---------
Net loss per share............................................ $ (5.49) $ (5.46)
--------- ---------
--------- ---------
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation--The consolidated
financial statements include the accounts of RSL Communications, Ltd. and its
majority-owned subsidiaries from the date of acquisition or commencement of
operations.
For the years ended December 31, 1995 and 1996 the Company has, since the
Company's acquisition or startup of its subsidiaries, included 100% of all of
such subsidiaries' operating losses, because the minority investments in each of
those entities have been reduced to zero as of the relevant year-end dates. For
the year ended December 31, 1997 the Company has included 100% of its wholly
owned subsidiaries' operating losses and the Company recorded minority interest,
an asset representing the Company's minority shareholder's proportionate share
of operating losses for RSL COM Italia, S.r.l., RSL COM Venezuela C.A., RSL COM
Austria A.G., RSL COM Spain S.A., and RSL COM Schweiz AG. In the event
additional capital in any such subsidiary is required to fund operating losses,
the minority shareholders of such subsidiary are contractually obligated to
invest, to the extent necessary to fund the operations, based on their pro rata
ownership of the total outstanding stock of such subsidiary. If a shareholder
does not invest its pro rata amount, then such shareholder's equity interest
will be diluted and the contributing shareholders' equity in such subsidiary
will be increased. The Company believes that all of its minority shareholders
have the financial wherewithal to meet its obligations to the Company with
respect to its proportionate share of operating losses. Each of the Company's
other subsidiaries' operating losses have been recorded in full.
The Company has majority ownership of all of its subsidiaries.
F-10
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The Company accounts for its 39% investment in Maxitel Servicios e Gestao
de Telecomunicaciones, SA ("Maxitel") on the cost basis. The Company's
investment in Maxitel is not material. During 1997, the Company formed a joint
venture with entities controlled by the Cisneros Group of Companies to pursue
the Company's Latin American expansion. The Company owns 51% of this joint
venture and has, since the joint venture's formation, consolidated 100% of this
joint venture and recognized minority interest for 49% of the operating losses
of the joint venture. The receivable for the minority shareholder's share of the
joint venture loss is included in other current assets.
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. Gains and losses from foreign
currency transactions are included in the consolidated statements of operations
for each respective period, and were not significant in the periods presented.
Cash and Cash Equivalents--The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Accounts Receivable--Accounts receivable are stated net of the allowance
for doubtful accounts of $3,900,000 and $12,000,000 at December 31, 1996 and
1997, respectively. The Company recorded bad debt expense of $149,000,
$2,830,000 and $10,900,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
Accrued Expenses--Accrued expenses for the years ended December 31, 1996
and 1997 consist primarily of accrued interest, accrued acquisition costs and
accrued transmission costs. Accrued interest as of December 31, 1996 was
$9,447,000. Accrued interest as of December 31, 1997 was not significant.
Marketable Securities--Marketable securities consist principally of U.S.
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
F-11
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
using the straight-line method over the estimated useful lives of the
depreciable assets, which range from five to fifteen years. Improvements are
capitalized, while repair and maintenance costs are charged to operations as
incurred. Depreciation expense was $302,000, $3,462,000 and $9,794,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
Impairment of Assets--The Company's long-lived assets and identifiable
intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the net carrying amount may not be recoverable. When
such events occur, the Company measures impairment by comparing the carrying
value of the long-lived asset to the estimated undiscounted future cash flows
expected to result from use of the assets and their eventual disposition. If the
sum of the expected undiscounted future cash flows is less than the carrying
amount of the assets, the Company would recognize an impairment loss. The
impairment loss, if determined to be necessary, would be measured as the amount
by which the carrying amount of the asset exceeds the fair value of the asset.
The Company determined that, as of December 31, 1997 and 1996, there had been no
impairment in the carrying value of the long-lived assets.
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.
Other Intangibles--Other Intangible assets acquired through purchase
acquisitions represent licenses which are being amortized using the
straight-line method over five 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.
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--In accordance with the Company's adoption of SFAS
No. 128, "Earnings Per Share", the loss per common share is calculated by
dividing the loss attributable to
F-12
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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. The adoption of SFAS No. 128,
"Earnings Per Share" did not affect the Company's method of computing the loss
per common share.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement is effective for financial statements issued for periods
beginning after December 15, 1997. Management has evaluated the effect on its
financial reporting from the adoption of this statement and has found the
majority of required disclosures to be not applicable and the remainder to be
not significant.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company uses data at the subsidiary level to manage the operations
and the Company will expand its current footnote disclosure to meet this
criteria.
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 U.S. subsidiaries sell a significant
portion of their services to other carriers and, as a result, maintains
significant receivable balances with certain carriers. If the financial
condition and operations of these customers deteriorate below critical levels,
the Company's operating results could be adversely affected.
The Company maintains its cash with high quality credit institutions, and
its cash equivalents and marketable securities are in high quality securities.
5. MARKETABLE SECURITIES
A summary of the Company's available for sale marketable securities at
December 31, 1996 and December 31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Corporate notes........................................ $40,728 $40,678 $ 2,500 $ 2,500
Medium term notes...................................... 10,951 10,938 -- --
Commercial paper....................................... 10,261 10,257 4,390 4,388
Federal agency notes................................... 5,888 5,884 6,968 6,973
------- ------- ------- -------
$67,828 $67,757 $13,858 $13,861
------- ------- ------- -------
------- ------- ------- -------
</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.
F-13
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
5. MARKETABLE SECURITIES--(CONTINUED)
The carrying value of the available for sale marketable securities by
maturity date as of December 31, 1996 and December 31, 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Matures in one year........................................... $57,548 $11,856
Matures after one year through three years.................... 10,280 2,002
------- -------
Total......................................................... $67,828 $13,858
------- -------
------- -------
</TABLE>
Proceeds from the sale of available for sale marketable securities for the
years ended December 31, 1996 and 1997 were $14,701,000 and $27,675,000,
respectively. Gross gains (losses) of $56,000 and ($2,000) were realized on
these sales for the years ended December 31, 1996 and 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
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
--------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- -------- --------- -------
<S> <C> <C> <C> <C>
Matures in one year.................................. $ 39,692 $ 39,738 $35,455 $35,522
Matures after one year through three years........... 64,678 65,002 33,381 33,377
--------- -------- ------- -------
Total................................................ $ 104,370 $104,740 $68,836 $68,899
--------- -------- ------- -------
--------- -------- ------- -------
</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 $395,000 for the year ended December 31, 1996 and $401,000 for the
year ended December 31, 1997. As of December 31, 1996 and December 31, 1997, the
Company had net operating loss carryforwards generated primarily in the United
States of approximately $47,000,000 and $147,000,000, respectively. The net
operating loss carryforwards will expire at various dates beginning in 2009
through 2013 if not utilized. The utilization of the net operating loss
carryforwards is subject to certain limitations.
In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as of December 31, 1996 and 1997, as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
------------ --------
<S> <C> <C>
Deferred tax assets.............................................. $ 18,800 $ 59,000
Less valuation allowance......................................... (18,800) (59,000)
-------- --------
Net deferred tax assets.......................................... $ -- $ --
-------- --------
-------- --------
</TABLE>
The Company's net operating losses generated the deferred tax assets. At
December 31, 1996 and 1997, a valuation allowance of $18,800,000 and
$59,000,000, respectively, is provided as the realization of the deferred tax
assets are not likely.
F-14
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
7. NOTES PAYABLE AND LONG-TERM DEBT
Senior Notes
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 3.975 Class
A common shares which expire in ten years (collectively, the "Warrants"). The
exercise price of such Warrants is $.00457.
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 $3,500,000 at
December 31, 1996 and December 31, 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 Notes, or a portion thereof, may
also be redeemed upon the consummation of a public equity offering which yields
proceeds in excess of a specified amount.
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 $68,836,000 at December 31, 1996 and December 31,
1997, respectively.
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. Notwithstanding the
foregoing, these indentures do not impose restrictions on RSL's ability to
obtain funds by dividends or loans from its subsidiaries.
At December 31, 1996 and 1997, the Company is in compliance with the above
restrictive covenants.
Credit Facilities
At December 31, 1996 and 1997, the Company had 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. At December 31, 1996, the
Company also had a $35,000,000 shareholder standby facility with the Company's
Chairman.
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 vested over one year, to purchase 459,900 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. The Revolving Credit
Facility bears interest at the rate of LIBOR plus 1%. The Shareholder Standby
Facility, in accordance with the contractual agreement, expired upon receipt of
the net cash proceeds from the initial public offering.
The warrants became exercisable on October 3, 1997 at an exercise price of
$.00457 per share and expire in October 2006.
F-15
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
7. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)
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.
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 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 year ended December 31,
1997, the lines of credit were reduced to $570,000 and $-0-, respectively. The
total amounts outstanding at December 31, 1996 from the above credit lines were
$680,000 and $606,000, respectively, and at December 31, 1997 was $475,000 and
$0-, respectively. The remaining credit line terminates on August 31, 1998.
Borrowings under both of these credit lines are collateralized by a letter of
credit.
The Company, through LDM, has a $10.0 million revolving credit facility.
There was $3.6 million outstanding under this facility at December 31, 1997.
This facility is payable in full on September 30, 2000 and accrues interest at
prime rate plus 2.5% per annum.
Other Financing
In connection with the September 1996 purchase of additional shares of RSL
North America's common stock, the Company issued secured notes totaling
approximately $9,328,000. Such notes and interest were secured by the common
stock acquired, and were payable in annual and quarterly installments,
respectively, and bore interest at the rate of 6%. In 1997, the Company
satisfied the remaining loan obligations with such minority shareholders.
Vendor Financing
At December 31, 1996 and 1997, RSL USA has a series of current notes
payable to different vendors in the amount of $4,282,000 and $976,000,
respectively, which bear interest at the rates from 8% to 14.5%.
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 1997, approximately $39.0 million and $15.8 million was
available, respectively. Borrowings under this agreement are recorded as capital
lease obligations.
F-16
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
7. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)
Long-term debt maturities at December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
- ---------------------------------------------------------------------------------
<S> <C>
1998............................................................................. $ 4,604
1999............................................................................. --
2000............................................................................. --
2001............................................................................. --
2002............................................................................. --
2003 and thereafter.............................................................. 300,000
--------
Total............................................................................ 304,604
Less current maturities.......................................................... (4,604)
--------
Long Term Debt and 12 1/4% Senior Notes.......................................... $300,000
--------
--------
</TABLE>
RSL's notes payable had fair values that approximated their carrying
amounts at December 31, 1996. At December 31, 1997, the Senior Notes had a fair
value of aproximately $330,000,000. The increase in fair value is primarily due
to changes in the interest rate environment. The remainder of the notes had fair
values which approximated their carrying amounts.
Interest expense on the above notes was approximately $461,000, $10,457,000
and $37,136,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets at December 31, 1996 and 1997 consist of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
------------ --------
<S> <C> <C>
Goodwill......................................................... $ 79,732 $213,527
Deferred financing costs......................................... 10,988 11,655
Other Intangibles................................................ 626 3,331
-------- --------
91,346 228,513
Less accumulated amortization.................................... (3,741) (13,530)
-------- --------
Intangible assets--net........................................... $ 87,605 $214,983
-------- --------
-------- --------
</TABLE>
Amortization expense for the years ended December 31, 1995, 1996 and 1997
was $548,000, $3,193,000 and $9,980,000, respectively.
9. SHAREHOLDERS' EQUITY
Common Stock
During 1996, the Company issued 4,117,522 shares of Class B Common Stock
for cash aggregating $50,000,000. During 1995, 6,411,365 shares of Class B
Common Stock were issued for $1,851,000.
On September 30, 1997, the Company revised its capital structure (the
"Recapitalization"), in part to (i) effect a 2.19-for-one stock split for each
outstanding share of each class of common shares and each outstanding share of
Preferred Stock, (ii) increase the number of authorized shares of its Class A
Common Stock and Class B Common Stock to an aggregate of 438,000,000 shares and
(iii) increase the number of authorized shares of its Preferred Stock to
65,700,000. The holders of the Class A
F-17
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
9. SHAREHOLDERS' EQUITY--(CONTINUED)
Common Stock are entitled to one vote per share, and the holders of the Class B
Common Stock are entitled to ten votes per share.
On September 30, 1997, the Company commenced an initial public offering of
8,280,000 shares of its Class A Shares. The aggregate offering price of the
8,280,000 shares of Class A Common Stock sold in the equity offering to the
public was $182,160,000, with net proceeds to the Company of $167,542,000.
In June 1997, RSL North America's founder and former Chairman elected to
exchange his shares in RSL North America, a subsidiary of the Company, for
shares in the Company. Accordingly, the Company issued 1,457,094 of the Class A
Common Stock, par value $0.00457 per share, of the Company in exchange for
15,619 shares of common stock of RSL North America and recorded approximately
$32,575,000 for each of additional paid in capital and goodwill.
During 1997, the Company issued 712,142 shares of Class A Common Stock upon
the exercise of options.
During 1997, in connection with the acquisition of certain minority
interests, the Company issued 411,105 shares of Class A 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 ranked senior to the Company's common stock as to dividends and a
liquidation preference of $1.00 per share. Each share was convertible at the
holder's option into 2.19 shares of Class B Common Stock. All preferred shares
were automatically converted into the Company's Class B Common Stock as the
public offering yielded proceeds in excess of $25,000,000, in accordance with
the terms of the Preferred Stock agreement. Dividends, at the rate of 8%, were
cumulative. Upon conversion of the shares of the preferred stock, the cumulative
dividends were deemed to be cancelled and waived upon conversion. The cumulative
amount of such dividends was approximately $16,000.
10. CAPITAL LEASE OBLIGATIONS
Future minimum annual payments applicable to assets held under capital
lease obligations for years subsequent to December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
- --------------------------------------------------------------
<S> <C>
1998.......................................................... $ 7,189
1999.......................................................... 8,346
2000.......................................................... 6,528
2001.......................................................... 4,018
2002.......................................................... 3,373
2003 and thereafter........................................... 625
-------
Total minimum lease obligations............................... 30,079
Less interest................................................. (6,542)
-------
Present value of future minimum lease obligations............. 23,537
Less current portion, included in other current liabilities... (3,429)
-------
Long-term lease obligations at December 31, 1997.............. $20,108
-------
-------
</TABLE>
F-18
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
10. CAPITAL LEASE OBLIGATIONS--(CONTINUED)
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 $13,225,000 and $26,632,000 at
December 31, 1996 and 1997, respectively. The related accumulated depreciation
was $825,000 and $2,557,000, 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 reduced the outstanding commitment
amount under the Revolving Credit Facility to $15,000,000 at December 31, 1996
and $7,500,000 at December 31, 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 4,117,522 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.
Nesim N. Bildirici, a director and the Vice President of Mergers and
Acquisitions of the Company, was an employee of both the Company and R.S.
Lauder, Gaspar & Co., L.P. ("RSLAG"), a venture capital company owned and
controlled by Ronald S. Lauder and Andrew Gaspar. During 1996 Mr. Bildirici's
salary was paid by RSLAG and the Company reimbursed RSLAG for a majority of
Mr. Bildirici's salary. During the years ended December 31, 1996 and 1997, the
Company reimbursed RSLAG approximately $130,000 and $287,000, respectively, for
Mr. Bildirici's services. Mr. Bildirici became a full time employee of the
Company as of January 1, 1997.
RSL Management Corporation ("RSL Management"), which is wholly owned by
Ronald S. Lauder, the Chairman of the Board of the Company and the principal
shareholder of the Company, subleases an aggregate of 11,000 square feet of
office space to the Company at an annual rent of $767,000 per annum. RSL
Management subleases such space from The Estee Lauder Companies Inc. ("Estee
Lauder"). Ronald S. Lauder is also a principal shareholder of Estee Lauder and
Leonard A. Lauder, a director of the Company, is the Chief Executive Officer of
Estee Lauder. 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 January 2002
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 $1,555,000
for the years ended December 31, 1995, 1996 and 1997, respectively. The
aggregate commitment for annual future salaries pursuant to the employment
agreements at December 31, 1997, excluding bonuses, is
F-19
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
11. RELATED PARTY TRANSACTIONS--(CONTINUED)
approximately $1,371,000, $1,098,000, $615,000, $550,000 and $600,000 for 1998,
1999, 2000, 2001, and 2002, respectively.
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 plan, which are based on a percentage
of the employee's annual compensation subject to certain limitations, were not
significant for the years ended December 31, 1996 and 1997.
13. STOCK OPTION PLANS
1995 Stock Option Plan
In April 1995, the Company established an Incentive Stock Option Plan (as
amended and restated, the "1995 Plan") to reward employees, nonemployee
consultants and directors for service to the Company and to provide incentives
for future service and enhancement of shareholder value. The 1995 Plan is
administered by the Compensation Committee of the Board of Directors of the
Company (the "Committee"). The Committee consists of three members of the Board
of Directors. The Plan provides for awards of up to 2,847,000 shares of Class A
Common Stock of the Company.
The options granted in 1995 vest over a period of three years commencing on
the first anniversary of the date of grant such that the option holder may not
acquire more than 2% of the outstanding capital stock as of the date upon which
the related employment agreement expires. The options granted in 1996 vest in
one-third increments on each of the first, second and third anniversaries of the
grant date, unless a different vesting schedule is designated by the committee.
Further, the options granted under the 1995 Plan terminate on the tenth
anniversary of the date of grant. A total of 2,716,617 options have been granted
under this plan. The Company will not grant further options under the 1995 Plan.
1997 Stock Incentive Plan
During 1997, the Company established the 1997 Stock Incentive Plan (the
"1997 Plan") to attract and motivate key employees of the Company. The 1997 Plan
is administered by the Committee. The 1997 Plan provides for the grant of the
incentive and non-incentive stock options, stock appreciation rights, restricted
stock, and various combinations thereof. The maximum number of shares of
Class A Common Stock available under the 1997 Plan is 3,100,000, with no more
than 500,000 options or stock appreciation rights to be granted to any one
participant in a calendar year. The options vest over a three-year period,
unless a different vesting schedule is designated by the Committee. A total of
432,856 options have been granted under this plan.
1997 Performance Incentive Compensation Plan
During 1997, the Company established the 1997 Performance Incentive
Compensation Plan (the "1997 Performance Plan") to reward employees for superior
performance. Awards under the 1997 Performance Plan may be made to key employees
recommended by the Chief Executive Officer, selected by the Committee and
approved by the Board of Directors. The 1997 Performance Plan provides for the
grant of up to 400,000 shares of Class A Common Stock.
F-20
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
13. STOCK OPTION PLANS--(CONTINUED)
1997 Directors' Compensation Plan
During 1997, the Company adopted the 1997 Directors' Compensation Plan (the
"1997 Directors' Plan"). During the ten year term of the 1997 Directors' Plan,
each non-employee Director will be granted options to acquire a number of
Class A Common Stock with an aggregate fair market value on the date of grant
equal to $50,000, except for the Chairman and the Vice Chairman of the Board,
whose grants have a fair market value of $75,000 and $150,000, respectively. The
1997 Directors' Plan provides for the grant of up to 250,000 shares of Class A
Common Stock. The options vest over a five-year period, subject to certain
acceleration provisions. A total of 17,046 options have been granted under this
plan.
The exercise price of stock options granted under the 1997 Performance
Incentive Compensation Plan and 1997 Directors' Compensation Plan (the "1997
Plans") initially will equal the fair market value of the Class A Common Stock
on the date of the grant and will be increased quarterly based on the yield to
maturity of United States Treasury securities having a maturity approximately
equal to the term of such options.
The Company records stock option grants under the 1997 Stock Incentive
Plan, the 1997 Plans based on the fair market value of the underlying security
on the date of grant. The Company used the expected life of the underlying
security to calculate the fair market value of such security. At each quarter,
the Company compares the index option price to the fair market value of stock at
such quarter, and determines whether any compensation expense should be
recorded. At December 31, 1997, the first measurement date, the indexed exercise
prices for all of the options granted under the 1997 Plans were above the fair
market value of the Class A Common Stock on such date. Accordingly, no
compensation or other expense was recorded for the grant of such stock options
for 1997.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
Outstanding at January 1, 1995
Granted............................................ 1,423,500 $ 0.000457 $ 0.000457
Exercised.......................................... -- -- --
Rescinded/Canceled................................. -- -- --
--------- -------------- ----------
Outstanding at December 31, 1995..................... 1,423,500 0.000457 0.000457
Granted............................................ 283,824 1.60-2.51 1.73
Exercised.......................................... -- -- --
Rescinded/Canceled................................. -- -- --
--------- -------------- ----------
Outstanding at December 31, 1996..................... 1,707,324 0.000457-2.51 0.29
Granted............................................ 1,459,195 .00457-22.00 10.44
Exercised.......................................... 712,142 .000457 .000457
Rescinded/Canceled................................. -- -- --
--------- -------------- ----------
Outstanding at December 31, 1997..................... 2,454,377 $.000457-22.00 $ 6.41
--------- -------------- ----------
--------- -------------- ----------
<CAPTION>
WEIGHTED
RESERVED FOR AVERAGE
EXERCISABLE FUTURE GRANTS EXERCISE PRICE
----------- ------------- -----------------
<S> <C> <C> <C>
December 31, 1995..................................... -- 766,500 $ --
December 31, 1996..................................... 177,701 482,676 0.000457
December 31, 1997..................................... 459,607 3,430,481 0.44
</TABLE>
F-21
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
13. STOCK OPTION PLANS--(CONTINUED)
The following table summarizes information concerning the remaining options
granted under the 1997 Plans outstanding as of December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------------- -----------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
NUMBER AVERAGE REMAINING NUMBER OF AVERAGE
RANGE OF OF SHARES EXERCISE CONTRACTUAL SHARES EXERCISE
EXERCISE PRICES OUTSTANDING PRICES LIFE EXERCISABLE PRICES
- ------------------------------------------- ----------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.000457 711,358 $0.000457 7.83 -- $ --
$ 0.00457 590,584 $ 0.00457 9.66 350,400 $0.00457
$ 1.60 - $ 2.51 283,824 $ 1.73 8.73 109,207 $ 1.83
$12.142 - $22.00 868,611 $ 17.53 7.98 -- $ --
--------- -------
2,454,377 459,607
--------- -------
--------- -------
</TABLE>
SFAS Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS
No. 123") was issued by the FASB in 1995 and if fully adopted, changes the
methods for recognition of costs on plans similar to those of the Company.
Adoption of the recognition provisions of SFAS No. 123 is optional; however, pro
forma disclosures as if the Company adopted the cost recognition requirements
under SFAS No. 123 are presented below.
Under SFAS No. 123, for options granted, the fair value at the date of
grant was estimated using the Black-Scholes option pricing model. The fair value
was estimated using the minimum value method. Under this method, a volatility
factor of approximately 0.45 was used for options granted on or after the date
of the initial public offering and the minimum value method was used for options
granted prior to the date of the initial public offering, as there was no market
for the Company's common stock in which to measure the 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
1997, respectively: risk-free interest rates between 5.63% and 5.95%; 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 18 and 72 months,
respectively; and a maximum contractual life of 10 years.
For purposes of the pro forma disclosures, the estimated fair value of the
options granted is amortized to compensation expense over the options' vesting
period. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT LOSS PER
COMMON SHARE
AND WEIGHTED AVERAGE FAIR VALUE
OF OPTIONS GRANTED)
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
------- -------- ---------
<S> <C> <C> <C>
Net loss
As reported.................................................... $(9,402) $(38,240) $(100,199)
Pro forma...................................................... $(9,404) $(38,315) $(118,176)
Net loss per common share:
As reported.................................................... $ (1.67) $ (5.13) $ (5.27)
Pro forma...................................................... $ (1.67) $ (5.14) $ (6.22)
Weighted average fair value of options granted during the
Period......................................................... $0.0002 $ 0.26 $ 12.32
</TABLE>
F-22
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
14. COMMITMENTS AND CONTINGENCIES
At December 31, 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>
YEAR ENDED
- ---------------------------------------------------------------------------------
<S> <C>
1998............................................................................. $ 4,018
1999............................................................................. 3,621
2000............................................................................. 3,285
2001............................................................................. 2,798
2002............................................................................. 2,172
2003 and thereafter.............................................................. 1,427
--------
$ 17,321
--------
--------
</TABLE>
Rent expense on the above leases for the years ended December 31, 1995,
1996 and 1997 was $210,000, $2,276,000, and $3,842,000, 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
- ---------------------------------------------------------------------------------
<S> <C>
1998............................................................................. $ 10,842
1999............................................................................. 8,592
2000............................................................................. 8,087
2001............................................................................. 6,000
2002............................................................................. 5,330
--------
$ 38,851
--------
--------
</TABLE>
Rent expense for the year ended December 31, 1997 was approximately
$9,100,000.
Commitments and Contingencies--The Company is involved in various claims
that arose in the ordinary course of its acquired business, and certain claims
that arose in the ordinary course of its business. The expected settlements from
certain of 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 1997, the Company successfully amended such transmission
capacity agreements. The resulting settlement of approximately $7,000,000 has
been recorded as Other Income.
The Company is a party to separate stockholder agreements with certain
minority stockholders of its subsidiaries, pursuant to which the Company has
granted put rights with roll-up right provisions ("put rights"). These
agreements restrict the sale of the minority stockholders' interest to any
person or entity other than the Company and in certain cases require the Company
to purchase these interests in certain of the Company's subsidiaries. Certain of
the minority stockholders have the option to require the Company to purchase
their interests at any time in exchange for cash or Class A Common Stock (in
most instances, at the sole discretion of the Company) and have the right to
require the Company to purchase their interests in whole or in part at various
times through December 31, 2005 or upon cessation of such stockholder's
employment with the Company for any reason. Generally, the minority
F-23
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
14. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
stockholder remains employed by the Company and receives a salary and a
performance based bonus. The Company has issued put rights to substantially all
of its subsidiaries' minority stockholders at the time the Company acquired a
majority shareholding in the entity acquired or formed. Such put rights were
issued to create an incentive for the Company's minority shareholders to
maximize the long term value of their respective subsidiaries and to provide
liquidity to the shareholders at the time of exercise.
The Company's issuance of put rights did not at the time of grant provide
the recipient of such rights with any tangible value other than the right to put
their minority shares to the Company, in a value for value exchange (fair value
of the minority shares of the subsidiary for fair value of Class A Common Stock
or cash), in most instances, at the sole discretion of the Company. Solely for
the purpose of illustration, if all such options were in effect on December 31,
1997, the Company's aggregate purchase obligation is estimated to be
approximately $65 million.
The Company is contractually committed to the purchase of three
international gateway and two domestic switches. This commitment amounts to
approximately $8.0 million, all of which will be financed under the Company's
existing $50.0 million facility provided by one of the Company's primary
equipment vendors.
Letters of Credit--The Company has outstanding letters of credit
aggregating $550,000 and $6,047,000 at December 31, 1996 and 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 marketable
securities, certificates of deposit, and the Revolving Credit Facility and are
classified as current assets.
15. SIGNIFICANT CUSTOMER
For the years ended December 31, 1997 and 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-24
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
16. OPERATING DATA BY GEOGRAPHIC AREA
The following table provides certain geographic data on the Company's
operations for the years ended December 31, 1995, 1996 and 1997 (in thousands).
<TABLE>
<CAPTION>
OPERATING IDENTIFIABLE
REVENUE INCOME (LOSS) ASSETS
-------- ------------- ------------
<S> <C> <C> <C>
Year ended December 31, 1995
US..................................................................... $ 18,461 $ (6,969) $ 37,760
Europe................................................................. 156 (538) 1,953
Corporate.............................................................. -- (1,874) 13,359
-------- --------- --------
$ 18,617 $ (9,381) $ 53,072
-------- --------- --------
-------- --------- --------
Year ended December 31, 1996
US..................................................................... $ 85,843 $ (11,702) $ 54,509
Europe................................................................. 27,414 (13,438) 50,147
Corporate.............................................................. -- (5,612) 323,313
-------- --------- --------
$113,257 $ (30,752) $427,969
-------- --------- --------
-------- --------- --------
Year ended December 31, 1997
US..................................................................... $194,518 $ (26,119) $118,363
Europe................................................................. 73,653 (35,905) 106,746
Asia and Others........................................................ 32,625 (3,430) 58,905
Corporate.............................................................. -- (15,602) 321,650
-------- --------- --------
$300,796 $ (81,056) $605,664
-------- --------- --------
-------- --------- --------
</TABLE>
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, marketable securities and goodwill.
17. SUMMARIZED FINANCIAL INFORMATION
The following presents summarized financial information of RSL
Communications PLC a company incorporated in 1996 ("RSL PLC") as of December 31,
1996 and 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 certain of 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, certain operations and available credit facilities,
identical to the financial statements of RSL PLC (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- --------------------
<S> <C> <C>
Current Assets.................................................... $306,104 $212,568
Non-current Assets................................................ 120,761 324,118
Current Liabilities............................................... 74,948 122,672
Non-current Liabilities........................................... 394,556 557,448
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- --------------------
<S> <C> <C>
Net Revenue....................................................... $113,257 $266,142
Net Loss.......................................................... (34,309) (95,824)
</TABLE>
F-25
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
18. SUBSEQUENT EVENTS
In January 1998, the Company purchased 90% of Telecenter Oy, a Finnish
agent customer base. The Company paid approximately $10.0 million in cash with a
purchase price adjustment based on future results to be calculated in two years.
On February 8, 1998, the Board of Directors authorized the issuance of
$200,000,000 Senior Notes (collectively, "1998 Notes") due 2008 and Senior
Discount Notes (collectively, "1998 Discount Notes") with a discounted value of
approximately $200,000,000.
Such issuance is expected to occur on February 23, 1998. Both the 1998
Notes and the 1998 Discount Notes are guaranteed as to payment of principal and
interest by RSL Communications, Ltd.
19. SUPPLEMENTAL FINANCIAL INFORMATION
The following table sets forth selected unaudited quarterly financial
information for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
YEAR ENDED DECEMBER 31, 1997 FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 42,168 $ 67,193 $ 83,243 $108,192
-------- -------- -------- --------
-------- -------- -------- --------
Net loss...................................................... $(19,147) $(21,570) $(27,342) $(32,140)
-------- -------- -------- --------
-------- -------- -------- --------
Loss per share................................................ $ (1.82) $ (1.90) $ (2.28) $ (0.77)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of shares of common stock
outstanding................................................. 10,541 11,378 11,998 41,633
-------- -------- -------- --------
-------- -------- -------- --------
YEAR ENDED DECEMBER 31, 1996
Revenues...................................................... $ 15,864 $ 23,900 $ 30,458 $ 43,035
-------- -------- -------- --------
-------- -------- -------- --------
Net loss...................................................... $ (4,789) $ (7,489) $ (8,431) $(17,531)
-------- -------- -------- --------
-------- -------- -------- --------
Loss per share................................................ $ (0.75) $ (1.17) $ (1.31) $ (1.66)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of shares of common stock
outstanding................................................. 6,411 6,411 6,426 10,541
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
20. SUBSEQUENT EVENTS (UNAUDITED)
On February 27, 1998, RSL PLC consummated concurrent offerings of
$200,000,000 9 1/8% Senior Notes due 2008 and $328,084,000 ($200,000,000 initial
accreted value) 10 1/8% Senior Discount Notes due 2008. The notes are guaranteed
by RSL.
On March 16, 1998, RSL PLC consummated an offering of DM296,000,000
(approximately $99,100,000 initial accreted value) 10% Senior Discount Notes due
2008. These notes are guaranteed by RSL.
On April 3, 1998 the Company redeemed $90,000,000 of the original aggregate
principal amount of the Notes with the net proceeds of the initial public
offering.
In April, 1998, the Company entered into an agreement with CBS Corporation
("CBS") pursuant to which the Company agreed to acquire the business of
Westinghouse Communications ("WestComm"), a division of CBS, for a cash purchase
price of approximately $90,000,000.
F-26
<PAGE>
RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents........................................................ $144,894 $ 82,196
Accounts Receivable, Net......................................................... 70,610 185,744
Securities--Available for Sale................................................... 13,858 --
Prepaid Expenses and Other Current Assets........................................ 16,073 76,379
-------- -----------
Total Current Assets............................................................. 245,435 344,319
-------- -----------
Restricted Marketable Securities--Held to Maturity............................... 68,836 30,579
Property and Equipment........................................................... 85,581 227,526
Less: Accumulated Depreciation................................................... (13,804) (32,069)
Investment in Unconsolidated Subsidiaries........................................ -- 35,458
Goodwill and Other Intangibles, Net.............................................. 214,983 525,856
Deposits and Other Assets........................................................ 4,633 35,380
-------- -----------
Total Assets................................................................... $605,664 $ 1,167,049
-------- -----------
-------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable and Other Liabilities........................................... $154,324 $ 364,260
Short-term Debt.................................................................. 8,033 17,700
-------- -----------
Total Current Liabilities........................................................ 162,357 381,960
-------- -----------
Long-term Debt................................................................... 20,108 21,197
Senior Notes and Senior Discount Notes, Net...................................... 296,500 697,570
Other Liabilities--Noncurrent.................................................... -- 48,303
-------- -----------
Total Liabilities................................................................ 478,965 1,149,030
-------- -----------
Other Shareholders' Capital...................................................... 274,638 322,209
Accumulated Deficit.............................................................. (147,939) (304,190)
-------- -----------
Total Shareholders' Equity....................................................... 126,699 18,019
-------- -----------
Total Liabilities and Shareholders' Equity..................................... $605,664 $ 1,167,049
-------- -----------
-------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
F-27
<PAGE>
RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR LOSS PER SHARE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
<S> <C> <C>
Revenues......................................................................... $ 192,604 $ 564,118
Operating costs and expenses
Cost of Services (exclusive of depreciation and amortization shown
separately below)........................................................... (171,203) (462,181)
Selling, general and administrative expenses................................... (62,085) (147,494)
Depreciation and amortization.................................................. (14,367) (43,282)
--------- ---------
(247,655) (652,957)
--------- ---------
Loss from operations............................................................. (55,051) (88,839)
Interest income.................................................................. 9,947 13,239
Interest expense................................................................. (28,910) (51,646)
Other income (expense)-net....................................................... 6,572 445
Foreign exchange loss............................................................ -- (10,621)
Minority interest................................................................ (212) 4,322
Income taxes..................................................................... (405) (726)
Loss in equity interest of unconsolidated subsidiaries........................... -- (1,625)
--------- ---------
Loss before extraordinary item................................................... (68,059) (135,451)
Extraordinary item............................................................... -- (20,800)
--------- ---------
Net loss after extraordinary item................................................ $ (68,059) $(156,251)
--------- ---------
--------- ---------
Loss per share of common stock before extraordinary item......................... $ (2.16) $ (3.17)
Loss per share of common stock after extraordinary item.......................... $ (2.16) $ (3.66)
</TABLE>
See notes to condensed consolidated financial statements.
F-28
<PAGE>
RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1998
-------- ---------
<S> <C> <C>
Net loss............................................................................... $(68,059) $(156,251)
Depreciation and amortization.......................................................... 14,367 43,279
Working capital change and other....................................................... (6,751) (3,395)
-------- ---------
Net cash used in operations....................................................... (60,443) (116,367)
-------- ---------
Acquisitions of subsidiaries........................................................... (26,828) (271,162)
Purchase of property and equipment..................................................... (14,267) (99,882)
Proceeds from marketable securities.................................................... 43,735 13,858
Proceeds from maturities of restricted securities...................................... 22,665 18,750
Proceeds from sales of restricted securities........................................... -- 21,889
Other.................................................................................. -- 3,775
-------- ---------
Net cash provided by (used in) investing activities............................... 25,305 (312,772)
-------- ---------
Proceeds from issuance of 1998 Notes................................................... -- 499,090
Payment of offering cost............................................................... -- (5,647)
Retirement of 1996 Notes............................................................... -- (127,493)
Proceeds from notes payable............................................................ -- 3,189
Payment of notes payable............................................................... (13,542) --
Proceeds from issuance of Class A shares............................................... -- 538
Other.................................................................................. (1,434) (2,666)
-------- ---------
Net cash (used in) provided by financing activities............................... (14,976) 367,011
-------- ---------
(Decrease) increase in cash and cash equivalents....................................... (50,114) (62,128)
Effects of foreign currency on cash and cash equivalents............................... (1,248) (570)
Cash and cash equivalents at beginning of period....................................... 104,068 144,894
-------- ---------
Cash and cash equivalents at end of period............................................. $ 52,706 $ 82,196
-------- ---------
-------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest................................................................. $ 23,185 $ 22,561
-------- ---------
-------- ---------
SUPPLEMENTAL SCHEDULE OF NON-
CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Class A Common Stock....................................................... $ 32,582 $ 8,712
-------- ---------
-------- ---------
Assets acquired under capital lease obligations........................................ $ 12,568 $ 4,986
-------- ---------
-------- ---------
Acquisition of distribution rights..................................................... $ -- $ 45,000
-------- ---------
-------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
F-29
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of which these notes are
part have been prepared by RSL Communications, Ltd. ("RSL") and RSL
Communications PLC, a wholly owned subsidiary of RSL ("RSL PLC" and, together
with RSL and their direct and indirect subsidiaries, the "Company"), pursuant to
the rules and regulations of the Securities and Exchange Commission (the
"Commission"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, in the opinion of management of the Company, the Condensed
Consolidated Financial Statements include all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the financial information
for such periods. These Condensed Consolidated Financial Statements should be
read in conjunction with the Consolidated Financial Statements of RSL and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
2. PRIVATE PLACEMENT OF NOTES AND EXCHANGE OFFER AND EXTRAORDINARY ITEM
On February 27, 1998, RSL PLC completed concurrent offerings (the "1998
U.S. Offerings") of $200.0 million principal amount of 9 1/8% Senior Notes due
2008 and $328.1 million principal amount at maturity ($200.0 million initial
accreted value) of 10 1/8% Senior Discount Notes due 2008 (together, the "1998
U.S. Notes"). The 1998 U.S. Offerings generated gross proceeds to the Company of
$400.0 million. On March 16, 1998, RSL PLC completed an offering (the "1998 DM
Offering," and together with the 1998 U.S. Offerings, the "Offerings") of 182.0
million Deutsche Mark denominated 10% Senior Discount Notes due 2008 (the "1998
DM Notes," and together with the 1998 U.S. Notes, the "1998 Notes"). The 1998 DM
Offering generated proceeds to the Company of $99.1 million. The 1998 Notes and
the 12 1/4% Senior Notes due 2006 (the "1996 Notes") of RSL PLC are collectively
referred to herein as the "Notes". The Notes are fully and unconditionally
guaranteed as to payment of principal, interest and any other amounts thereof by
RSL.
In connection with the Offerings, RSL PLC entered into Registration Rights
Agreements for the benefit of the holders of the 1998 Notes (the "Registration
Rights Agreements"), pursuant to which RSL PLC agreed to offer to exchange the
1998 Notes for substantially identical notes registered under the Securities
Act. In May 1998, in accordance with the Registration Rights Agreements, RSL and
RSL PLC offered for exchange the 1998 Notes for substantially identical notes
registered under the Securities Act. The Company's Registration Statement on
Form S-4 (Registration No.333-49857) filed with the Commission with respect to
such offering was declared effective by the Commission on May 12, 1998.
In April 1998, the Company used approximately $101.0 million of the net
proceeds from its initial public offering of shares of Class A Common Stock (the
"IPO") in 1997 to redeem (the "Equity Clawback") $90.0 million of the 1996 Notes
at a premium of $11.0 million, as permitted under the 1996 Indenture. In April
1998, the Company used approximately $43.1 million to redeem (the "Buyback")
$37.5 million of the 1996 Notes at a premium of $5.6 million, as permitted under
the 1996 Indenture. The redemption premiums, and part of the discount and
offering cost were expensed in the amount of $20.8 million in the second quarter
of 1998 as an extraordinary item.
3. REGISTRATION OF SHARES
In March 1998, the Company registered 1,152,715 shares of Class A Common
Stock to be issued pursuant to the terms of a warrant agreement governing the
Warrants (the "Warrant Registration") and 300,000 shares of Class A Common Stock
to be sold by Bukfenc, Inc. a corporation wholly owned by Andrew Gaspar, former
Vice Chairman of the Company, and members of his family (the "Selling
F-30
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998--(CONTINUED)
3. REGISTRATION OF SHARES--(CONTINUED)
Shareholder") (which necessarily assumes the conversion by the Selling
Shareholder of an identical number of shares of Class B Common Stock). The
Warrant Registration was required pursuant to a registration rights agreement
entered into in connection with the private offering (the "1996 Units Offering")
of 300,000 units (the "Units") each consisting of (i) $1,000 principal amount of
12 1/4% Senior Notes due 2006 and (ii) one warrant to purchase 3.975 shares of
Class A Common Stock of RSL (each a "Warrant").
In August 1998, the Company filed a registration statement for a public
offering by the Company and certain of its shareholders of shares of Class A
Common Stock.
4. EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." The Company adopted SFAS
No. 130 during the nine month period ended September 30, 1998. The Company has
determined to present the data on a geographical basis for SFAS No. 131.
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, it has no impact on the
Company's net income. Comprehensive income includes both net income and other
comprehensive income. Other comprehensive loss for the nine months ended
September 30, 1998 and September 30, 1997 of $6.7 million and $1.2 million,
respectively, represented foreign currency translation adjustment. Accumulated
other comprehensive loss included in the accompanying condensed consolidated
balance sheet as of September 30, 1998 and September 30, 1997 was $12.0 million
and $1.8 million, respectively, consisting of the accumulated foreign currency
translation adjustment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and hedging activities. Generally, it
requires that an entity recognized all derivatives as either an asset or
liability and measure those instruments at fair value, as well as identify the
conditions for which a derivative may be specifically designed as a hedge. The
Company does not have any derivative instruments.
5. NET LOSS PER SHARE
Net loss per share is computed on the basis of the weighted average number
of common shares outstanding during the period. The average number of shares
outstanding for the nine month period ended September 30, 1997 have been
presented retroactively to give effect to the Company's recapitalization in
September 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Weighted average number of shares of
common stock outstanding.....................................................
31,541 42,740
</TABLE>
Fully diluted income (loss) per share amounts are not presented because the
inclusion of these amounts would be anti-dilutive. Fully diluted income (loss)
per share amounts for the current period do not differ materially from basic
earnings per share amounts.
F-31
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998--(CONTINUED)
6. ACQUISITIONS
In January 1998, RSL Finland purchased 90% of the equity of Telecenter OY,
an independent sales agent in Finland, for approximately $30.5 million.
In March 1998, RSL COM Australia Pty. Ltd., a subsidiary of the Company,
acquired the customer base of First Direct Communications Pty, Limited and Link
Telecommunications Pty Ltd., two switchless mobile telecommunications resellers,
for approximately $18 million.
In April 1998, the Company entered into an agreement with CBS Corporation
("CBS") pursuant to which the Company agreed to acquire the business of
Westinghouse Communications ("WestComm"), a division of CBS, for a cash purchase
price of approximately $90.0 million (the "WestComm Acquisition") plus the
assumption of certain liabilities amounting to less than $5.0 million. WestComm
provides both voice telephony and data services (including frame relay and
TCP/IP networks) to a customer base consisting primarily of small to medium size
businesses in the United States. WestComm operates six switches strategically
located in the United States and employs approximately 280 people. The
transaction closed in July 1998.
In May 1998, RSL Sweden purchased 100% of the equity of Tele 2001, a
Swedish Telecommunications reseller, for approximately $1.0 million.
In June 1998, the Company entered into an agreement with British Columbia
Railway Company pursuant to which the Company agreed to acquire (the "Westel
Acquisition") 100% of Westel Telecommunications Ltd. ("Westel") for a cash
purchase price of approximately $36.7 million. Westel offers a broad range of
enhanced telecommunications services (including long distance, data, private
line and Internet access) to a customer base consisting primarily of commercial
and residential customers located in British Columbia. The Westel Acquisition
closed on July 31, 1998. The Company accounts for the Westel Acquisition under
the purchase method of accounting.
In connection with the Westel Acquisition and in compliance with the
Canadian Telecommunications Act (the "Telecom Act"), the Company agreed to
transfer (the "MK Network Transfer") Westel's "telecommunications facilities"
(as defined in the Telecom Act) to MK Telecom Network Inc. ("MK Network"), an
entity in which the Company owns a 46.7% beneficial interest, for a purchase
price of approximately $6.5 million, the net realizable value of the assets
transferred to MK Network. The MK Network Transfer was effective as of July 31,
1998. The Company recorded its investment in MK Network as an equity investment
which was completed through a transfer of assets, which were recorded at the
Company's historical cost basis (which also approximates net realizable value).
The assets transferred consist of telecommunications microwave facilities.
Neither Westel nor MK Network and their respective owners are related parties.
In July 1998, RSL Italy acquired 75% of the equity of Comesa, a
telecommunications company located in Northern Italy, for approximately
$1.0 million.
In July 1998, RSL COM France purchased 100% of the equity of Geovox SARL, a
prepaid calling card company operating in Paris, France for approximately
$6.5 million.
In July 1998, RSL Austria acquired 100% of the equity of TC Telecom GmbH, a
telecommunications reseller located in Austria, for approximately $1.1 million.
In August 1998, the Company acquired the business of Motorola Tel.co
("Motorola Tel.co") in the United Kingdom, Germany and Belgium from Motorola
Inc. for approximately $68.1 million. Motorola Tel.co resells wireless services
and related products in these countries to a base of over 360,000
F-32
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998--(CONTINUED)
6. ACQUISITIONS--(CONTINUED)
subscribers. This transaction significantly increases the number of direct
customer relationships in Europe and will allow the Company to cross-sell long
distance and wireless services.
All of the above acquisitions have been accounted for by the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the assets acquired based on their estimated fair value at the date of
acquisition and is being amortized using the straight-line method over fifteen
years.
The valuation of the above acquired assets and liabilities, including
goodwill, is final at September 30, 1998.
In May 1998, the Company acquired for approximately $33.6 million a 49.86%
ownership interest in Telegate Holding GmbH ("Telegate Holding"), which holds a
54.55% ownership interest in Telegate AG ("Telegate"), resulting in a 27.19%
economic interest in Telegate. Telegate is a directory information provider in
Germany. The Company is accounting for the investment using the equity method of
accounting. The investment was included in investment in unconsolidated
subsidiaries and had been adjusted for the Company's pro-rata allocable loss.
In connection with this transaction, the Company granted to Metro Holding,
a minority shareholder of Telegate Holding, the right (the "Telegate Put
Option") to exchange its shares in Telegate Holding, representing 25% on a fully
diluted basis of the shares of Telegate, for Class A Common Stock of the
Company. The Telegate Put Option is only exercisable if Telegate has a positive
EBITDA (as defined) for a three month period ending on or before May 31, 1999
and if any class of securities of Telegate is not, at such time, publicly
traded. If the Telegate Put Option is exercised, at such time, the equity values
of Telegate Holding and the Company would be determined. The exercise of the
Telegate Put Option will require the Company to begin accounting for Telegate as
a majority controlled consolidated subsidiary. The Company will also be
required, at such time, to commence a fair value study to determine the
allocation of its purchase price for the additional Telegate Holding shares,
between the proportionate net assets acquired and liabilities assumed.
Currently, there has been no accounting treatment applied to the Telegate Put
Option. The Company accounts for Telegate Holding as securities available for
sale.
In June 1998, RSL COM Europe, Ltd. ("RSL COM Europe"), a subsidiary of the
Company, entered into an agreement (the "Metro Agreement") with Metro Holding AG
("Metro Holding"), a German wholesale and retail management holding company,
pursuant to which Metro Holding's appropriate subsidiaries agreed to promote,
market, sell and distribute the Company's services through Metro Holding's
wholesale and retail operations in Europe. Metro Holding received a 12.5 percent
interest in the equity of RSL COM Europe and the option to acquire up to an
additional 7.5 percent of RSL COM Europe (the "Additional Option"). Metro
Holding will distribute the Company's products through Metro Holding's sales
channels throughout Metro Holding's European subsidiaries. The Company has
recorded in the financial statements of the Company's subsidiary (RSL COM
Europe, Ltd.) the issuance of such subsidiary's equity at fair value, $45
million, and has recorded the distribution rights as an asset in a like amount
which is being amortized over the five-year life of the agreement.
The Company has provided its Austrian subsidiary's minority shareholder
with the right to acquire additional shareholdings upon the occurrence of
certain events. If this shareholder chooses to exercise his option, it will
cause him to make a pro rata investment into the Company based on an independent
valuation of the Company at the time notice to exercise is presented to the
Company. The value of this option is not material.
F-33
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998--(CONTINUED)
7. SUMMARIZED FINANCIAL INFORMATION FOR RSL PLC
The following presents summarized financial information of RSL PLC as of
September 30, 1998 and as of December 31, 1997. RSL PLC had no independent
operations other than serving solely as a foreign holding company for the
Company's North American and European operations. The Notes issued by RSL PLC
are fully and unconditionally guaranteed by RSL. RSL has not presented separate
financial statements and other related disclosure concerning RSL PLC because
management has determined that such information is not material to shareholders
or holders of the Notes. RSL's financial statements are, except for RSL's
capitalization, Delta Three operations, Asia/Pacific Rim operations, Latin
American operations, corporate overhead expenses and available credit
facilities, identical to the financial statements of RSL PLC.
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Current Assets................................................................. $212,568 $ 302,699
Non-current Assets............................................................. 324,118 737,064
Current Liabilities............................................................ 122,672 349,782
Non-current Liabilities........................................................ 557,448 938,967
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Net Revenue...................................................................... $ 178,711 $ 473,482
Net Loss......................................................................... (58,243) (138,506)
</TABLE>
8. SUBSEQUENT EVENTS
In October 1998, the Company obtained from a group of its officers and
directors and affiliates thereof (the "New Lenders") commitments for up to $35
million of revolving credit (the "New Credit Facility"), subject to the
negotiation and execution of final documentation. Amounts borrowed under the New
Credit Facility will accrue interest at LIBOR plus 5% per annum. RSL PLC will be
the borrower and RSL will guarantee any obligations of RSL PLC under the New
Credit Facility. The commitments of the New Lenders under the New Credit
Facility will expire on the earlier of January 15, 2000 and the date of any
change of control of RSL.
In October 1998 and November 1998, the Company filed amendments No. 1 and
No. 2, respectively, to the registration statement for the Pending Registration.
In November 1998, RSL PLC agreed to issue (the "New Offering") $100 million
aggregate principal amount at maturity of 12% Senior Notes due 2008 (the "New
Notes"). The New Notes will generate proceeds to the Company of approximately
$90.5 million. The New Notes are fully and unconditionally guaranteed as to
payment of principal, interest and any other amounts thereof by RSL.
F-34
<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-35
<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
Operating Costs and Expenses
Cost of Services............................................................................... 24,614,337
Selling, General and Administrative Expenses................................................... 6,299,188
------------
30,913,525
------------
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-36
<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-37
<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 ("RSL
North America") 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, RSL North America's subsidiary International
Telecommunications Corporation ("RSL USA") (collectively, "RSL North America")
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
Operating Costs and Expenses
Cost of services......................................... 37,087,243
Selling, general and administrative expenses............. 23,555,216
------------
60,642,459
------------
Loss from operations....................................... (20,138,287)
Interest income............................................ 56,148
Interest expense........................................... (738,496)
------------
Net loss................................................... $(20,820,635)
------------
------------
</TABLE>
F-38
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1995
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation--The consolidated
financial statements include the accounts of International Telecommunications
Group Ltd. and its majority-owned subsidiaries. The Company has included 100% of
its subsidiaries' operating losses since the minority interests' investment has
been reduced to zero. All material intercompany accounts and transactions have
been eliminated. All of the Company's subsidiaries' fiscal years end
December 31.
Management Assumptions--The preparation of the consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses. Such
estimates primarily relate to reserves recorded for doubtful accounts and
accruals for litigation and other claims. Actual results could differ from these
estimates.
Revenue Recognition--The Company records revenue based on minutes (or
fractions thereof) of customer usage.
The Company records payments received in advance for prepaid calling card
services and services to be supplied under contractual agreements as deferred
revenues until such related services are provided. Deferred revenue is included
in other current liabilities.
Goodwill--Goodwill represents the excess of cost over the fair value of the
net assets of acquired entities, and is being amortized using the straight-line
method over fifteen years. The Company periodically reviews the value of its
goodwill to determine if an impairment has occurred. The Company measures the
potential impairment of recorded goodwill by the undiscounted value of expected
future cash flows in relation to its net capital investment in the subsidiary.
Based on its review, the Company does not believe that an impairment of its
goodwill has occurred.
Amortization expense for the nine months ended September 30, 1996 was
$86,838.
Property and Equipment and Related Depreciation--Property and equipment are
stated at cost or fair values at the date of acquisition, and in the case of
equipment under capital leases, the present value of the future minimum lease
payments, less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the depreciable assets,
which range from five to fifteen years. Improvements are capitalized, while
repair and maintenance costs are charged to operations as incurred. Construction
in progress represents costs incurred in connection with the building of a
switch facility center.
Deposits--Deposits consist principally of amounts paid to the Company's
providers of telephone access lines.
Income Taxes--The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes. SFAS No. 109 establishes financial accounting and reporting
standards for the effect of income taxes that result from activities during the
current and preceding years. SFAS No. 109 requires an asset and liability
approach for financial reporting for income taxes.
New Accounting Standards--During 1995, the Company adopted SFAS No. 121,
Impairment of Long-Lived Assets. There was no adjustment recorded as a result of
adopting this standard. The Company periodically compares the carrying value of
its long-lived assets, principally property and equipment, to undiscounted cash
flows generated by the long-lived assets. The Company's undiscounted cash flows
exceed the carrying value of its long-lived assets.
F-39
<PAGE>
INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1995
4. CONCENTRATION OF CREDIT RISK
The Company is subject to significant concentrations of credit risk which
consist principally of trade accounts receivable. The Company sells a
significant portion of its services to other carriers and, as a result,
maintains significant receivable balances with certain carriers. If the
financial condition and operations of these customers deteriorate below critical
levels, the Company's operating results could be adversely affected. During
1995, one of the Company's customers, which represented approximately 18% of the
Company's sales for the nine months ended September 30, 1995, failed to meet
minimum payments schedules and, as a result, the Company terminated services to
this customer. Consequently, the customer refused to pay outstanding receivable
balances totaling approximately $4,653,000. At September 30, 1995, the Company
had written off the entire $4,653,000. The Company has commenced legal
proceedings to recover amounts owed to the Company.
The Company now performs ongoing credit evaluations of its customer's
financial condition and requires collateral in the form of deposits in certain
circumstances.
5. INCOME TAXES
No provision for income taxes has been made because the Company has
sustained cumulative losses since the commencement of its operations in 1994.
For the nine months ended September 30, 1995, the Company had net operating loss
carryforwards generated primarily in the United States of approximately
$10,000,000. The net operating loss carryforwards will expire at various dates
beginning in 2009 through 2010 if not utilized.
In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as follows:
<TABLE>
<S> <C>
Deferred tax assets....................................... $ 8,120,000
Less valuation allowance.................................. (8,120,000)
-----------
Net deferred tax assets................................. $ --
-----------
-----------
</TABLE>
The Company's net operating losses and legal reserves generated the
deferred tax assets. At September 30, 1995, a valuation allowance of $8,120,000
is provided as the realization of the deferred tax benefits is not likely.
6. NOTES PAYABLE AND LONG-TERM DEBT
RSL USA has a series of notes payable to different vendors in the amount of
$1,136,712 which bear interest at rates from 8% to 14.5%, of which $874,066 is
current.
Cyberlink has a credit agreement which provides for up to $5,000,000 in
committed credit lines to finance its accounts receivable. Interest is payable
at 2 1/4% over the prime rate of interest (prime being 8.75% at September 30,
1995). A second credit line provides for up to $2,000,000 in capital expenditure
financing with interest payable at 2 1/2% over the prime rate. The total amounts
outstanding at September 30, 1995 from the above credit lines are $1,713,296 and
$0, respectively. The credit lines terminate on August 31, 1998.
Cyberlink has a long-term note payable to a vendor in the amount of
$1,000,000 which bears interest at the rate of 10%, commencing January 1, 1997.
RSL North America'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-40
<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-41
<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
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. ...........................................
Lehman Brothers Inc.............................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..............
Morgan Stanley & Co. Incorporated...............................
Warburg Dillon Read LLC, a subsidiary of UBS AG.................
----------
Total ..................................................... 5,250,000
----------
----------
</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 underwriters.
The Company and the Selling Shareholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the International Offering (the "International Underwriters" and together with
the U.S. Underwriters, the "Underwriters") providing for the concurrent offer
and sale of 1,750,000 shares of Class A Common Stock in an international
offering outside the United States. The offering price and aggregate
underwriting discounts and commissions per share for the two offerings are
identical. The closing of the U.S. Offering is a condition to the closing of the
International Offering, and vice versa.
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 (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.
U-1
<PAGE>
The Company and the Selling Shareholders have 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 389,584 and 397,916 shares,
respectively, solely to cover over-allotments, if any. The over-allotment option
from the Selling Shareholders must be exercised in full, on a pro rata basis,
before the over-allotment option from the Company is exercised. If the U.S.
Underwriters exercise their over-allotment option, the U.S. Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 5,250,000 shares of Class A
Common Stock offered hereby. The Company and the Selling Shareholders have
granted the International Underwriters a similar option to purchase up to an
aggregate of 129,861 additional shares and 132,639 shares, respectively.
The Company and certain directors, officers and shareholders have agreed
that during the period beginning from the date of this Prospectus and continuing
to and including the date that is 90 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 stock option plans contemplated by or existing on the date of,
or upon the conversion or exchange of convertible or exchangeable securities
outstanding as of the date of, the 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.
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 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 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 broker-dealers in respect of the securities sold in the
Offerings may be reclaimed by the Underwriters if such shares of Class A Common
Stock are repurchased by the Underwriters 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.
The Class A Common Stock trade on the Nasdaq National Market under the
symbol "RSLCF."
Certain of the Underwriters and their affiliates have provided from time to
time, and expect to provide in the future, investment banking and general
financing and banking services to the Company and its affiliates, for which such
Underwriters have received and will receive customary fees and commissions.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
U-2
<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>
Available Information........................................... 3
Summary......................................................... 5
Risk Factors.................................................... 10
Use of Proceeds................................................. 20
Price Range of Class A Common Stock............................. 20
Dividend Policy................................................. 20
Dilution........................................................ 21
Capitalization.................................................. 22
Selected Consolidated Financial Data............................ 23
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 25
Business........................................................ 39
Management...................................................... 90
Certain Relationships and Related Transactions.................. 100
Principal and Selling Shareholders.............................. 102
Description of Capital Stock.................................... 104
Certain Rights to Acquire Class A Common Stock.................. 109
Description of Certain Indebtedness............................. 110
Shares Eligible for Future Sale................................. 115
Certain United States Federal Income Tax Considerations......... 116
Certain Bermuda Tax Considerations.............................. 122
Legal Matters................................................... 122
Experts......................................................... 122
Service of Process and Enforcement of Liabilities............... 123
Index to Consolidated Financial Statements...................... F-1
Underwriting.................................................... U-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,000,000 SHARES
RSL COMMUNICATIONS, LTD.
CLASS A COMMON SHARES
(PAR VALUE $.00457 PER SHARE)
------------------
[RSLCOM LOGO]
------------------
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
WARBURG DILLON READ LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information contained
herein is subject to amendment
and completion.
ALTERNATE PAGE
SUBJECT TO COMPLETION DATED NOVEMBER 23, 1998
7,000,000 SHARES
RSL COMMUNICATIONS, LTD.
[RSLCOM LOGO]
CLASS A COMMON SHARES
(PAR VALUE $.00457 PER SHARE)
----------------------
Of the 7,000,000 Class A common shares, par value $.00457 per share (the
"Class A Common Stock"), of RSL Communications, Ltd. (the "Issuer") offered
hereby, 1,750,000 shares are being offered in an international offering outside
the United States (the "International Offering") and 5,250,000 shares are being
offered in a concurrent United States offering (the "U.S. Offering" and,
together with the International Offering, the "Offerings"). The public offering
price per share and the underwriting discount per share will be identical for
both Offerings. See "Underwriting."
The 7,000,000 shares of Class A Common Stock offered are being sold by the
Issuer. The Selling Shareholders will only sell shares pursuant to the
Underwriters' over-allotment options described herein. See "Principal and
Selling Shareholders". The Issuer will not receive any of the proceeds from the
sale of shares being sold by the Selling Shareholders. Upon consummation of the
Offerings, officers, directors and other affiliates of the Issuer will
beneficially own shares having approximately 92.4% of the voting power of the
Issuer's outstanding Common Stock (as defined below) (approximately 92.1% of the
voting power of the Issuer's Common Stock if the over-allotment options are
exercised in full). See "Principal and Selling Shareholders".
The Class A Common Stock is listed on the Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol "RSLCF." Application will
be made to the Nasdaq National Market to list the shares of Class A Common Stock
offered herein (the "Shares") upon notice of issuance. The last reported sale
price of a share of Class A Common Stock on the Nasdaq National Market on
November 20, 1998 was $25 1/4.
As of the date of this Prospectus, the Issuer has two classes of authorized
common shares, the Class A Common Stock and Class B common shares (the "Class B
Common Stock", and together with the Class A Common Stock, the "Common Stock").
The holders of both classes of Common Stock have identical rights, except that
(i) holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to 10 votes per share, (ii) shares
of Class B Common Stock are convertible at any time at the option of the holders
into shares of Class A Common Stock on a share-for-share basis and (iii) shares
of Class B Common Stock may only be transferred to other original holders of
Class B Common Stock and certain related parties. See "Description of Capital
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
----------------------
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>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING THE PROCEEDS TO
OFFERING PRICE DISCOUNT(1) ISSUER(2) SELLING SHAREHOLDERS
-------------- ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Per Share....................................... $ $ $ $
Total(3)........................................ $ $ $ $
</TABLE>
- ------------------
(1) The Issuer and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $3,000,000 payable by the Issuer.
(3) The Selling Shareholders and the Issuer have granted the International
Underwriters an option for 30 days to purchase up to an additional 132,639
shares and 129,861 shares, respectively, at the offering price per share,
less the underwriting discount, solely to cover any over-allotments.
Additionally, the Selling Shareholders and the Issuer have granted the U.S.
Underwriters a similar option with respect to an additional 397,916 shares
and 389,584 shares, respectively, as part of the concurrent U.S. Offering.
See "Principal and Selling Shareholders." The Issuer will not receive any of
the proceeds from the sale of the shares of Class A Common Stock by the
Selling Shareholders. If such options are exercised in full, the total
initial public offering price, underwriting discount, proceeds to the Issuer
and proceeds to the Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
----------------------
The shares offered hereby are offered severally by the International
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that the shares will be ready for delivery in New York, New York on or about
, 1998, against payment therefor in immediately available
funds.
GOLDMAN SACHS INTERNATIONAL
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
WARBURG DILLON READ
----------------------
The date of this Prospectus is , 1998.
<PAGE>
[ALTERNATE PAGE]
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, 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.....................................
Lehman Brothers International (Europe)..........................
Merrill Lynch International.....................................
Morgan Stanley & Co. International Limited......................
UBS AG..........................................................
----------
Total ..................................................... 1,750,000
----------
----------
</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 underwriters.
The Company and the Selling Shareholders have entered into an underwriting
agreement (the "U.S. Underwriting Agreement") with the underwriters of the U.S.
Offering (the "U.S. Underwriters" and together with the International
Underwriters, the "Underwriters") providing for the concurrent offer and sale of
5,250,000 shares of Class A Common Stock in the United States. The offering
price and aggregate underwriting discounts and commissions per share for the two
offerings are identical. The closing of the International Offering is a
condition to the closing of the U.S. Offering, and vice versa.
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 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.
U-1
<PAGE>
[ALTERNATE PAGE]
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 and the Selling Shareholders have granted the International
Underwriters an option exercisable for 30 days after the date of this Prospectus
to purchase up to an aggregate of 129,861 additional shares and 132,639 shares,
respectively, solely to cover over-allotments, if any. The over-allotment option
from the Selling Shareholders must be exercised in full, on a pro rata basis,
before the over-allotment option from the Company is exercised. If the
International Underwriters exercise their over-allotment option, the
International Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
to be purchased by each of them, as shown in the foregoing table, bears to the
1,750,000 shares of Class A Common Stock offered hereby. The Company and the
Selling Shareholders have granted the U.S. Underwriters a similar option to
purchase up to an aggregate of 389,584 additional shares and 397,916 shares,
respectively.
The Company and certain directors, officers and shareholders have agreed
that during the period beginning from the date of this Prospectus and continuing
to and including the date that is 90 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 stock option plans contemplated by or existing on the date of,
or upon the conversion or exchange of convertible or exchangeable securities
outstanding as of the date of, the Prospectus), which are substantially similar
to the shares of Class A Common Stock or which are convertible into or
exchangeable for securities which are substantially similar to the shares of
Class A Common Stock, without the prior written consent of the U.S.
representative, Goldman, Sachs & Co., except for the shares of Class A Common
Stock offered in connection with the Offerings.
Each International Underwriter has also agreed that (a) it has not offered
or sold and will not offer or sell any shares of Class A Common Stock to persons
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their business or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995,
(b) it has complied, and will comply with, all applicable provisions of the
Financial Services Act 1986 of Great Britain with respect to anything done by it
in relation to the shares of Class A Common Stock in, from or otherwise
involving the United Kingdom and (c) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issuance of the shares of Class A Common Stock to a person
who is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 of Great Britain or is a
peron 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 offering price.
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 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 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 broker-dealers in respect of the securities sold in the
Offerings may be reclaimed by the Underwriters if such shares of Class A Common
Stock are repurchased by the
U-2
<PAGE>
[ALTERNATE PAGE]
Underwriters 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.
The Class A Common Stock trade on the Nasdaq National Market under the
symbol "RSLCF."
Certain of the Underwriters and their affiliates have provided from time to
time, and expect to provide in the future, investment banking and general
financing and banking services to the Company and its affiliates, for which such
Underwriters have received and will receive customary fees and commissions.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
U-3
<PAGE>
ALTERNATE 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>
Available Information........................................... 3
Summary......................................................... 5
Risk Factors.................................................... 10
Use of Proceeds................................................. 20
Price Range of Class A Common Stock............................. 20
Dividend Policy................................................. 20
Dilution........................................................ 21
Capitalization.................................................. 22
Selected Consolidated Financial Data............................ 23
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 25
Business........................................................ 39
Management...................................................... 90
Certain Relationships and Related Transactions.................. 100
Principal and Selling Shareholders.............................. 102
Description of Capital Stock.................................... 104
Certain Rights to Acquire Class A Common Stock.................. 109
Description of Certain Indebtedness............................. 110
Shares Eligible for Future Sale................................. 115
Certain United States Federal Income Tax Considerations......... 116
Certain Bermuda Tax Considerations.............................. 122
Legal Matters................................................... 122
Experts......................................................... 122
Service of Process and Enforcement of Liabilities............... 123
Index to Consolidated Financial Statements...................... F-1
Underwriting.................................................... U-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,000,000 SHARES
RSL COMMUNICATIONS, LTD.
CLASS A COMMON SHARES
(PAR VALUE $.00457 PER SHARE)
------------------
[RSLCOM LOGO]
------------------
GOLDMAN SACHS INTERNATIONAL
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
WARBURG DILLON READ
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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, are estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............................ $ 74,635
NASD filing fee................................................................ 25,800
Printing and Engraving......................................................... 500,000*
Counsel Fees and Expenses...................................................... 750,000*
Accountants' Fees and Expenses................................................. 100,000*
Transfer Agent and Registrar Fees and Expenses................................. 100,000*
Nasdaq Listing Fee............................................................. 75,000
Miscellaneous.................................................................. 1,374,565*
----------
Total..................................................................... $3,000,000
----------
----------
</TABLE>
- ------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Bermuda law and the Registrant's Memorandum of Association and
bye-laws, the directors, secretary and other officers for the time being of the
Registrant and the liquidator or trustees (if any) for the time being acting in
relation to any of the affairs of the Registrant and every one of them, and
their heirs, executors and administrators, shall be indemnified and secured
harmless out of the assets of the Registrant from and against all actions,
costs, charges, losses, damages 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 bankers or other persons with whom any moneys or effects belonging to the
Registrant shall or may be lodged or deposited for safe custody, or for
insufficiency or deficiency of any security upon which any moneys of or
belonging to the Registrant shall be placed out on or invested, or for any other
loss, misfortune or damage which may happen in the execution of their respective
offices or trusts, or in relation thereto, provided that this indemnity shall
not extend to any matter in respect of any fraud or dishonesty which may attach
to any of said persons.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion does not give effect to the recapitalization
effected by the Registrant in connection with the initial public offering of its
Class A Common Shares (the "IPO").
In July 1996, RSL BVI was amalgamated into the Registrant. Subsequently,
the Registrant increased the number of authorized shares of each class of its
common stock, par value $.01 per share (the "RSL Common Stock"), and preferred
stock, par value $.01 per share (the "RSL Preferred Stock"), to 20,000,000.
Thereafter, the Registrant issued: (i) 59,306 shares of RSL Common Stock to
Ronald S. Lauder for aggregate consideration of $593.06; (ii) 1,097,837 shares
of RSL Preferred Stock to Ronald S. Lauder for aggregate consideration of
$10,978.37; (iii) 2,013,179 shares of RSL Common Stock to Itzhak Fisher for
aggregate consideration of $12,000; (iv) 243,964 shares of RSL Preferred Stock
to Itzhak Fisher for aggregate consideration of $2,439.64; (v) 422,130 shares of
RSL Common Stock to R. S. Lauder Gaspar & Co., L.P. for aggregate consideration
of $4,221.30; (vi) 7,170,442 shares of RSL Preferred Stock to R. S. Lauder
Gaspar & Co., L.P. for aggregate consideration of $71,704.42; (vii) 419,770
shares of RSL Common Stock to the Schuster Family Partners I, L.P. for aggregate
consideration of $4,197.70; (viii) 365,945 shares of RSL Preferred Stock to the
Schuster Family
II-1
<PAGE>
Partners I, L.P. for aggregate consideration of $3,659.49; (ix) 13,179 shares of
RSL Common Stock to Nir Tarlovsky for aggregate consideration of $131.79;
(x) 243,964 shares of RSL Preferred Stock to Nir Tarlovsky for aggregate
consideration of $2,439.64 and (xi) 121,714 shares of RSL Preferred Stock to
Nesim Bildirici for aggregate consideration of $1,217.14. The issuance of such
shares was exempt from registration under the Securities Act pursuant to Section
4(2) thereof.
In September 1996, the Registrant's capital stock was reclassified as
follows: (i) the Class A Common Shares and Class B Common Shares were authorized
with the RSL Common Shares being converted into Class A Common Shares; (ii) the
Registrant's authorized Class B Common Shares were reclassified as Class C
Common Shares with no changes to the rights of such shares; (iii) the authorized
Class A Common Shares were reclassified as Class B Common Shares with no changes
in the rights of such stock except that each share of Class B Common Shares are
entitled to 10 votes per share; and (iv) the new Class A Common Shares was
authorized.
In September 1996, the Registrant issued to Ronald S. Lauder a warrant to
purchase 210,000 shares of the Registrant's Class B Common Shares in
consideration of a loan from Mr. Lauder to the Registrant in the aggregate
amount of $35 million. Additionally, the Registrant issued: (i) 940,073 shares
of the Registrant's Class B Common Shares to Lauder Gaspar Ventures LLC for
aggregate consideration of $25 million; (ii) 470,037 shares of the Registrant's
Class B Common Shares to Ronald S. Lauder for aggregate consideration of $12.5
million and (iii) 470,037 shares of the Registrant's Class B Common Shares to
Leonard A. Lauder for aggregate consideration of $12.5 million. The issuance of
such shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof.
In May 1997, the Registrant issued to Mr. Charles M. Piluso 665,340 shares
of the Registrant's Class A Common Shares in connection with the Registrant's
acquisition of 15,619 shares of common stock of RSL North America held by
Mr. Piluso. The issuance of such shares was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
The following discussion does give effect to the recapitalization effected
by the Registrant in connection with its IPO.
In October 1996, the Company and RSL Communications PLC, a wholly owned
subsidiary of the Company ("RSL PLC"), completed an offering (the "1996 Units
Offering") of 300,000 units (the "Units"), each Unit consisting of (i) $1,000
principal amount of 12 1/4% Senior Notes due 2006 of the Note Issuer
(unconditionally guaranteed by the Company) and (ii) one warrant to purchase
3.975 shares of Class A Common Stock (the "Warrants"). The Units were sold for
an aggregate purchase price of $300.0 million. The placement agents for the 1996
Units Offering consisted of Morgan Stanley & Co. Incorporated, Bear, Stearns &
Co. Inc. and Dillon, Read & Co. Inc. The aggregate commissions were
approximately $9.0 million. The Units were not registered under the Securities
Act in reliance on Rule 144A of the Securities Act and were sold only to
"qualified institutional buyers" and to a limited number of "institutional
accredited investors."
In connection with the IPO, the Registrant issued to certain members of
management and original shareholders of certain of the Registrant's subsidiaries
an aggregate of 411,105 shares of Class A Common Stock in exchange for shares of
certain of the Registrant's subsidiaries held by such persons. The issuance of
such shares is exempt from registration under the Securities Act pursuant to
Section 4(2) thereof.
In February 1998, RSL PLC completed an offering (the "U.S. Dollar Notes
Offering") of $200.0 million 9 1/8% Senior Notes due 2008 and $328.1 million of
10 1/8% Senior Discount Notes due 2008 of the Note Issuer (the "U.S. Dollar
Notes") and unconditionally guaranteed by the Registrant pursuant to an
indenture governing the U.S. Dollar Notes. The placement agents for the U.S.
Dollar Notes Offering consisted of Goldman, Sachs & Co., Merril Lynch & Co.,
Chase Securities, Inc., J.P. Morgan & Co., and SBC Warburg Dillon Read Inc. The
aggregate commissions were approximately $12.0 million. The U.S. Dollar Notes
were sold to "qualified institutional buyers" in the U.S. and were not
registered under the Securities Act in reliance on Rule 144A of the Securities
Act.
II-2
<PAGE>
In March 1998, RSL PLC completed an offering (the "German Debt Offering")
of DM296.0 million (approximately $99.1 million of proceeds at issuance) face
amount at maturity 10% Senior Discount Notes due 2008 (the "German Notes")
unconditionally guaranteed by the Registrant pursuant to an indenture governing
the German Notes. The placement agents for the German Debt Offering consisted of
Goldman, Sachs & Co oHG and Merril Lynch International. The aggregate
commissions were approximately $3.0 million. The German Notes were sold outside
the U.S. to non-U.S. persons in reliance on Regulation S under the Securities
Act and through their respective selling agents, Goldman, Sachs & Co. and
Merrill Lynch & Co., and in the United States only to "qualified institutional
buyers" in reliance on Rule 144A under the Securities Act.
In April 1998, pursuant to an Agreement and Plan of Merger (the "Merger"),
between the Company, Delta Three, Inc. ("Delta Three"), Jacob Davidson
("Davidson"), and Pioneer Management Services LLC ("Pioneer," and together with
Davidson, the "Delta Shareholders"), Delta Three was merged into a wholly-owned
subsidiary of the Company. As a result of the Merger, the Company (i) received
1,750,000 shares of Delta Three, (ii) paid to each Delta Shareholder a total
cash payment of $438,500 and (iii) issued to each Delta Shareholder 187,299
shares of the Company's Class A common stock. The shares were issued pursuant to
a private placement exemption under Section 4(2) of the Securities Act.
In July 1998, the Registrant issued to Metro Holding AG 1,607,142 shares of
the Registrant's Class A Common Shares in exchange for 142,857 common shares of
RSL COM Europe, Ltd., a subsidiary of the Registrant. The issuance of such
shares was exempt from registration under the Securities Act pursuant to Section
4(2) thereof.
In October 1998, the Registrant issued to Arnold Goodstein 32,269 shares of
the Registrant's Class A Common Stock in exchange for 19.7375 shares of RSL COM
PrimeCall, Inc., a subsidiary of the Registrant. The issuance of such shares was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof.
On November 9, 1998, the Company, through RSL PLC, issued $100 million
aggregate principal amount at maturity of 12% Senior Notes due 2008 (the "New
Notes") unconditionally guaranteed by the Registrant pursuant to an indenture
governing the New Notes. The placement agent for the offering of the New Notes
is Goldman, Sachs & Co. The aggregate commissions were approximately $3.0
million. The New Notes were sold outside the U.S. to non-U.S. persons in
reliance on Regulation S under the Securities Act and in the U.S. only to
"qualified institutional buyers" in reliance on Rule 144A under the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C> <C>
1.1 -- Underwriting Agreement (U.S. Version).
1.2 -- Underwriting Agreement (International Version).
*3.1 -- Certificate of Incorporation of RSL Communications, Ltd.,
issued by the Bermuda Registrar of Companies on March 14,
1996.
*3.2 -- Memorandum of Association of RSL Communications, Ltd., filed
with the Bermuda Registrar of Companies on March 14, 1996.
**3.3 -- Bye-Laws of RSL Communications, Ltd. (as amended through
September 2, 1997).
**4.1 -- Form of Class A Common Share Certificate.
5.1 -- Opinion of Conyers, Dill & Pearman.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C> <C>
*10.1 -- 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.
*10.2 -- Notes Registration Rights Agreement, dated October 3, 1996,
by and among RSL Communications PLC, RSL Communications,
Ltd. and the Placement Agents.
*10.3 -- 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.
*10.4 -- Collateral Pledge and Security Agreement, dated October 3,
1996, by and among RSL Communications PLC and Trustee.
++++10.6 -- Exchange and Registration Rights Agreement, dated as of
February 27, 1998, among RSL Communications PLC, RSL
Communications, Ltd., Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Chase Securities Inc.,
J.P. Morgan Securities Inc., and SBC Warburg Dillon Read Inc.
++++10.7 -- Note Deposit Agreement, dated as of February 27, 1998, among
RSL Communications PLC, RSL Communications, Ltd. and The
Chase Manhattan Bank as Book-Entry Depositary.
++++10.8 -- Note Deposit Agreement, dated as of February 27, 1998, among
RSL Communications PLC, RSL Communications, Ltd. and The
Chase Manhattan Bank as Book-Entry Depositary.
++++10.9 -- Indenture, dated as of February 27, 1998, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase
Manhattan Bank as Trustee.
++++10.10 -- Indenture, dated as of February 27, 1998, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase
Manhattan Bank as Trustee.
++++10.11 -- Exchange and Registration Rights Agreement, dated as of
February 27, 1998, among RSL Communications PLC, RSL
Communications, Ltd. and Goldman, Sachs & Co., oHG and
Merrill Lynch International.
++++10.12 -- Note Deposit Agreement, dated as of March 16, 1998, by and
between RSL Communications PLC and The Chase Manhattan Bank
as Book-Entry Depositary.
++++10.13 -- Indenture, dated as of March 16, 1998, by RSL Communications
PLC and RSL Communications, Ltd. to The Chase Manhattan Bank
as Trustee.
*10.14 -- Warrant Agreement, dated October 3, 1996, between RSL
Communications, Ltd., as Issuer, and The Chase Manhattan
Bank, as warrant agent.
*10.15 -- Warrant Registration Rights Agreement, dated October 3,
1996, between RSL Communications, Ltd., as issuer, and The
Chase Manhattan Bank, as warrant agent.
*10.16 -- Amendment to the Revolving Credit Facility, dated August 20,
1996, from The Chase Manhattan Bank to RSL Communications, Inc.
*10.17 -- Amendment to the Revolving Credit Facility, dated
September 10, 1996, from The Chase Manhattan Bank to RSL
Communications, Ltd.
*10.18 -- Subordinated Promissory Note, dated September 10, 1996, from
RSL Communications, Ltd. to Ronald S. Lauder.
*10.19 -- Warrant for 210,000 shares of Class B Common Stock of RSL
Communications, Ltd. issued to Ronald S. Lauder on
September 10, 1996.
*10.20 -- Standby Facility Agreement, dated October 1, 1996, by and
between RSL Communications, Ltd. and Ronald S. Lauder.
*10.21 -- Consulting Agreement, dated September 15, 1995, between
Eugene Sekulow and RSL Communications, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C> <C>
*10.22 -- Amendment to Consulting Agreement, dated August 8, 1996,
between Eugene Sekulow and RSL Communications, Ltd.
*10.23 -- RSL Communications, Ltd.'s 1995 Amended and Restated Stock
Option Plan.
*10.24 -- Employment Agreement, dated September 15, 1995, between
Itzhak Fisher and International Telecommunications Group, Ltd.
*10.25 -- Employment Agreement, dated September 15, 1995, between
Itzhak Fisher and RSL Communications Inc.
*10.26 -- Employment Agreement, dated April 1, 1995, between Nir
Tarlovsky and International Telecommunications Group, Ltd.
*10.27 -- Employment Agreement, dated April 1, 1995, between Nir
Tarlovsky and RSL Communications Inc.
*10.28 -- Employment Agreement, dated August 9, 1995, between RSL COM
Europe Limited and Richard Williams.
*10.29 -- Memorandum of Agreement, dated July 30, 1996, between
International Telecommunications Corporation and Codetel.
*10.30 -- General Purchase Agreement, dated September 14, 1995,
between Ericsson Inc. and International Telecommunications
Corporation.
*10.31 -- Lease Agreement between AB LM Ericsson Finans and
International Telecommunications Corporation.
*10.32 -- Lease Agreement, dated April 10, 1996, between RSL COM
Europe Ltd. and AB LM Ericsson Finans.
*10.33 -- Lease Agreement, dated December 30, 1996, between RSL COM
Europe Ltd. and AB LM Ericsson Finans.
*10.34 -- Loan and Security Agreement, dated September 8, 1995,
between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.35 -- Accounts Collateral Security Agreement, dated September 8,
1995, between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.36 -- Equipment Collateral Security Agreement, dated September 8,
1995, between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.37 -- Security Stock Pledge Agreement, dated September 8, 1995,
between CoastFed Business Credit Corporation and Cyberlink Inc.
*10.38 -- Security Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and Cyberlink-California
Inc.
*10.39 -- Security Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and Cyberlink-Nevada Inc.
*10.40 -- Asset Purchase Agreement, dated as of May 8, 1996, by and
between RSL COM France S.A. and Sprint Telecommunications
France Inc.
*10.41 -- 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.
*10.42 -- Transition Services Agreement, dated May 8, 1996, by and
between Sprint Communications Company L.P. and RSL COM
France S.A.
*10.43 -- 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.
*10.44 -- Transition Services Agreement, dated May 8, 1996, by and
between Global One Communications World Operations, Limited
and RSL COM France S.A.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C> <C>
*10.45 -- Asset Purchase Agreement, dated as of May 8, 1996, by and
among Siena Vermogensverwaltungs-GmbH, Sprint
Telecommunication Services GmbH and Sprint Fon Inc.
*10.46 -- Transition Services Agreement, dated May 8, 1996, by and
among Sprint Telecommunication Services GmbH, Sprint Fon
Inc. and Siena Vermogensverwaltungs-GmbH.
*10.47 -- Transition Services Agreement, dated May 8, 1996, by and
between Sprint Communications Company L.P. and RSL COM
Deutschland GmbH.
*10.48 -- 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.
*10.49 -- Transition Services Agreement, dated May 8, 1996, by and
between Global One Communications World Operations, Limited
and Siena Vermogensverwaltungs-GmbH.
*10.50 -- Asset Purchase Agreement, August 12, 1996, by and between
RSL COM UK Limited and Incom (UK) Ltd.
*10.51 -- Stock Purchase Agreement, dated July 3, 1996, between RSL
Communications Limited, Charles Piluso and International
Telecommunications Group, Ltd.
*10.52 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Charles Piluso.
*10.53 -- Stock Pledge and Security Agreement, dated September 9, 1996
between RSL Communications PLC, Charles Piluso and Fletcher,
Heald & Hildreth, P.L.C.
*10.54 -- 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.
*10.55 -- Stock Purchase Agreement, dated September 9, 1996, between
RSL Communications PLC, Richard Rebetti, Jr. and
International Telecommunications Group, Ltd.
*10.56 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Richard Rebetti.
*10.57 -- Stock Pledge and Security Agreement, dated September 9,
1996, between RSL Communications PLC, Richard Rebetti, Jr.
and Fletcher, Heald & Hildreth, P.L.C.
*10.58 -- Agreement and Plan of Reorganization, dated September 9,
1996, among RSL Communications PLC, RSL Communications, Ltd.
and Charles Piluso.
*10.59 -- Tax Agreement, dated September 9, 1996, between RSL
Communications PLC, RSL Communications, Ltd. and Charles
Piluso.
*10.60 -- Stock Purchase Agreement, dated September 22, 1995, by and
between RSL Communications, Inc. and Charles Piluso.
*10.61 -- Stock Purchase Agreement, dated September 22, 1995, by and
between Richard Rebetti and RSL Communications, Inc.
*10.62 -- Amendment to the Stock Purchase Agreement, dated
September 22, 1995, between and among International
Telecommunications Group, Ltd., International
Telecommunications Corporation and RSL Communications, Inc.
*10.63 -- Stock Purchase Agreement, dated March 10, 1995, between RSL
Communication, Inc., International Telecommunications Group,
Ltd. and International Telecommunications Corporation.
*10.64 -- 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.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C> <C>
*10.65 -- Indemnity Agreement, dated March 10, 1995, between and among
International Telecommunications Group, Ltd., International
Telecommunications Corporation and RSL Communications, Inc.
*10.66 -- Sublease, dated July 18, 1996, between RSL Communications,
Ltd. and RSL Management Corporation.
*10.67 -- Lease, dated as of January 15, 1997, between Longstreet
Associates L.P. and RSL COM U.S.A., Inc.
*10.68 -- Employment Agreement, dated January 31, 1997, between Roland
T. Mallcott and RSL Communications, Ltd.
*10.69 -- Amendment of Lease, dated as of December 6, 1995, between
Hudson Telegraph Associates and International
Telecommunications Corporation.
**10.70 -- Shareholders Agreement of RSL Communications, Latin America,
Ltd., dated August 4, 1997, between and among RSL
Communications, Latin America, Ltd., RSL Communications,
Ltd. and Coral Gates Investments Ltd.
**10.71 -- Stockholders' Agreement, dated July 23, 1997, by and among
Delta Three, Inc., RSL Communications, Ltd., and the other
shareholders of Delta Three, Inc.
*****10.72 -- Delta Three, Inc. Services Agreement.
**10.73 -- Employment Agreement, dated July 31, 1997, between Andrew C.
Shields and RSL Communications, Ltd.
**10.74 -- Shareholders Agreement, dated October 10, 1996, between RSL
COM Europe, Limited, Gerard van Leest and Belnet Nederland
B.V.
+10.75 -- RSL Communications, Ltd. 1997 Performance Incentive Plan.
+10.76 -- RSL Communications, Ltd. 1997 Stock Incentive Plan.
**10.77 -- Lease Agreement, dated June 19, 1997 for property at 430
Park Avenue, New York, New York.
**10.78 -- Stock Purchase Agreement of Delta Three, Inc.
**10.79 -- Employment Agreement, dated September 2, 1997, between
Itzhak Fisher and RSL Communications, Ltd.
**10.80 -- Employment Agreement, dated September 2, 1997, between
Itzhak Fisher and International Telecommunications Group, Ltd.
+10.81 -- RSL Communications Ltd. 1997 Directors' Compensation Plan.
**10.82 -- Registration Rights Agreement, dated September 2, 1997,
among RSL Communications, Ltd., Ronald S. Lauder, Itzhak
Fisher and Coral Gate Investments Ltd.
**10.83 -- International Telecommunication Services Agreement, dated
July 1, 1995, between International Telecommunications
Corporation and TELECOM Denmark.
**10.84 -- International Telecommunication Operating Agreement, dated
July 15, 1995 between Telenor Carrier Services A.S. and
International Telecommunications Corporation.
**10.85 -- International Telecommunication Services Agreement, dated
May 10, 1994, between Mercury Communications Limited and
International Telecommunications Corporation.
**10.86 -- Agreement Concerning Voice Distribution of International
Telephony Traffic, undated, between Unisource Carrier
Services AG and International Telecommunications Corporation.
**10.87 -- International Telecommunications Service Agreement, dated
May 31, 1994, between Compania Dominicana De Telefonos, C.
Por A. and International Telecommunications Corporation.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C> <C>
**10.88 -- Second Supplementary Agreement to the UK-Netherlands 14
Cable System Construction & Maintenance Agreement, effective
February 18, 1997, among the parties on the Annex thereto.
**10.89 -- Fourth Supplementary Agreement to the ODIN Construction and
Maintenance Agreement, dated October 24, 1996, among the
parties on the Annex thereto.
**10.90 -- Second Supplementary Agreement to Antillas I Construction &
Maintenance Agreement, dated February 13, 1997, among the
parties on the Annex thereto.
**10.91 -- Canus I Cable System Indefeasible Right of Use Agreement and
Financing Agreement, dated June 4, 1996, between Optel
Communications, Inc. and International Telecommunications
Corporation.
**10.92 -- Cantat-3 Cable System Indefeasible Right of Use Agreement
and Financing Agreement, dated March 12, 1996, between
Teleglobe Cantat-3 Inc. and International Telecommunications
Corporation.
**10.93 -- PTAT-1 Submarine System Indefeasible Right of Use Agreement,
dated May 12, 1994, between Private Transatlantic
Telecommunications System, Inc. and International
Telecommunications Corporation.
**10.94 -- Third Supplementary Agreement to the TAT-12/TAT-13 Cable
Network Construction and Maintenance Agreement, dated
October 17, 1995, among the parties on the Annex thereto.
*10.95 -- 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.
+++10.95 -- Asset Purchase Agreement, dated as of April 23, 1998, by and
between CBS Corporation and RSL COM U.S.A., Inc.
*****10.96 -- Restated Umbrella Agreement, dated as of June 26, 1998,
among Motorola Limited, SA Motorola NV, Motorola Electronic
GmbH, Motorola SA and RSL Communications, Ltd.
10.97 -- Share Subscription, Share Option and Shareholders Agreement,
dated June 10, 1998, among RSL COM Europe Ltd., RSL
Communications, Ltd. and Metro Holding AG.
10.98 -- Marketing and Distribution Services Agreement, dated as of
June 10, 1998, between RSL Com Europe Ltd. and Metro Holding
AG.
10.99 -- Exchange Agreement, dated July 22, 1998, among Ligapart AG,
Metro Holding AG and RSL Communications, Ltd.
10.100 -- Amended and Restated Share Subscription, Share Option and
Shareholders Agreement, dated July 22, 1998, among RSL COM
Europe Ltd., RSL Communications, Ltd. and Metro Holding AG.
10.101 -- Share Purchase Agreement, dated June 24, 1988, between
British Columbia Railway Company and RSL Com Holdings
Canada, Inc.
10.102 -- Note Deposit Agreement, dated November 9, 1998, among RSL
Communications PLC, RSL Communications, Ltd. and The Chase
Manhattan Bank as Book-Entry Depositary.
10.103 -- Indenture, dated November 9, 1998, by RSL Communications PLC
and RSL Communications, Ltd. to The Chase Manhattan Bank as
Trustee.
10.104 -- Exchange and Registration Rights Agreement, dated
November 9, 1998, among RSL Communications, Ltd. and Goldman
Sachs & Co.
21.1 -- Subsidiaries of the Company.
****23.1 -- Consent of Deloitte & Touche LLP (included on page II-11).
23.3 -- Consent of Conyers, Dill & Pearman (included in Exhibit 5.1
hereto).
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C> <C>
24.1 -- Powers of Attorney (included in the signature pages to the
Registration Statement).
****27.1 -- Financial Data Schedule.
</TABLE>
- ------------------
* Incorporated by reference to Registrant's Registration Statement on Form
S-4 (Registration No. 333-25749).
** Incorporated by reference to Registrant's Registration Statement on Form
S-1 (Registration No. 333-34281)
*** Confidential Treatment was granted by the Commission with respect to
certain information contained in this exhibit.
**** Incorporated by reference to Registrant's Registration Statement on
Form S-1 (Registration No. 333-62325).
***** Incorporated by reference to the Registrant's report on Form 8-K dated
August 25, 1998.
+ Incorporated by reference to Registrant's Registration Statement on Form
S-8 (Registration No. 333-40085)
++ Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.
+++ Incorporated by reference to the Registrant's report on Form 8-K/A dated
August 12, 1998.
++++ Incorporated by reference to Registrant's Registration Statement on Form
S-1 (Registration No. 333-46125).
(b) Financial Statement Schedules:
As of 1996 and 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
1. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liabiltiy 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) or
(4) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose 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.
2. Insofar as indemnification for liabilities arising under the Act 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 Commission, such indemnification is against
public policy as expressed in the 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 Act and
will be governed by the final adjudication of such issue.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the 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 23d day of November, 1998.
RSL COMMUNICATIONS, LTD.
By: /s/ Itzhak Fisher
-------------------------------------
ITZHAK FISHER
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to 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* DIRECTOR AND CHAIRMAN OF THE NOVEMBER 20, 1998
- ---------------------------- BOARD OF DIRECTORS
(RONALD S. LAUDER)
/s/ Itzhak Fisher DIRECTOR, PRESIDENT AND NOVEMBER 20, 1998
- ---------------------------- CHIEF EXECUTIVE OFFICER
(ITZHAK FISHER) (PRINCIPAL EXECUTIVE OFFICER)
/s/ Jacob Z. Schuster* DIRECTOR, EXECUTIVE VICE NOVEMBER 20, 1998
- ---------------------------- PRESIDENT, CHIEF FINANCIAL
(JACOB Z. SCHUSTER) OFFICER, ASSISTANT SECRETARY
AND TREASURER (PRINCIPAL
FINANCIAL OFFICER)
/s/ Mark J. Hirschhorn* VICE PRESIDENT-FINANCE, NOVEMBER 20, 1998
- ---------------------------- GLOBAL CONTROLLER AND
(MARK J. HIRSCHHORN) ASSISTANT SECRETARY
(CONTROLLER AND PRINCIPAL
ACCOUNTING OFFICER)
/s/ Gustavo A. Cisneros* DIRECTOR NOVEMBER 20, 1998
- ---------------------------
(GUSTAVO A. CISNEROS)
/s/ Fred H. Langhammer* DIRECTOR NOVEMBER 20, 1998
- ---------------------------
(FRED H. LANGHAMMER)
/s/ Leonard A. Lauder* DIRECTOR NOVEMBER 20, 1998
- ---------------------------
(LEONARD A. LAUDER)
/s/ Eugene Sekulow* DIRECTOR NOVEMBER 20, 1998
- ---------------------------
(EUGENE SEKULOW)
/s/ Nicolas G. Trollope* DIRECTOR NOVEMBER 20, 1998
- ---------------------------
(NICOLAS G. TROLLOPE)
*By:/s/ Itzhak Fisher ATTORNEY-IN-FACT NOVEMBER 20, 1998
- ---------------------------
(ITZHAK FISHER)
</TABLE>
II-10
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to the Registration Statement of
RSL Communications, Ltd. on Form S-1 (Registration No. 333-62325) of our report
dated February 18, 1998 relating to the consolidated financial statements and
financial statement schedules of RSL Communications, Ltd. and subsidiaries and
of our report dated March 14, 1997 relating to the consolidated financial
statements of International Telecommunications Group Ltd. and subsidiaries,
appearing in the Prospectus.
We also consent to the reference to us under the headings "Summary of Selected
Consolidated Financial Data", "Selected Consolidated Financial Data" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
November 20, 1998
II-11
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF
RSL COMMUNICATIONS PLC
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31,
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
----------------- -------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents............... $ 103,613 $ 129,380
Accounts Receivable, Net................ 26,476 53,966
Marketable Securities, Available For
Sale.................................. 67,828 13,858
Prepaid Expenses and Other Current
Assets................................ 3,817 15,364
--------- ---------
Total Current Assets.................. 201,734 212,568
Restricted Marketable Securities, Held
to Maturity........................... 104,370 68,836
Property and Equipment, Net............. 31,941 64,649
Goodwill and Other Intangible Assets,
Net................................... 87,605 188,813
Deposits and Other Assets............... 1,215 1,820
--------- ---------
Total Assets.......................... $ 426,865 $ 536,686
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Accounts Payable and Other
Liabilities........................... $ 68,006 $ 112,835
Short-Term Debt......................... 6,942 9,837
--------- ---------
Total Current Liabilities............. 74,948 122,672
Long-Term Debt.......................... 18,263 19,917
Senior Notes, 12 1/4% Due 2006.......... 300,000 300,000
Other Liabilities, Non-Current.......... 76,293 237,531
--------- ---------
Total Liabilities..................... 469,504 680,120
Shareholders' Deficiency................ (42,639) (143,434)
--------- ---------
Total Liabilities and Shareholders'
Deficiency......................... $ 426,865 $ 536,686
--------- ---------
--------- ---------
</TABLE>
S-1
<PAGE>
SCHEDULE I (CONTINUED)
RSL COMMUNICATIONS PLC
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------------ ----------
<S> <C> <C>
Revenues..................................... $113,257 $266,142
Operating costs and expenses
Cost of Services (exclusive of depreciation
and amortization)....................... 98,461 235,150
Expenses................................... 41,619 100,118
-------- --------
140,080 335,268
-------- --------
Loss from Operations......................... (26,823) (69,126)
Interest Expense............................. (7,384) (39,576)
Interest Income.............................. -- 13,565
Other (Expense) Income--Net.................. 473 (375)
Minority Interest............................ (180) 88
Income Taxes................................. (395) (400)
-------- --------
Net Loss................................ $(34,309) $(95,824)
-------- --------
-------- --------
</TABLE>
S-2
<PAGE>
SCHEDULE I (CONTINUED)
RSL COMMUNICATIONS PLC
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Net Loss............................................................................... $ (34,309) $(95,824)
Depreciation and amortization.......................................................... 6,618 20,270
Working capital change and other....................................................... 16,911 (15,909)
--------- --------
Net cash used in operating activities............................................. (10,780) (91,463)
--------- --------
Purchases of Property and Equipment.................................................... (15,983) (29,866)
Acquisitions of Subsidiaries........................................................... (38,552) (50,814)
Purchase of Marketable Securities...................................................... (82,529) --
Proceeds from Marketable Securities.................................................... 14,701 41,038
(Purchase of) Proceeds from Maturities of Restricted Marketable Securities............. (102,808) 54,167
Other.................................................................................. 171 144
--------- --------
Net cash (used in) provided by investing activities............................... (225,000) 14,669
--------- --------
Proceeds from notes payable............................................................ 300,000 --
Advances from Parent................................................................... 51,362 118,999
Offering Cost and Other................................................................ (11,969) (15,653)
--------- --------
Net cash provided by financing activities......................................... 339,393 103,346
--------- --------
Net increase in cash.............................................................. 103,613 26,552
Effect of Foreign Currency on Cash................................................ -- (785)
Cash and cash equivalents at beginning of period.................................. -- 103,613
--------- --------
Cash and cash equivalents at end of period........................................ $ 103,613 $129,380
--------- --------
--------- --------
</TABLE>
S-3
<PAGE>
SCHEDULE II
SCHEDULE OF VALUATION ALLOWANCES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER 31,
1997 EXPENSES ACCOUNTS DEDUCTIONS 1997
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Bad debt provision... $ 3,881 $ 10,908 $ -- $ (2,456) $ 12,333
<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... $ 1,596 $ 2,829 $ -- $ (544) $ 3,881
<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... $ -- $ 149 $ 1,447 $ -- $ 1,596
</TABLE>
- ------------------
(1) The bad debt provision was previously recorded in the financial statements
of RSL Communications, Ltd.'s (the "Company") predecessor, International
Telecommunications Group, Ltd. ("RSL North America"). The Company began
consolidating RSL North America effective with its acquisition of interests
in RSL North America in September 1995.
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- -------- ------------------------------------------------------------ ----------
<S> <C> <C>
1.1 -- Underwriting Agreement (U.S. Version).
1.2 -- Underwriting Agreement (International Version).
*3.1 -- Certificate of Incorporation of RSL Communications, Ltd.,
issued by the Bermuda Registrar of Companies on March 14,
1996.
*3.2 -- Memorandum of Association of RSL Communications, Ltd., filed
with the Bermuda Registrar of Companies on March 14, 1996.
**3.3 -- Bye-Laws of RSL Communications, Ltd. (as amended through
September 2, 1997).
**4.1 -- Form of Class A Common Share Certificate.
5.1 -- Opinion of Conyers, Dill & Pearman.
*10.1 -- 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.
*10.2 -- Notes Registration Rights Agreement, dated October 3, 1996,
by and among RSL Communications PLC, RSL Communications,
Ltd. and the Placement Agents.
*10.3 -- 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.
*10.4 -- Collateral Pledge and Security Agreement, dated October 3,
1996, by and among RSL Communications PLC and Trustee.
++++10.6 -- Exchange and Registration Rights Agreement, dated as of
February 27, 1998, among RSL Communications PLC, RSL
Communications, Ltd., Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Chase Securities Inc.,
J.P. Morgan Securities Inc., and SBC Warburg Dillon Read
Inc.
++++10.7 -- Note Deposit Agreement, dated as of February 27, 1998, among
RSL Communications PLC, RSL Communications, Ltd. and The
Chase Manhattan Bank as Book-Entry Depositary.
++++10.8 -- Note Deposit Agreement, dated as of February 27, 1998, among
RSL Communications PLC, RSL Communications, Ltd. and The
Chase Manhattan Bank as Book-Entry Depositary.
++++10.9 -- Indenture, dated as of February 27, 1998, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase
Manhattan Bank as Trustee.
++++10.10 -- Indenture, dated as of February 27, 1998, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase
Manhattan Bank as Trustee.
++++10.11 -- Exchange and Registration Rights Agreement, dated as of
February 27, 1998, among RSL Communications PLC, RSL
Communications, Ltd. and Goldman, Sachs & Co., oHG and
Merrill Lynch International.
++++10.12 -- Note Deposit Agreement, dated as of March 16, 1998, by and
between RSL Communications PLC and The Chase Manhattan Bank
as Book-Entry Depositary.
++++10.13 -- Indenture, dated as of March 16, 1998, by RSL Communications
PLC and RSL Communications, Ltd. to The Chase Manhattan Bank
as Trustee.
*10.14 -- Warrant Agreement, dated October 3, 1996, between RSL
Communications, Ltd., as Issuer, and The Chase Manhattan
Bank, as warrant agent.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- -------- ------------------------------------------------------------ ----------
<S> <C> <C>
*10.15 -- Warrant Registration Rights Agreement, dated October 3,
1996, between RSL Communications, Ltd., as issuer, and The
Chase Manhattan Bank, as warrant agent.
*10.16 -- Amendment to the Revolving Credit Facility, dated
August 20, 1996, from The Chase Manhattan Bank to RSL
Communications, Inc.
*10.17 -- Amendment to the Revolving Credit Facility, dated
September 10, 1996, from The Chase Manhattan Bank to RSL
Communications, Ltd.
*10.18 -- Subordinated Promissory Note, dated September 10, 1996, from
RSL Communications, Ltd. to Ronald S. Lauder.
*10.19 -- Warrant for 210,000 shares of Class B Common Stock of RSL
Communications, Ltd. issued to Ronald S. Lauder on
September 10, 1996.
*10.20 -- Standby Facility Agreement, dated October 1, 1996, by and
between RSL Communications, Ltd. and Ronald S. Lauder.
*10.21 -- Consulting Agreement, dated September 15, 1995, between
Eugene Sekulow and RSL Communications, Inc.
*10.22 -- Amendment to Consulting Agreement, dated August 8, 1996,
between Eugene Sekulow and RSL Communications, Ltd.
*10.23 -- RSL Communications, Ltd.'s 1995 Amended and Restated Stock
Option Plan.
*10.24 -- Employment Agreement, dated September 15, 1995, between
Itzhak Fisher and International Telecommunications Group,
Ltd.
*10.25 -- Employment Agreement, dated September 15, 1995, between
Itzhak Fisher and RSL Communications Inc.
*10.26 -- Employment Agreement, dated April 1, 1995, between Nir
Tarlovsky and International Telecommunications Group, Ltd.
*10.27 -- Employment Agreement, dated April 1, 1995, between Nir
Tarlovsky and RSL Communications Inc.
*10.28 -- Employment Agreement, dated August 9, 1995, between RSL COM
Europe Limited and Richard Williams.
*10.29 -- Memorandum of Agreement, dated July 30, 1996, between
International Telecommunications Corporation and Codetel.
*10.30 -- General Purchase Agreement, dated September 14, 1995,
between Ericsson Inc. and International Telecommunications
Corporation.
*10.31 -- Lease Agreement between AB LM Ericsson Finans and
International Telecommunications Corporation.
*10.32 -- Lease Agreement, dated April 10, 1996, between RSL COM
Europe Ltd. and AB LM Ericsson Finans.
*10.33 -- Lease Agreement, dated December 30, 1996, between RSL COM
Europe Ltd. and AB LM Ericsson Finans.
*10.34 -- Loan and Security Agreement, dated September 8, 1995,
between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.35 -- Accounts Collateral Security Agreement, dated September 8,
1995, between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.36 -- Equipment Collateral Security Agreement, dated September 8,
1995, between Cyberlink Inc. and CoastFed Business Credit
Corporation.
*10.37 -- Security Stock Pledge Agreement, dated September 8, 1995,
between CoastFed Business Credit Corporation and Cyberlink
Inc.
*10.38 -- Security Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and
Cyberlink-California Inc.
*10.39 -- Security Agreement, dated September 8, 1995, between
CoastFed Business Credit Corporation and Cyberlink-Nevada
Inc.
*10.40 -- Asset Purchase Agreement, dated as of May 8, 1996, by and
between RSL COM France S.A. and Sprint Telecommunications
France Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- -------- ------------------------------------------------------------ ----------
<S> <C> <C>
*10.41 -- 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.
*10.42 -- Transition Services Agreement, dated May 8, 1996, by and
between Sprint Communications Company L.P. and RSL COM
France S.A.
*10.43 -- 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.
*10.44 -- Transition Services Agreement, dated May 8, 1996, by and
between Global One Communications World Operations, Limited
and RSL COM France S.A.
*10.45 -- Asset Purchase Agreement, dated as of May 8, 1996, by and
among Siena Vermogensverwaltungs-GmbH, Sprint
Telecommunication Services GmbH and Sprint Fon Inc.
*10.46 -- Transition Services Agreement, dated May 8, 1996, by and
among Sprint Telecommunication Services GmbH, Sprint Fon
Inc. and Siena Vermogensverwaltungs-GmbH.
*10.47 -- Transition Services Agreement, dated May 8, 1996, by and
between Sprint Communications Company L.P. and RSL COM
Deutschland GmbH.
*10.48 -- 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.
*10.49 -- Transition Services Agreement, dated May 8, 1996, by and
between Global One Communications World Operations, Limited
and Siena Vermogensverwaltungs-GmbH.
*10.50 -- Asset Purchase Agreement, August 12, 1996, by and between
RSL COM UK Limited and Incom (UK) Ltd.
*10.51 -- Stock Purchase Agreement, dated July 3, 1996, between RSL
Communications Limited, Charles Piluso and International
Telecommunications Group, Ltd.
*10.52 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Charles Piluso.
*10.53 -- Stock Pledge and Security Agreement, dated September 9, 1996
between RSL Communications PLC, Charles Piluso and Fletcher,
Heald & Hildreth, P.L.C.
*10.54 -- 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.
*10.55 -- Stock Purchase Agreement, dated September 9, 1996, between
RSL Communications PLC, Richard Rebetti, Jr. and
International Telecommunications Group, Ltd.
*10.56 -- Secured Promissory Note, dated September 9, 1996, from RSL
Communications PLC to Richard Rebetti.
*10.57 -- Stock Pledge and Security Agreement, dated September 9,
1996, between RSL Communications PLC, Richard Rebetti, Jr.
and Fletcher, Heald & Hildreth, P.L.C.
*10.58 -- Agreement and Plan of Reorganization, dated September 9,
1996, among RSL Communications PLC, RSL Communications, Ltd.
and Charles Piluso.
*10.59 -- Tax Agreement, dated September 9, 1996, between RSL
Communications PLC, RSL Communications, Ltd. and Charles
Piluso.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- -------- ------------------------------------------------------------ ----------
<S> <C> <C>
*10.60 -- Stock Purchase Agreement, dated September 22, 1995, by and
between RSL Communications, Inc. and Charles Piluso.
*10.61 -- Stock Purchase Agreement, dated September 22, 1995, by and
between Richard Rebetti and RSL Communications, Inc.
*10.62 -- Amendment to the Stock Purchase Agreement, dated
September 22, 1995, between and among International
Telecommunications Group, Ltd., International
Telecommunications Corporation and RSL Communications, Inc.
*10.63 -- Stock Purchase Agreement, dated March 10, 1995, between RSL
Communication, Inc., International Telecommunications Group,
Ltd. and International Telecommunications Corporation.
*10.64 -- 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.
*10.65 -- Indemnity Agreement, dated March 10, 1995, between and among
International Telecommunications Group, Ltd., International
Telecommunications Corporation and RSL Communications, Inc.
*10.66 -- Sublease, dated July 18, 1996, between RSL Communications,
Ltd. and RSL Management Corporation.
*10.67 -- Lease, dated as of January 15, 1997, between Longstreet
Associates L.P. and RSL COM U.S.A., Inc.
*10.68 -- Employment Agreement, dated January 31, 1997, between Roland
T. Mallcott and RSL Communications, Ltd.
*10.69 -- Amendment of Lease, dated as of December 6, 1995, between
Hudson Telegraph Associates and International
Telecommunications Corporation.
**10.70 -- Shareholders Agreement of RSL Communications, Latin America,
Ltd., dated August 4, 1997, between and among RSL
Communications, Latin America, Ltd., RSL Communications,
Ltd. and Coral Gates Investments Ltd.
**10.71 -- Stockholders' Agreement, dated July 23, 1997, by and among
Delta Three, Inc., RSL Communications, Ltd., and the other
shareholders of Delta Three, Inc.
**,***10.72 -- Delta Three, Inc. Services Agreement.
**10.73 -- Employment Agreement, dated July 31, 1997, between Andrew C.
Shields and RSL Communications, Ltd.
**10.74 -- Shareholders Agreement, dated October 10, 1996, between RSL
COM Europe, Limited, Gerard van Leest and Belnet Nederland
B.V.
+10.75 -- RSL Communications, Ltd. 1997 Performance Incentive Plan.
+10.76 -- RSL Communications, Ltd. 1997 Stock Incentive Plan.
**10.77 -- Lease Agreement, dated June 19, 1997 for property at 430
Park Avenue, New York, New York.
**10.78 -- Stock Purchase Agreement of Delta Three, Inc.
**10.79 -- Employment Agreement, dated September 2, 1997, between
Itzhak Fisher and RSL Communications, Ltd.
**10.80 -- Employment Agreement, dated September 2, 1997, between
Itzhak Fisher and International Telecommunications Group,
Ltd.
+10.81 -- RSL Communications Ltd. 1997 Directors' Compensation Plan.
**10.82 -- Registration Rights Agreement, dated September 2, 1997,
among RSL Communications, Ltd., Ronald S. Lauder, Itzhak
Fisher and Coral Gate Investments Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- -------- ------------------------------------------------------------ ----------
<S> <C> <C>
**10.83 -- International Telecommunication Services Agreement, dated
July 1, 1995, between International Telecommunications
Corporation and TELECOM Denmark.
**10.84 -- International Telecommunication Operating Agreement, dated
July 15, 1995 between Telenor Carrier Services A.S. and
International Telecommunications Corporation.
**10.85 -- International Telecommunication Services Agreement, dated
May 10, 1994, between Mercury Communications Limited and
International Telecommunications Corporation.
**10.86 -- Agreement Concerning Voice Distribution of International
Telephony Traffic, undated, between Unisource Carrier
Services AG and International Telecommunications
Corporation.
**10.87 -- International Telecommunications Service Agreement, dated
May 31, 1994, between Compania Dominicana De Telefonos, C.
Por A. and International Telecommunications Corporation.
**10.88 -- Second Supplementary Agreement to the UK-Netherlands 14
Cable System Construction & Maintenance Agreement, effective
February 18, 1997, among the parties on the Annex thereto.
**10.89 -- Fourth Supplementary Agreement to the ODIN Construction and
Maintenance Agreement, dated October 24, 1996, among the
parties on the Annex thereto.
**10.90 -- Second Supplementary Agreement to Antillas I Construction &
Maintenance Agreement, dated February 13, 1997, among the
parties on the Annex thereto.
**10.91 -- Canus I Cable System Indefeasible Right of Use Agreement and
Financing Agreement, dated June 4, 1996, between Optel
Communications, Inc. and International Telecommunications
Corporation.
**10.92 -- Cantat-3 Cable System Indefeasible Right of Use Agreement
and Financing Agreement, dated March 12, 1996, between
Teleglobe Cantat-3 Inc. and International Telecommunications
Corporation.
**10.93 -- PTAT-1 Submarine System Indefeasible Right of Use Agreement,
dated May 12, 1994, between Private Transatlantic
Telecommunications System, Inc. and International
Telecommunications Corporation.
**10.94 -- Third Supplementary Agreement to the TAT-12/TAT-13 Cable
Network Construction and Maintenance Agreement, dated
October 17, 1995, among the parties on the Annex thereto.
*10.95 -- 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.
+++10.95 -- Asset Purchase Agreement, dated as of April 23, 1998, by and
between CBS Corporation and RSL COM U.S.A., Inc.
*****10.96 -- Restated Umbrella Agreement, dated as of June 26, 1998,
among Motorola Limited, SA Motorola NV, Motorola Electronic
GmbH, Motorola SA and RSL Communications, Ltd.
10.97 -- Share Subscription, Share Option and Shareholders Agreement,
dated June 10, 1998, among RSL COM Europe Ltd., RSL
Communications, Ltd. and Metro Holding AG.
10.98 -- Marketing and Distribution Services Agreement, dated as of
June 10, 1998, between RSL Com Europe Ltd. and Metro
Holding AG.
10.99 -- Exchange Agreement, dated July 22, 1998, among Ligapart AG,
Metro Holding AG and RSL Communications, Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- -------- ------------------------------------------------------------ ----------
<S> <C> <C>
10.100 -- Amended and Restated Share Subscription, Share Option and
Shareholders Agreement, dated July 22, 1998, among RSL COM
Europe Ltd., RSL Communications, Ltd. and Metro Holding AG.
10.101 -- Share Purchase Agreement, dated June 24, 1988, between
British Columbia Railway Company and RSL Com Holdings
Canada, Inc.
10.102 -- Note Deposit Agreement, dated November 9, 1998, among RSL
Communications PLC, RSL Communications, Ltd. and The Chase
Manhattan Bank as Book-Entry Depositary.
10.103 -- Indenture, dated November 9, 1998, by RSL Communications PLC
and RSL Communications, Ltd. to The Chase Manhattan Bank as
Trustee.
10.104 -- Exchange and Registration Rights Agreement, dated
November 9, 1998, among RSL Communications, Ltd. and Goldman
Sachs & Co.
21.1 -- Subsidiaries of the Company.
****23.1 -- Consent of Deloitte & Touche LLP (included on page II-11).
23.3 -- Consent of Conyers, Dill & Pearman (included in Exhibit 5.1
hereto).
24.1 -- Powers of Attorney (included in the signature pages to the
Registration Statement).
****27.1 -- Financial Data Schedule.
</TABLE>
- ------------------
* Incorporated by reference to Registrant's Registration Statement on
Form S-4 (Registration No. 333-25749).
** Incorporated by reference to Registrant's Registration Statement on
Form S-1 (Registration No. 333-34281)
*** Confidential Treatment was granted by the Commission with respect to
certain information contained in this exhibit.
**** Incorporated by reference to Registrant's Registration Statement on
Form S-1 (Registration No. 333-62325).
***** Incorporated by reference to the Registrant's report on Form 8-K
dated August 14, 1998.
+ Incorporated by reference to Registrant's Registration Statement on
Form S-8 (Registration No. 333-40085)
++ Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997.
+++ Incorporated by reference to Registrant's Report on Form 8-K/A dated
August 12, 1998.
++++ Incorporated by reference to Registrant's Registration Statement on
Form S-1 (Registration No. 333-46125).
<PAGE>
RSL COMMUNICATIONS, LTD.
Class A Common Shares
--------------
Underwriting Agreement
(U.S. Version)
--------------------------
November , 1998
Goldman, Sachs & Co.,
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner &
Smith Incorporated,
Morgan Stanley & Co. Incorporated, and
Warburg Dillon Read LLC, a subsidiary of UBS AG
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 5,250,000 shares of Class A Common Shares ("Stock") of the Company
(the "Firm Shares"), and the Company and each of the selling shareholders
identified on Schedule II hereto (the "Selling Shareholders") proposes, subject
to the terms and conditions stated herein, to sell, at the election of the
Underwriters, up to 787,500 additional shares (the "Optional Shares") of Stock.
The Firm Shares and the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof are collectively called the "Shares".
It is understood and agreed to by all parties that the Company and the
Selling Shareholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the sale by the Company
of 1,750,000 shares of Stock (exclusive of the Underwriters' overallotment
option), and the sale by the Company and the Selling Shareholders through an
overallotment option of up to a total of 262,500 additional shares of Stock
(the 2,012,500 shares of stock offered thereby are collectively, the
"International Shares"), through arrangements with Goldman Sachs International,
Lehman Brothers International (Europe), Morgan Stanley & Co. International
Limited, Merrill Lynch International and UBS AG (the "International
Underwriters"). 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
<PAGE>
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 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.
<PAGE>
1. (A) The Company represents and warrants to, and agrees
with, each of the Underwriters that:
(a) A registration statement on Form S-1
(File No. 333-62325) 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 necessary in
order 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 or on behalf of an Underwriter
through Goldman, Sachs & Co. expressly for use therein or by
or on behalf of a Selling Shareholder expressly for use in
the preparation of the answers therein to Items 7 and 11(m)
of Form S-1;
(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
<PAGE>
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 or on behalf of an
Underwriter through Goldman, Sachs & Co. expressly for use
therein or by or on behalf of a Selling Shareholder expressly
for use in the preparation of the answers therein to Items 7
and 11(m) of Form S-1;
(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 loss to, 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, which loss or interference is material to the
business of the Company and its subsidiaries taken as a whole
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 taken as a
whole (a "Material Adverse Effect"), otherwise than as set
forth or contemplated in the Prospectus;
(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
and material to the business of the Company and its
subsidiaries taken as a whole, 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 and material to the business of the Company and
its subsidiaries taken as a whole 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 Bermuda (meaning that it has not failed to make any
filing with any Bermuda governmental authority or to pay any
Bermuda government fee or tax, the failure of which would
make it liable to be struck off the Bermuda Register of
Companies and thereby cease to exist under the laws of
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 except for any failures to be
so qualified or in good standing, that individually or in the
aggregate, would not reasonably be expected to have a
Material Adverse Effect; and each material subsidiary of the
Company listed on Schedule III hereto (the "Material
Subsidiaries") 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 or organization;
3
<PAGE>
(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 capital stock contained
in the Prospectus; and all of the issued shares of capital
stock owned by the Company 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 (i) result in any violation of
the provisions of the Memorandum of Association or By-laws of
the Company, (ii) 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 (iii) will such action result in any violation of any
existing statute, 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
except, in the case of clauses (ii) and (iii) above, such
breaches or violations which would not, individually or in
the aggregate, be reasonably likely to have a Material
Adverse Effect or be reasonably likely to prevent the Company
from performing its obligations under this Agreement; and no
consent, approval, authorization, order, registration or
qualification of or with any such governmental agency 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
foreign or 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 Material Subsidiary
is in violation of its Memorandum of Association or Bye-laws
or in default in the performance or observance of any
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, except for
defaults that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect;
(k) 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 and
under the captions "Certain United States Federal Income
4
<PAGE>
Tax Considerations" and "Certain Bermuda Tax Considerations",
and under the caption "Underwriting", insofar as they purport
to describe the provisions of the laws and documents referred
to therein, are accurate and fair summaries or descriptions
thereof;
(l) 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 with respect to which there is a reasonable
likelihood of a determination that, individually or in the
aggregate, would have a Material Adverse Effect 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 RSL COM
North America, Inc., formerly known as International
Telecommunications Group, Ltd., are 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;
(q) The Company and its subsidiaries own or possess
the right to use all 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, and material to, the business now operated
by them, taken as a whole, 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 with respect to which there is a
reasonable likelihood of a determination that, individually
or in the aggregate, would have a Material Adverse Effect;
(r) Except as described in or contemplated by the
Prospectus, no material labor dispute with the employees of
the Company or any of its subsidiaries exists, or, to the
knowledge of the Company, is imminent that, individually or
in the
5
<PAGE>
aggregate would reasonably be expected to have a Material
Adverse Effect; and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of
any of its principal suppliers, manufacturers or contractors
that would reasonably be expected to result in a Material
Adverse Effect;
(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 Effect, 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) and (ii) have not received any
notice of proceedings relating to revocation or modification
of any such certificate, authorization or permit with respect
to which there is a reasonable likelihood of a determination
that, individually or in the aggregate, would have a Material
Adverse Effect, except as described in or contemplated by the
Prospectus;
(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; and
(v) The Company is reviewing its operations and that
of its subsidiaries and any third parties with which the
Company or any of its subsidiaries has a relationship
material to the business of the Company and its subsidiaries
taken as a whole to evaluate the extent to which the business
or operations of the Company or any of its subsidiaries will
be affected by the Year 2000 Problem. Based on the results of
such review to the date hereof, the Company has no reason to
believe, and does not believe, that the Year 2000 Problem
will have a Material Adverse Effect. The "Year 2000 Problem"
as used herein means any significant risk that computer
hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission
or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the
case of dates or time periods occurring after December 31,
1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000.
6
<PAGE>
(B) Each of the Selling Shareholders severally represents and
warrants to, and agrees with, each of the Underwriters and the Company that:
(a) All consents, approvals, authorizations and
orders necessary for the execution and delivery by such
Selling Shareholder of this Agreement, the International
Underwriting Agreement, the Power of Attorney and the Custody
Agreement hereinafter referred to, and for the sale and
delivery of the Shares to be sold by such Selling Shareholder
hereunder and under the International Underwriting Agreement,
have been obtained, except for the registration under the Act
of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under
foreign or state securities or Blue Sky laws; and such
Selling Shareholder has full right, power and authority to
enter into this Agreement, the International Underwriting
Agreement, the Power of Attorney and the Custody Agreement
and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Shareholder hereunder and under the
International Underwriting Agreement;
(b) The sale of the Shares to be sold by such
Selling Shareholder hereunder and under the International
Underwriting Agreement and the compliance by such Selling
Shareholder with all of the provisions of this Agreement, the
International Underwriting Agreement, the Power of Attorney
and the Custody 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 statute, indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which such
Selling Shareholder is a party or by which such Selling
Shareholder is bound, or to which any of the property or
assets of such Selling Shareholder is subject, nor will such
action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of such Selling
Shareholder if such Selling Shareholder is a corporation, the
partnership agreement of such Selling Shareholder if such
Selling Shareholder is a partnership or any statute or any
order, rule or regulation of any court or governmental agency
or body having jurisdiction over such Selling Shareholder or
the property of such Selling Shareholder, except that such
Selling Shareholder makes no representation under this
paragraph as to the registration or filing requirements or
disclosure provisions (other than with respect to the
information provided by or on behalf of such Selling
Shareholder expressly for use in the preparation of the
answers therein to Items 7 and 11(m) of Form S-1) of the
securities laws of the United States or the securities or
Blue Sky laws of any other jurisdiction;
(c) Such Selling Shareholder has, and immediately
prior to each Time of Delivery (as defined in Section 4
hereof) (except in the case of Richard E. Williams, in which
case solely prior to the Second Time of Delivery (as defined
in Section 4 hereof)) such Selling Shareholder will have good
and valid title to the Shares to be sold by such Selling
Shareholder hereunder and under the International
Underwriting Agreement, free and clear of all liens,
encumbrances, equities or claims; and, upon delivery of such
Shares and payment therefor pursuant hereto and thereto, good
and valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several
Underwriters or the International Underwriters, as the case
may be;
(d) Except for Andrew Gaspar and Bukfenc, Inc.,
during the period beginning from the date hereof and
continuing to and including the date 90 days after the date
of the Prospectus, not to offer, sell, contract to sell or
otherwise dispose of, except as provided hereunder or under
the International Underwriting
7
<PAGE>
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;
(e) Such Selling Shareholder has not taken and will
not take, directly or indirectly, any action which is
designed to or which has constituted or which might
reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares;
(f) To the extent that any statements or omissions
made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement
thereto are made in reliance upon and in conformity with
written information furnished to the Company by or on behalf
of such Selling Shareholder expressly for use therein, such
Preliminary Prospectus and the Registration Statement did,
and the Prospectus and any further amendments or supplements
to the Registration Statement and the Prospectus, when they
become effective or are filed with the Commission, as the
case may be, will conform in all material respects to the
requirements of the Act and the rules and regulations of the
Commission thereunder and will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make there
not misleading;
(g) In order to document the Underwriters'
compliance with the reporting and withholding provisions of
the Tax Equity and Fiscal Responsibility Act of 1982 with
respect to the transactions herein contemplated, such Selling
Shareholder will deliver to you prior to or at the Time of
Delivery (as hereinafter defined) a properly completed and
executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department
regulations in lieu thereof);
(h) Certificates in negotiable form representing all
of the Shares to be sold by such Selling Shareholder
hereunder and under the International Underwriting Agreement
have been placed in custody under a Custody Agreement, in the
form heretofore furnished to you (the "Custody Agreement"),
duly executed and delivered by such Selling Shareholder to
American Stock Transfer and Trust Company, as custodian (the
"Custodian"), and such Selling Shareholder has duly executed
and delivered a Power of Attorney, in the form heretofore
furnished to you (the Power of Attorney), appointing the
persons indicated in Schedule II hereto, and each of them, as
such Selling Shareholder's attorneys-in-fact (the
"Attorney-in-Fact") with authority to execute and deliver
this Agreement and the International Underwriting Agreement
on behalf of such Selling Shareholder, to determine the
purchase price to be paid by the Underwriters and the
International Underwriters to the Selling Shareholders as
provided in Section 2 hereof, to authorize the delivery of
the Shares to be sold by such Selling Shareholder hereunder
and otherwise to act on behalf of such Selling Shareholder in
connection with the transactions contemplated by this
Agreement, the International Underwriting Agreement and the
Custody Agreement; and
(i) The Shares represented by the certificates held
in custody for such Selling Shareholder under the Custody
Agreement are subject to the interests of the Underwriters
hereunder and the International
8
<PAGE>
Underwriters under the International Underwriting Agreement;
the arrangements made by such Selling Shareholder for such
custody, and the appointment by such Selling Shareholder of
the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling
Shareholders hereunder shall not be terminated by operation
of law, whether by the death or incapacity of any individual
Selling Shareholder or, in the case of an estate or trust, by
the death or incapacity of any executor or trustee or the
termination of such estate or trust, or in the case of a
partnership or corporation, by the dissolution of such
partnership or corporation, or by the occurrence of any other
event; if any individual Selling Shareholder or any such
executor or trustee should die or become incapacitated, or if
any such estate or trust should be terminated, or in any such
partnership or corporation should be dissolved, or if any
other such event should occur, before the delivery of the
Shares hereunder, certificates representing the Shares shall
be delivered by or on behalf of the Selling Shareholders in
accordance with the terms and conditions of this Agreement,
to the International Underwriting Agreement and of the
Custody Agreements; and actions taken by the
Attorneys-in-Fact pursuant to the Powers of Attorney shall be
as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of
whether or not the Custodian, the Attorneys-in-Fact, or any
of them, shall have received notice of such death,
incapacity, termination, dissolution or other event.
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 and
each of the Selling Shareholders agrees, severally and not jointly, to sell to
each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and each of the Selling Shareholders,
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 and the Selling Shareholders, as and to the extent
indicated in Schedule II hereto, hereby grant, severally and not jointly, to
the Underwriters the right to purchase at their election up to 787,500 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 shall be made in
proportion to the maximum number of Optional Shares to be sold by the Company
and each Selling Shareholder as set forth in Schedule II hereto; provided that
in the event of any election by the Underwriters pursuant to their right to
purchase Option Shares, the Underwriters will exercise their overallotment
option first from the Selling Shareholders on a pro rata basis and then from
the Company. 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.
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<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 and the Selling
Shareholders, shall be delivered by or on behalf of the
Company and the Selling Shareholders 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 the account specified by the Company and each of the
Selling Shareholders. 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 [ ] 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 receipts for the Shares
and any additional documents requested by the Underwriters
pursuant to Section 7(m) hereof, will be delivered at the
offices of Debevoise & Plimpton, 875 Third Avenue, New York,
New York 10022 (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
2:00 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:
10
<PAGE>
(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 reasonably 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 distribution of the Shares, provided that in
connection therewith the Company shall not be required to
qualify as a foreign corporation, take any action that would
subject them to any tax 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 or desirable during
such same 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)
11
<PAGE>
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 90 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 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 the prior written consent of
Goldman, Sachs & Co.;
(f) To furnish to its shareholders as soon as
practicable after filing with the Commission 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"; and
(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").
12
<PAGE>
6. The Company covenants and agrees with the several Underwriters that
(a) the Company will pay or cause to be paid (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
any amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers;
(ii) the cost of reproducing and distributing any Agreement
among Underwriters, this Agreement, closing documents
(including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery
of the Shares; (iii) 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; (iv) all fees and expenses in connection
with listing the Shares on the NASDAQ; and (v) 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;
(b) the Company will pay or cause to be paid (i) the
cost of preparing stock certificates; (ii) the cost and
charges of any transfer agent or registrar; and (iii) all
other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically
provided for in this Section; and
(c) the Company will pay or cause to be paid all
costs and expenses incident to the performance of each
Selling Shareholder's obligations hereunder which are not
otherwise specifically provided for in this Section,
including (i) any fees and expenses of counsel for each
Selling Shareholder, (ii) each Selling Shareholder's pro rata
share of the fees and expenses of the Custodian, and (iii)
all expenses and taxes incident to the sale and delivery of
the Shares to be sold by each Selling Shareholder to the
Underwriters hereunder. In connection with Clause (c)(iii) of
the preceding sentence, Goldman, Sachs & Co. agrees to pay
New York State stock transfer tax, and the Company agrees to
reimburse Goldman, Sachs & Co. for associated carrying costs
if such tax payment is not rebated on the day of payment and
for any portion of such tax payment not rebated (and the
Company will be entitled to receive any rebate to the extent
that it has previously made any such reimbursement).
It is understood, however, that, except as provided in this Section,
and Sections 8 and 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.
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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 and the Selling Shareholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Shareholders shall have performed all of their 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) Debevoise & Plimpton, special 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 subsidiary of the Company listed
under the caption "U.S. Subsidiaries" on Schedule
III hereto (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 the 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 owned by the Company or any of its
subsidiaries 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
of record 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 of each other
jurisdiction in which it owns or leases properties
or conducts any business so as to require such
qualification, except where the failure to be so
qualified or in good standing could not reasonably
be expected to have a Material Adverse Effect (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
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<PAGE>
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 with respect to which there is a reasonable
likelihood of a determination that individually or
in the aggregate would have a Material Adverse
Effect; and, to the best of such counsel's
knowledge, no such proceedings are threatened or
contemplated by governmental authorities or
threatened by others (such counsel being entitled to
rely in respect of the opinion in this clause 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 certificates);
(iv) This Agreement and the International
Underwriting Agreement have been duly authorized,
executed and delivered by the Company (such counsel
being entitled to rely in respect of the opinion in
this clause upon the opinion of Conyers, Dill &
Pearman, provided that such counsel shall state that
both you and they are justified in relying upon such
opinion);
(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 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 any other agreement or
instrument of the Company and its subsidiaries known
to such counsel, except where any such breach,
violation or default could not individually or in
the aggregate be expected to result in a Material
Adverse Effect and would not prevent the Company or
any Selling Shareholder from performing its
obligations hereunder, nor will such action result
in any violation of any provision of the General
Corporation Laws of the state of Delaware (the
"DGCL") or any United States federal or New York
state statute (other than any such statute relating
to federal or state telecommunications laws or state
securities or Blue Sky laws, as to which such
counsel need express no opinion) or any order, rule
or regulation (other than any such order, rule or
regulation relating to federal or state
telecommunications laws or state securities or Blue
Sky laws, as to which such counsel need express no
opinion) known to such counsel of any court or
governmental agency or body of the United States
federal governmental or the state of New York or
(insofar as the DGCL is concerned) the state of
Delaware 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
court or governmental agency or body having
jurisdiction over the Company or any of its
subsidiaries or any of their properties is required
under the federal laws of the United States (other
than telecommunications laws), the laws of the state
of New York (other than telecommunications laws) or
the DGCL for the issue and sale of the Shares or the
consummation by the Company of the transactions
contemplated by
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<PAGE>
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;
(vii) 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 obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement
or instrument known to such counsel to which such
U.S. Subsidiary is a party or by which it or any of
its properties may be bound, except for defaults
that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse
Effect (such counsel being entitled to rely in
respect of the opinion in this clause 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 certificates);
(viii) 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", insofar as they purport to
describe the legal matters, provisions of the laws
and documents referred to therein, are accurate, and
fair summaries or descriptions thereof;
(ix) 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;
(x) 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;
(xi) 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, related notes and schedules and other
financial data 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; and
(xii) To such counsel's knowledge, no
amendment to the Registration Statement is required
to be filed nor are there 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.
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<PAGE>
Such counsel shall also state that such
counsel have participated in conferences with
officers and other representatives of the Company
and its subsidiaries, representatives of the
independent public accountants of the Company and
representatives of and counsel for the Underwriters
at which the contents of the Registration Statement
and the Prospectus were discussed and, although such
counsel are not passing upon, and assume no
responsibility for, the accuracy or completeness of
the Prospectus or any amendment or supplement
thereto, except for those statements referred to in
the opinion in subsection (viii) of this Section
7(c) (to the extent set forth in such paragraph),
they have no reason to believe 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, related notes and schedules and other
financial data therein, as to which such counsel
need express no belief) 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.
In rendering such opinion, such counsel may
state that they express no opinion as to any federal
or state telecommunications laws or any other laws
other than the laws of the state of New York, the
corporate law of the state of Delaware, the laws of
any other jurisdiction addressed by opinions of
local counsel relied upon by such counsel and the
federal laws of the United States.
(d) Conyers, Dill & Pearman, Bermuda counsel to the
Company and the Selling Shareholders, 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 power and
authority (corporate and other) 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 the Shares being delivered at
such Time of Delivery) have been duly and validly
authorized and issued and 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, encumbrance,
equities or claims; 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;
17
<PAGE>
(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 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 and the provisions
of Bermuda law, 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;
(viii) 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;
(ix) 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;
(x) 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
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<PAGE>
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;
(xi) The indemnification and contribution
provisions set forth in Section 8 hereof do not
contravene the public policy or laws of Bermuda;
(xii) 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; and
(xiii) Immediately prior to such Time of
Delivery, based solely upon such counsel's
examination of the Share Register Extract, such
Selling Shareholder was the registered shareholder
of a number of shares of Stock equal to the Shares
to be sold at such Time of Delivery by such Selling
Shareholder under this Agreement and the
International Underwriting Agreement. Based solely
upon such counsel's searches of the Register of
Charges maintained by the Registrar of Companies
pursuant to Section 55 of the Companies Act 1981 and
of the public records of the Registrar-General
maintained pursuant to the Mortgage Registration Act
1786, each conducted immediately prior to such Time
of Delivery, there are no mortgage or charges
registered against such Selling Shareholder in
respect of such Shares.
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, Canada, Denmark, Finland, France, Germany,
Italy, The Netherlands, Portugal, Spain, Sweden, Switzerland,
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 (where applicable) 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
19
<PAGE>
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);
(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) Holland and Knight LLP, 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:
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(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 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" and in the first four
paragraphs under
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<PAGE>
the caption "Business - Legal Proceedings", 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) The respective counsel for each of the Selling
Shareholders, as indicated in Schedule II hereto, each shall
have furnished to you their written opinion with respect to
each of the Selling Shareholders for whom they are acting as
counsel, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) A Power of Attorney and a Custody
Agreement have been duly executed and delivered by
such Selling Shareholder and constitute valid and
binding agreements of such Selling Shareholder in
accordance with their terms, subject as to
enforcement to bankruptcy, insolvency,
reorganization and similar laws of general
applicability relating to or affecting creditors'
rights generally and to general equity principles;
(ii) This Agreement and the International
Underwriting Agreement have been duly executed and
delivered by or on behalf of such Selling
Shareholder; and the sale of the Shares to be sold
by such Selling Shareholder hereunder and thereunder
and the compliance by such Selling Shareholder with
all of the provisions of this Agreement and the
International Underwriting Agreement, the Power of
Attorney and the Custody Agreement and the
consummation of the transactions herein and therein
contemplated will not conflict with or result in a
breach or violation of any terms or provisions of,
or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such
counsel to which such Selling Shareholder is a party
or by which such Selling Shareholder is bound, or to
which any of the property or assets of such Selling
Shareholder is subject, nor will such action result
in any violation of the provisions of the
Certificate of Incorporation or By-laws of such
Selling Shareholder if such Selling Shareholder is a
corporation, the Partnership Agreement of such
Selling Shareholder if such Selling Shareholder is a
partnership or any provision of the DGCL or any
United States federal or New York State statute
(other than any such statute relating to federal or
state telecommunications laws or state securities or
Blue Sky, laws as to which such counsel need express
no opinion), any order, rule or regulation (other
than any such order, rule or regulation relating to
federal or state telecommunications laws or state
securities or Blue Sky laws, as to which such
counsel need express no opinion), known to such
counsel of any court or governmental agency or body
of the United States federal government or the state
of New York or (insofar as the DGCL is concerned)
the state of Delaware having jurisdiction over such
Selling Shareholder or the property of such Selling
Shareholder;
(iii) No consent, approval, authorization
or order of any court or governmental agency or body
is required under the federal laws of the United
States (other than telecommunications laws) the laws
of the state of New York (other than
telecommunications laws) or the DGCL for the
consummation of the transactions contemplated by
this Agreement and the
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International Underwriting Agreement in connection
with the Shares to be sold by such Selling
Shareholder hereunder or thereunder, except which
have been duly obtained and are in full force and
effect, such as have been obtained under the Act and
such as may be required under foreign or state
securities or Blue Sky laws in connection with the
purchase and distribution of such Shares by the
Underwriters or the International Underwriters;
(iv) Immediately prior to such Time of
Delivery such Selling Shareholder was the registered
shareholder of a number of shares of Stock equal to
the Shares to be sold at such Time of Delivery by
such Selling Shareholder under this Agreement and
the International Underwriting Agreement (such
counsel herein entitled to rely in respect of the
opinion in this clause upon opinion of Bermuda
counsel for the Company); and
(v) Upon (A) payment for the Shares to be
sold by the Selling Shareholders in accordance with
this Agreement and the International Underwriting
Agreement, (B) registration of the transfer of such
Shares to, and registration of such Shares in the
name of Cede & Co. or such other nominee designated
by DTC and (C) the crediting of such Shares to the
accounts maintained by DTC for the several
Underwriters or International Underwriters, as
applicable, assuming such accounts are "securities
accounts" (as defined in Section 8-501 of the
Uniform Commercial Code as currently in effect in
the State of New York (the "UCC")), (i) the
Underwriters or International Underwriters, as
applicable, will acquire "security entitlements" (as
defined in Section 8-102 of the UCC) in respect of
such Shares and (ii) no action based on an "adverse
claim" (as defined in Section 8-102 of the UCC) to
such Shares may be asserted against the Underwriters
or International Underwriters, as applicable, with
respect to such security entitlements, assuming that
each Underwriter and International Underwriter does
not have "notice" (within the meaning of Section
8-105 of the UCC) of any "adverse claim" (as defined
in Section 8-102 of the UCC) to such Shares.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction outside
the United States and in rendering the opinion in
subparagraph (iv) such counsel may rely upon a certificate of
such Selling Shareholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on
the Shares sold by such Selling Shareholder, provided that
such counsel shall state that they believe that both you and
they are justified in relying upon such certificate.
(h) 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;
(i) (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
23
<PAGE>
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;
(j) 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;
(k) 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;
(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 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; or (v) the occurrence of any
material adverse change in the existing financial, political
or economic conditions in the United States or elsewhere
which, in the judgment of Goldman, Sachs & Co. would
materially and adversely affect the financial markets or the
market for the Shares and other equity securities;
(l) The Shares to be sold by the Company and the
Selling Shareholders at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
(m) The Company has obtained and delivered to the
Underwriters executed copies of an agreement from each person
or entity named under Schedule IV hereto substantially to the
effect set forth in Subsection 1(B)(d) hereof in form and
substance satisfactory to you;
(n) The Company and the Selling Shareholders 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 and of the Selling
Shareholders, respectively, herein at and as of such Time of
Delivery, as to the performance by the Company and the
Selling Shareholders of all of their respective obligations
hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and
(i) of this Section and as to such other matters as you may
reasonably request; and
(o) The Company shall have delivered a good standing
certificate with respect to RSL Communications, N. America,
Inc.
24
<PAGE>
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 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 or on behalf of any Underwriter through Goldman, Sachs
& Co. expressly for use therein.
(b) Each Selling Shareholder 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, 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
Selling Shareholder expressly for use therein; 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 such Selling Shareholder 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.
(c) 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 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 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 or on behalf of such Underwriter
25
<PAGE>
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.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) 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.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a), (b) or (c) 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 and the Selling Shareholders 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
(d) 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 and the Selling Shareholders 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 and the Selling Shareholders 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 and the Selling Shareholders 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 or the Selling Shareholders
26
<PAGE>
on 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, each of
the Selling Shareholders and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (e)
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 (e). 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 (e) 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 (e), 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
(e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling
Shareholders under this Section 8 shall be in addition to any
liability which the Company and the respective Selling Shareholders
may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls or is an affiliate of
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 or any Selling Shareholder 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 and the Selling Shareholders 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
and the Selling Shareholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Shareholders notify you that they have
so arranged for the purchase of such Shares, you or the Company and the Selling
Shareholders 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 and the Selling Shareholders 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
27
<PAGE>
the Shares to be purchased at such Time of Delivery, then the Company
and the Selling Shareholders 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.
(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 and the Selling Shareholders 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 and the Selling Shareholders 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 and the Selling Shareholders to sell the Optional Shares)
shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Shareholders,
except for the expenses to be borne by the Company and the Selling
Shareholders 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, the Selling Shareholders 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 of the Selling Shareholders
or any officer or director or controlling person of the Company, or any
controlling person of any Selling Shareholder, and shall survive delivery of
and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Company nor the Selling Shareholders shall then be under
any liability to any Underwriter except as provided in Sections 6 and 8 hereof;
but, if for any other reason, any Shares are not delivered by or on behalf of
the Company and the Selling Shareholders as provided herein, the Company will
reimburse the Underwriters through you for all out-of-pocket expenses approved
in writing by you, including reasonable 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 and
the Selling Shareholders 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
Underwriters; and in all dealings with any Selling Shareholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Shareholder made or given by any
or all of the Attorneys-in-Fact for such Selling Shareholder.
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,
28
<PAGE>
Attention: Registration Department; if to any Selling Shareholder shall be
delivered or sent by mail, telex or facsimile transmission to counsel for such
Selling Shareholder at its address set forth in Schedule II hereto; 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(d) 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 or the Selling Shareholders 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 the Selling Shareholders 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 and any Selling
Shareholder, 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 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 of 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.
Each of the Selling Shareholders hereby appoints CT Corporation as its
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 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. Each of the Selling Shareholders represents and warrants
that CT Corporation has agreed to act as such agent for service of 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.
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,
29
<PAGE>
the Company and each Selling Shareholder, 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 each Selling
Shareholder 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.
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 among each of the Underwriters, the
Company and each of the Selling Shareholders. 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 furnished to the Company and Selling
Shareholders for examination upon request, but without warranty on your part as
to the authority of the signers thereof (except as to persons signing on your
behalf).
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Shareholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Shareholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-Fact
to take such action.
Very truly yours,
RSL Communications, Ltd.
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf of each of
the Selling Shareholders named in Schedule II
to this Agreement.
30
<PAGE>
Accepted as of the date hereof:
Goldman, Sachs & Co.,
Lehman Brothers Inc.,
Merrill Lynch, Pierce, Fenner &
Smith Incorporated,
Morgan Stanley & Co. Incorporated, and
Warburg Dillon Read Inc., a subsidiary of UBS AG
By:
-------------------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
31
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Total Number of Number of
Firm Shares Optional Shares to be
to be Purchased Purchased if Maximum
Option Exercised
--------------- ----------------------
<S> <C> <C>
Goldman, Sachs & Co.................................................
Lehman Brothers Inc.................................................
Merrill Lynch, Pierce, Fenner &
Smith Incorporated...............................................
Morgan Stanley & Co. Incorporated...................................
Warburg Dillon Read LLC, a subsidiary of UBS AG.....................
Total............................................. 5,250,000 787,500
========= =======
<PAGE>
SCHEDULE II
Selling Shareholders and the Company
Overallotment Option for U.S. Offering
Seller Shares
Bukfenc, Inc. (a)........................... 150,000
Richard E. Williams (b)..................... 168,750
Nesim N. Bildrici (c)....................... 41,666
Tarlovsky Investment Partners, L.P. (d)..... 37,500
Company..................................... 397,916
-------
Total 787,500
(a)(b)(c)(d) This Selling Shareholder is represented by Debevoise & Plimpton
located at 875 Third Avenue, New York, NY 10022 (attention:
George E.B. Maguire, Esq.) and has appointed Avery Fisher and
Jason Pollack, and each of them, as the Attorneys-in-Fact for
such Selling Shareholder.
<PAGE>
SCHEDULE III
MATERIAL SUBSIDIARIES
RSL United States Operating Subsidiaries State of Incorporation
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Name
RSL COM North America, Inc. Delaware
RSL COM U.S.A., Inc. Delaware
RSL COM PrimeCall, Inc. Delaware
Delta Three, Inc. Delaware
LDM Systems, Inc. New York
RSL Foreign Operating Subsidiaries
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Name Country of Organization
RSL COM Europe Ltd. United Kingdom
RSL COM Sweden AB Sweden
RSL COM Finland OY Finland
Telecenter OY Finland
RSL COM France S.A. France
RSL COM Deutschland GmbH Germany
RSL COM Nederland B.V. Netherlands
RSL Denmark A/S Denmark
RSL COM Japan K.K. Japan
Maxitel Servicos e Gestao de Telecomunicacoes, S.A. Portugal
RSL COM Italia S.r.L Italy
RSL COM Venezuela C.A. Venezuela
Newtelcom Telekom AG Austria
RSL Communications Spain, S.A. Spain
CallCom AG FUR TeleKommunization Switzerland
European Telecom S.A./N.V. Belgium
European Telecom SARL Luxembourg
RSL COM Canada, Inc. Canada
RSL COM Australia Pty. Ltd Australia
Call Australia Pty. Ltd.
Associated Service Providers Pty. Limited
Digiplus Pty. Limited
Power Serve Communications
Consultants Pty. Limited
Talk 2000 Networks Pty. Limited
Telephone Bill Pty. Limited
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SCHEDULE IV
Parties to Lock-up Agreements
Ronald S. Lauder
Itzhak Fisher
Jacob Z. Schuster
Richard E. Williams
Karen van de Vrande
Nir Tarlovsky
RSL Investments Corporation
E/L RSLG Media, Inc.
Nesim N. Bildirici
Mark J. Hirschhorn
Gustavo A. Cisneros
Fred H. Langhammer
Leonard A. Lauder
Eugene Sekulow
Evelyn Lauder
Tarlovsky Investment Partners, L.P.
Coral Gate Investments Ltd
Schuster Family Partners I, L.P.
Lauder Gaspar Ventures LLC
RSL Lauder Gaspar & Co., L.P.
Fisher Investment Partners, L.P.
LAL Family Partners, L.P.
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RSL Communications, Ltd.
Class A Common Shares
Underwriting Agreement
(International Version)
November , 1998
Goldman Sachs International
Lehman Brothers International (Europe)
Merrill Lynch International
Morgan Stanley & Co.
International Limited and
UBS AG
c/o Goldman Sachs International
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England.
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 Goldman
Sachs International, Lehman Brothers International (Europe), Merrill Lynch
International, Morgan Stanley & Co. International Limited and UBS AG (the
"Underwriters") an aggregate of 1,750,000 shares (the "Firm Shares") and, at
the election of the Underwriters, up to 262,500 additional shares (the
"Optional Shares") of Class A Common Shares, $.00457 par value per share
("Stock"), of the Company. The Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares".
It is understood by all the parties that the Company is concurrently
entering into an agreement (the "U.S. Underwriting Agreement") providing for
the sale by the Company of 5,250,000 shares of Stock (exclusive of the
Underwriters' overallotment option), and the sale by the company and the
Selling Shareholders through an overallotment option of up to a total of
787,500 additional shares of stock (the 6,037,500 shares of stock offered
thereby are collectively, the "U.S. Shares"), through arrangements with
Goldman, Sachs & Co., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated, and Warburg Dillon Read
LLC, a subsidiary of UBS AG (the "U.S. Underwriters"). Anything herein or
therein to the contrary notwithstanding, the respective closings under this
Agreement and the U.S. Underwriting Agreement are hereby expressly made
conditional on one another.
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The Underwriters hereunder and the U.S. 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 and for
consultation by the Underwriters with Goldman, Sachs & Co. prior to exercising
the rights of the Underwriters under Section 7 hereof.
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 U.S. 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 U.S. Underwriting Agreement, and references herein 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.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their equivalent) in the
incorporated provisions to the "Underwriters" shall be to the Underwriters
hereunder, to the "Shares" shall be to the Shares hereunder as just defined, to
"this Agreement" (meaning therein the U.S. Underwriting Agreement) shall be to
this Agreement (except where this Agreement is already referred to or as the
context may otherwise require) and to the representatives of the Underwriters
or to Goldman, Sachs & Co. shall be to the addressees of this Agreement and to
Goldman Sachs International ("GSI"), and, in general, all such provisions and
defined terms shall be applied mutatis mutandis as if the incorporated
provisions were set forth in full herein having regard to their context in this
Agreement as opposed to the U.S. Underwriting Agreement.
1. The Company and the Selling Shareholders hereby make to the
Underwriters the same respective representations, warranties and agreements as
are set forth in Section 1 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to 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 and each of the Selling
Shareholders agrees, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly,
to purchase from the Company and each of the Selling Shareholders, 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.
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The Company and the Selling Shareholders, as and to the extent indicated
in Schedule II hereto, hereby grant severally and not jointly, to the
Underwriters the right to purchase at their election up to 262,500 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 shall be made in
proportion to the maximum number of Optional Shares to be sold by the Company
and each Selling Shareholder as set forth in Schedule II hereto; provided that
in the event of any election by the Underwriters pursuant to their right to
purchase Optional Shares, the Underwriters will exercise their overallotment
option first from the Selling Shareholders on a pro rata basis and then from
the Company. 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.
3. Upon the authorization by GSI 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 and in the forms of Agreement among
Underwriters (International Version) and Selling Agreements, which have been
previously submitted to the Company by you. Each Underwriter hereby makes to
and with the Company the representations and agreements of such Underwriter as
a member of the selling group contained in Sections 3(d) and 3(e) of the form
of Selling Agreements.
4. 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' notice to the
Company and the Selling Shareholders prior to a Time of Delivery (as defined
below), shall be delivered by or on behalf of the Company and the Selling
Shareholders 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 specified by
the Company and each of the Selling Shareholders. 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 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 [ ] 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".
The documents to be delivered each Time of Delivery by or on behalf of the
parties hereto pursuant to Section 7 of the U.S. Underwriting Agreement,
including the cross-receipt for the Shares
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and any additional documents requested by the Underwriters pursuant to Section
7(m) of the U.S. Underwriting Agreement will be delivered at the offices of
Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022 (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 2:00
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 hereby makes with the Underwriters the same agreements as
are set forth in Section 5 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
6. The Company and the Underwriters hereby agree with respect to certain
expenses on the same terms as are set forth in Section 6 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
7. Subject to the provisions of the Agreement between Syndicates, the
obligations of the Underwriters hereunder shall be subject, in their
discretion, at each Time of Delivery to the condition that all representations
and warranties and other statements of the Company and the Selling Shareholders
herein are, at and as of such Time of Delivery, true and correct, the condition
that the Company and the Selling Shareholders shall have performed all of their
respective obligations hereunder theretofore to be performed, and additional
conditions identical to those set forth in Section 7 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this reference.
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 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 or on behalf of
any Underwriter through GSI expressly for use therein.
(b) Each Selling Shareholder 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
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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, 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 Selling
Shareholder expressly for use therein; 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 such Selling Shareholder 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 GSI expressly for use
therein.
(c) 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 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 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 or on behalf of such Underwriter
through GSI 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.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) 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
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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.
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) 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 and the Selling Shareholders 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 (d) 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 and the Selling Shareholders 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 and the Selling Shareholders 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 and the Selling
Shareholders 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 or the Selling Shareholders on 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,
each of the Selling Shareholders and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (e) 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 (e). 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 (e) 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 (e), 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 (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
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(f) The obligations of the Company and the Selling Shareholders under this
Section 8 shall be in addition to any liability which the Company and the
respective Selling Shareholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls or is an
affiliate of 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 or any Selling Shareholder 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 and the Selling Shareholders 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
and the Selling Shareholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Shareholders notify you that they have
so arranged for the purchase of such Shares, you or the Company and the Selling
Shareholders 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 and
the Selling Shareholders 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 and the Selling Shareholders 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.
(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 and
the Selling Shareholders 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 and the Selling Shareholders 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
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of the Underwriters to purchase and of the Company and the Selling Shareholders
to sell the Optional Shares) shall thereupon terminate, without liability on
the part of any non-defaulting Underwriter or the Company or the Selling
Shareholders, except for the expenses to be borne by the Company and the
Selling Shareholders 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, the Selling Shareholders 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 of the Selling Shareholders or any
officer or director or controlling person of the Company, or any controlling
person of any Selling Shareholder, and shall survive delivery of and payment
for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Shareholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof;
but, if for any other reason, any Shares are not delivered by or on behalf of
the Company and the Selling Shareholders as provided herein, the Company will
reimburse the Underwriters through GSI for all out-of-pocket expenses approved
in writing by GSI, including reasonable 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 and
the Selling Shareholders 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 GSI on behalf of you as the Underwriters; and in all
dealings with any Selling Shareholder hereunder, you and the Company shall be
entitled to act and rely upon any statement, request, notice or agreement on
behalf of such Selling Shareholder made or given by any or all of the
Attorneys-in-Fact for such Selling Shareholder;
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 the Underwriters in care of GSI, Peterborough
Court, 133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital
Markets, Telex No. 94012165, facsimile transmission No. (171) 774-1550; if to
any Selling Shareholder shall be delivered or sent by mail, telex or facsimile
transmission to counsel for such Selling Shareholder at its address said forth
in Schedule II hereto; 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(d) 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 or the
Selling Shareholders by GSI upon request. Any such statements, requests,
notices or agreements shall take effect at the time of receipt thereof.
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13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Shareholder 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 and any Selling Shareholders
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. Time shall be of the essence of this Agreement.
15. 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 has appointed 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 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 of 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.
Each of the Selling Shareholders hereby appoints CT Corporation as its
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 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. Each of the Selling Shareholders represents and warrants
that CT Corporation has agreed to act as such agent for service of 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.
16. 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 and each Selling Shareholder, 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
9
<PAGE>
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 each Selling Shareholder 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.
17. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, United States of America.
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.
10
<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 among each of the Underwriters, the
Company and each of the Selling Shareholders. 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
(International Version), the form of which shall be furnished to the Company
and Selling Shareholders for examination upon request, but without warranty on
your part as to the authority of the signers thereof (except as to persons
signing on your behalf). Any person executing and delivering this Agreement as
Attorney-in-Fact for a Selling Shareholder represents by so doing that he has
been duly appointed as Attorney-in-Fact by such Selling Shareholder pursuant to
a validly existing and binding Power of Attorney which authorizes such
Attorney-in-Fact to take such action.
Very truly yours,
RSL Communications, Ltd.
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf of each
of the Selling Shareholders named in Schedule
II to this Agreement.
Accepted as of the date hereof:
Goldman Sachs International
Lehman Brothers International (Europe)
Merrill Lynch International
Morgan Stanley & Co. International Limited
UBS AG
By: Goldman Sachs International
By:
---------------------------------------
(Attorney-in-fact)
On behalf of each of the Underwriters
11
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Total Number of Shares
Firm to be Purchased if
Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- ------------------
<S> <C> <C>
Goldman Sachs International................................................
Lehman Brothers International (Europe).....................................
Merrill Lynch International................................................
Morgan Stanley & Co. International Limited.................................
UBS AG.....................................................................
Total...................................................................... 1,750,000 262,500
========= =======
</TABLE>
12
<PAGE>
SCHEDULE II
Selling Shareholders and the Company
Overallotment Option for International Offering
Seller Shares
Bukfenc, Inc. (a)................................ 50,000
Richard E. Williams (b).......................... 56,250
Nesim N. Bildrici (c)............................ 13,889
Tarlovsky Investment Partners, L.P. (d).......... 12,500
Company.......................................... 129,861
-------
Total 262,500
(a)(b)(c)(d) This Selling Shareholder is represented by Debevoise & Plimpton
located at 875 Third Avenue, New York, NY 10022 (attention:
George E.B. Maguire, Esq.) and has appointed Avery Fisher and
Jason Pollack, and each of them, as the Attorneys-in-Fact for
such Selling Shareholder.
13
<PAGE>
Exhibit 5.1
[LETTERHEAD OF CONYERS DILL & PEARMAN]
13 November, 1998
Securities and Exchange Commission
Judiciary Plaza
150 Fifth Street, NW
Washington, DC 20549
Gentlemen,
We have been requested by RSL Communications, Ltd. (the "Company"), a
Bermuda company, to furnish our opinion in connection with the
registration statement (the "Registration Statement") on Form S-1
(Registration Number 33-62325), with respect to the registration of
7,000,000 Class A Common Shares in the capital of the Company (the
"Shares"), par value $0.00457 per share.
We have made such examination as we have deemed necessary for the purpose of
this opinion. Based upon such examination, it is our opinion that, when the
Registration Statement has become effective under the United States
Securities Act of 1933, when the Shares have been qualified as required
under the laws of those jurisdictions in which they are to be issued and
sold and when the Shares have been sold, issued and paid for in the manner
described in the Registration Statement, the Shares will have been validly
issued and will be fully paid.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our name under the caption "Legal Matters" in
the prospectus included in the Registration Statement.
Yours faithfully
/s/ Conyers Dill & Pearman
<PAGE>
SHARE SUBSCRIPTION, SHARE OPTION
AND SHAREHOLDERS AGREEMENT
THIS AGREEMENT, is made the 10th day of June, 1998, BETWEEN
RSL COM Europe, Ltd., whose registered office is at 9 Old Queen Street London
SW1H 9JA (the "Company"), RSL Communications, Ltd., a Bermuda corporation whose
address for service in the United Kingdom is 9 Old Queen Street London SW1H 9JA
(the "Parent"), and Metro Holding AG, a Swiss Corporation whose address for
service in the United Kingdom is c/o Memery Crystal 31 Southampton Row, London
WC1B 5HT ("Metro").
WHEREAS,
(A) the Company and Metro desire to enter into a
five-year marketing and distribution
services agreement (the "Services
Agreement") substantially in the form of
Exhibit A;
(B) the Company has authorized share capital
consisting of 10,000,000 shares, par
value(pound).01 per share (the "Shares"),
and desires, in accordance with and subject
to the terms and conditions hereof, to
(a) issue and sell Shares to Metro, and
(b) grant to Metro an option to take up
and acquire additional Shares in the
Company;
(C) Metro desires, in accordance with and
subject to the terms and conditions
hereof, to grant to the Company an
option to purchase from Metro and
certain affiliates shares in each of TCE
Network AG, a Swiss corporation ("TCE"),
and Twister Communications Network AG, a
Swiss corporation ("TS");
<PAGE>
NOW, THEREFORE, to implement the foregoing and in
consideration of the agreements contained herein, the parties hereby agree as
follows:
CLAUSE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement and the
Schedules hereto, the following terms, not defined elsewhere, have the following
meanings:
Accepted Call Amount: the meaning given in Clause 8.3.
Additional Accepted Call Amount: the meaning given in Clause
8.3.
Additional Option: the meaning given in Clause 4.1.
Additional Option Aggregate Exercise Price: the meaning given
in Clause 4.4(b)(i)(A).
Additional Option Completion Date: the meaning given in Clause
4.4(a).
Additional Option Exercise Shares: the meaning given in Clause
4.4(a).
Additional Option Per Share Exercise Price: the meaning given
in Clause 4.1.
Additional Option Shares: the meaning given in Clause 4.1.
Additional Option Termination Date: the meaning given in
Clause 4.2.
Affiliate: with respect to any Person, a Person that directly
or indirectly through one or more inter-
2
<PAGE>
mediaries, controls, is controlled by, or is under common control with such
Person. "Control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a person, whether through
the ownership of voting securities, by contract or credit arrangement, as
trustee or executor, or otherwise.
Alternative Purchase Completion Date: the meaning given in
Clause 3.3(b).
Alternative Purchase Notice: the meaning given in Clause
3.3(b).
Alternative Purchase Shares Per Share Purchase Price: the
meaning given in Clause 3.3(a).
Alternative Purchase Shares Purchase Price: the meaning given
in Clause 3.3(e)(i)(A).
Alternative Purchase Valuation Date: the meaning given in
Clause 3.3(b).
Applicable Securities Laws: all laws, rules and regulations of
any Governmental Entity of competent jurisdiction applicable to any Transfer of
Shares, Parent Shares, Telegate Shares or Twister Shares, as the case may be.
Appraiser: the meaning given in Clause 9.1.
Board: the meaning given in Clause 12.1.
Business Day: any day other than a Saturday, a Sunday, or a
day on which commercial banking institutions are authorized or required by law
to be closed in London.
Call Acceptance: the meaning given in Clause 8.3.
Capital Call: the meaning given in Clause 8.1.
3
<PAGE>
Capital Call Amount: the meaning given in Clause 8.2.
Capital Call Completion Date: the meaning given in Clause
8.4(a).
Capital Call Notice: the meaning given in Clause 8.2.
Capital Call Shares: the meaning given in Clause 8.1.
Capital Contributions: the meaning given in Clause 8.1.
Commission: the United States Securities and Exchange
Commission.
Company: the meaning given in the introductory paragraph of
this Agreement.
Consent: any consent, approval, authorization, order, notice,
filing, registration or qualification of or with or waiver from any Person.
Covered Shares: any and all of the Subscription Shares,
Telegate Exchange Shares, Additional Option Shares, Capital Call Shares and
Pre-emptive Shares and any Parent Shares delivered to Metro or Ligapart pursuant
to Clause 6.4(b)(ii)(B).
Delta Three: the meaning given in Clause 17.1.
Earliest Twister Option Completion Date: the meaning given in
Clause 7.4(a).
Equity Value: the meaning given in Clause 3.3(b).
Equity Value Determination Date: in respect of any occasion
that a determination of the Equity Value is required pursuant to Clause 3.3(b)
or 6.1(b), the date on
4
<PAGE>
which the Equity Value is finally determined in accordance with Clause 9.
Fully-Diluted TCE Shares: the meaning given in Clause 7.1(b).
Fully-Diluted TS Shares: the meaning given in Clause 7.1(b).
Governmental Entity: any governmental or regu latory
authority, agency, court, commission or other entity, domestic or foreign.
Income Tax: any federal, state, provincial, local or foreign
income, alternative, minimum, accumulated earnings, personal holding company,
franchise, capital stock, net worth, capital, profits or windfall profits tax or
other similar tax, estimated tax, duty or other governmental charge or
assessment or deficiencies thereof.
Independent Appraiser: the meaning given in Clause 9.2.
IPO: the meaning given in Clause 6.3(b).
Ligapart: the meaning given in Clause 2.3(b)(iii).
Lock-Up Period: any period, not to exceed 90 days, during
which any holders of Parent Shares are obligated pursuant to or in connection
with previously granted registration rights, to refrain from selling such Parent
Shares in connection with an underwritten offering of Parent Shares.
Material Adverse Effect: with respect to the Company, the
Parent or Metro, a material adverse effect (a) on the properties, assets,
liabilities, business, financial condition or results of operations of such
Person and its Subsidiaries taken as a whole or (b) that would have a material
adverse effect on the ability of such Person to
5
<PAGE>
consummate the transactions contemplated by this Agreement, the Escrow Agreement
or the Services Agreement.
Metro: the meaning given in the introductory paragraph of this
Agreement.
Metro Invested Amount: the meaning given in Clause 7.1(b).
Metro Put: the meaning given in Clause 6.1(a).
Metro Put Termination Date: the meaning given in Clause 6.2.
New Issue Shares: the meaning given in Clause 12.3(a).
New Issue Shares Purchase Completion Date: the meaning given
in Clause 12.3(d).
New Issue Shares Purchaser: the meaning given in Clause
12.3(a).
Non-Compete Period: the meaning given in Clause 13.1.
Outstanding: when used with reference to Shares, at any date
as of which the number of shares thereof is to be determined, all issued Shares
except Shares then held in treasury by the Company.
Parent: the meaning given in the introductory paragraph of
this Agreement.
Parent Shares: the meaning given in Clause 5.1.
Person: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Entity or other
entity.
6
<PAGE>
Pre-emptive Right: the meaning given in Clause 12.3(a).
Pre-emptive Shares: the meaning given in Clause 12.3(a).
Pre-emptive Shares Purchase Notice: the meaning given in
Clause 12.3(e).
Proportionate Share: the meaning given in Clause
8.3(a)(ii)(B).
Prospectus: the prospectus included in any Shelf Registration
Statement, including all amendments (including, but not limited to,
post-effective amendments) and supplements to such prospectus and all material
incorporated by reference in such prospectus.
Purchase Price for Subscription Shares: the meaning given in
Clause 2.2.
Put Completion Date: the meaning given in Clause 6.4(a).
Put Exercise Notice: the meaning given in Clause 6.4(a).
Put Exercise Price: the meaning given in Clause 6.1(a).
Put Exercise Shares: the meaning given in Clause 6.4(a).
Put Shares: the meaning given in Clause 6.1(a).
Put Valuation Date: the meaning given in Clause 6.1(b).
Registrable Parent Shares: Parent Shares delivered pursuant to
Clause 6.4(b)(ii)(B) to, and held by, Metro and/or Ligapart or a controlled
Affiliate of Metro,
7
<PAGE>
provided that any particular Registrable Parent Shares shall cease to be
Registrable Parent Shares when (a) a Shelf Registration Statement with respect
to the sale of Registrable Parent Share shall become effective under the
Securities Act and such Registrable Parent Shares shall have been disposed of in
accordance with such Shelf Registration Statement or (b) such Registrable Parent
Shares shall have been distributed to the public pursuant to Rule 144 under the
Securities Act.
Registration Statement: the meaning given in Clause 15.7.
Registration Termination Date: the meaning given in Clause
6.6(a).
Right of Refusal Holder: the minority shareholder of TCE.
Securities Act: the United States Securities Act of 1933, as
amended.
Selling Holder: in connection with any registration of
Registrable Parent Shares pursuant to Clause 6.6, the holder of such Registrable
Parent Shares.
Services Agreement: the meaning given in WHEREAS Clause (A).
Shareholders: the meaning given in Clause 8.1.
Shares: the meaning given in WHEREAS Clause (B).
Shelf Registration Statement: a registration statement of the
Company on the appropriate form filed pursuant to Rule 415 under the Securities
Act covering Registrable Parent Shares, including the Prospectus contained
therein, all amendments (including, but not limited to, post-effective
amendments) and supplements to such registration statement, all exhibits to such
8
<PAGE>
registration statements and all material incorporated by reference in such
registration statement.
Specified Companies: the meaning given in Clause 13.1.
Specified Twister Option Completion Date: the meaning given in Clause 7.4(a).
Subscribed Amount: the meaning given in Clause 8.3.
Subscribing Shareholder: the meaning given in Clause 8.3.
Subscription Shares: the meaning given in Clause 2.2.
Subsidiary: with respect to any Person (the "First Person"),
any other Person (other than a natural person), whether incorporated or
unincorporated, of which at least a majority of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is directly or
indirectly owned or controlled by the First Person or by one or more of its
respective Subsidiaries or by the First Person and any one or more of its
respective Subsidiaries.
TCE: the meaning given in WHEREAS Clause (C).
TCE Option Exercise Price: the meaning given in Clause 7.1(a).
TCE Shares: the meaning given in Clause 7.1(a).
Telegate: Telegate Holding GmbH.
Telegate AG: Telegate Aktiengesellschaft fur telefonische
Inforormationsdienste.
9
<PAGE>
Telegate Agreement: the Option Agreement dated May 28, 1998
between Metro Vermogensverwaltung GmbH & Co. Kommanditgesellschaft, Walter
Telemarketing und Vertrieb GmbH & Co. KG, Invision AG, the Company and RSL Com
Deutschland GmbH.
Telegate Agreement Notice: the meaning given in Clause 3.3(a).
Telegate EBITDA: for any period the consolidated earnings
before interest, taxes, depreciation and amortization of Telegate AG for such
period, determined on the same basis as used in preparing Telegate AG's audited
annual accounts for 1997.
Telegate Exchange Shares: the meaning given in Clause 3.1.
Telegate Shares: ordinary shares of Telegate representing 25%,
on a fully-diluted basis of the Shares of Telegate AG, beneficially owned by
Metro and its controlled Affiliates.
Transfer: with respect to any property and any Person, any
transfer, sale, pledge hypothecation or other disposition of such Property by
such Person.
TS: the meaning given in WHEREAS Clause (C).
TS Option Exercise Price: the meaning given in Clause 7.1(a).
TS Shares: the meaning given in Clause 7.1(a).
Twister Option: the meaning given in Clause 7.1(a).
Twister Option Completion Date: the meaning given in Clause
7.4(a).
10
<PAGE>
Twister Option Exercise Notice: the meaning given in Clause
7.4(a).
Twister Option Termination Date: the meaning given in Clause
7.2.
Twister Right of First Refusal: the right of first refusal in
favor of the Right of Refusal Holder with respect to the TCE Shares.
Twister Shares: the TCE Shares and the TS Shares.
Valuation Notice: the meaning given in Clause 9.1.
1.2 Other Definitional Provisions. (a) The words "hereof",
"herein" and "hereunder" and words of simi lar import, when used in this
Agreement, refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(b) Terms defined in the singular have the same meaning when
used in the plural, and vice versa.
(c) References to "Clauses", "Exhibits" and "Schedules" refer
to Clauses of, and Exhibits and Schedules to, this Agreement (as each of the
same may be amended in accordance with the terms hereof), unless otherwise
specified.
CLAUSE 2
SERVICES AGREEMENT; PURCHASE AND SALE OF SHARES
2.1 Services Agreement. Concurrently herewith, the Company and
Metro are entering into the Services Agreement.
2.2 Purchase and Sale of Shares. Subject to the terms and
conditions hereof, Metro is hereby purchasing from the Company, and the Company
is hereby issuing and selling to Metro, 142,857 Shares (the "Subscription
Shares") for an
11
<PAGE>
aggregate purchase price of $45,000,000 (the "Purchase Price for Subscription
Shares").
2.3 Deliveries. Concurrently herewith:
(a) Metro is:
(i) delivering to the Company a duly executed
counterpart of the Services Agreement;
(ii) paying to the Company the Purchase Price for
Subscription Shares in the manner provided in Clause
2.3(b)(ii); and
(iii) a written Declaration in the form of Exhibit B
hereto dated the date hereof and duly executed by Metro and
Metro Vermogensverwaltung GmbH & Co. Kommanditgesellschaft;
and
(b) the Company is:
(i) delivering to Metro a duly executed
counterpart of the Services Agreement; and
(ii) paying to Metro, in part consideration for the
execution and delivery by Metro of the Services Agreement, an
aggregate of $45,000,000, which amount shall be retained by
the Company as payment in full by Metro of the Purchase Price
for the Subscription Shares; and
(iii) written confirmation of the entry of Ligapart
AG, a wholly owned Subsidiary of Metro ("Ligapart"), in the
Company's Register of members, with an undertaking of counsel
to the Company that a share certificate registered in the name
of Ligapart evidencing the Subscription Shares and bearing the
legends set forth in Clause 10 will be delivered to Metro upon
issuance; and
12
<PAGE>
(iv) an opinion of counsel to the Company, in form
and substance satisfactory to Metro, that the Subscription
Shares have been duly authorized and, assuming that they have
been issued and paid for in accordance with the terms of this
Agreement, have been validly issued and are fully paid and
nonassessable.
CLAUSE 3
EXCHANGE FOR THE TELEGATE SHARES
3.1 The Exchange. If the Company shall acquire the Telegate
Shares pursuant to the Telegate Agreement, the Company shall issue to Metro as
payment in full of the purchase price therefor 89,209 Shares (the "Telegate
Exchange Shares") in accordance with this Clause 3. The Company and Metro agree
that, pursuant to Clause 2.4 of the Telegate Agreement, Metro shall have the
right to require the Company to acquire the Telegate Shares only if the Telegate
EBITDA shall have been positive for a three month period ending on or before May
31, 1999.
3.2 Completion of the Exchange. On the date on which the
Company is to acquire the Telegate Shares pursuant to the Telegate Agreement,
subject to the satisfaction or waiver of all conditions to such acquisition
thereunder:
(a) Metro shall deliver, or cause its Affiliates to deliver,
to the Company:
(i) a duly executed and notarized public deed,
complying with German law, evidencing the transfer of the
Telegate Shares to the Company; and
(ii) a certificate duly executed by Metro and its
Affiliates confirming, (A) with respect to the Telegate
Exchange Shares, the representations and warranties set forth
in Clauses 16.8, 16.9 and 16.10 and (B) with respect to the
Telegate Shares,
13
<PAGE>
the representations and warranties set forth in Clause
16.7(b); and
(b) the Company shall deliver to Metro:
(i) under seal, one or more share certificates
representing the Telegate Exchange Shares registered in the
name of Metro or, at Metro's request, Ligapart and bearing the
legends set forth in Clause 10;
(ii) an opinion of counsel to the Company, in form
and substance reasonably satisfactory to Metro, that the
Telegate Exchange Shares have been duly authorized and,
assuming that they have been issued and the Telegate Shares
delivered to the Company in accordance with the terms of this
Agreement, have been validly issued and are fully paid and
nonassessable;
(iii) a certificate duly executed by the Company
confirming with respect to the Telegate Shares the
representations and warranties set forth in Clause 14.8, 14.9
and 14.10.
3.3 Alternative Purchase. (a) In the event that on and after
June 1, 1999, and prior to December 31, 1999, Metro shall have requested the
Company by written notice given in accordance with the Telegate Agreement (a
"Telegate Agreement Notice") to acquire the Telegate Shares pursuant to the
Telegate Agreement and the Company shall have refused (it being understood that
Metro shall not be entitled to require the Company to acquire the Telegate
Shares in accordance with the Telegate Agreement and Clause 3.1 subsequent to
May 31, 1999), (i) Metro shall have the right to purchase the Telegate Exchange
Shares at a purchase price per share determined in accordance with Clause 3.3(b)
(the "Alternative Purchase Shares Per Share Purchase Price") and (ii) the
Company shall, as Metro may reasonably request, cooperate in effecting a sale of
the Telegate Shares to a third party.
14
<PAGE>
(b) For the purposes of determining the Alternative Purchase
Shares Per Share Purchase Price, following delivery by Metro of an Alternative
Purchase Notice (as defined in Clause 3.3(d)), the Company and Metro will cause
the equity value of the Company (the "Equity Value") as of the date determined
in accordance with Clause 3.3(c) (the "Alternative Purchase Valuation Date") to
be determined in accordance with Clause 9. The Alternative Purchase Shares Per
Share Purchase Price shall equal the quotient obtained by dividing the Equity
Value as of the Alternative Purchase Valuation Date by the number of Shares
Outstanding as of the Alternative Purchase Valuation Date.
(c) The Alternative Purchase Valuation Date shall be (i) June
30, 1999, if (A) the Telegate EBITDA shall have been positive for the
three-month period ending as of the most recent month end prior to the date on
which the Telegate Agreement Notice is given and (B) the Telegate Agreement
Notice is given on or before September 30, 1999, and (ii) December 31, 1999, in
all other cases.
(d) Metro may exercise its right to purchase the Telegate
Exchange Shares pursuant to this Clause 3.3 by written notice (an "Alternative
Purchase Notice") given to the Company within ten days after the Company's
refusal to acquire the Telegate Shares following receipt of a Telegate Agreement
Notice. The completion of the purchase of the Alternative Purchase Shares
pursuant to this Clause 3.3 shall be effected on the date (the "Alternative
Purchase Completion Date") that is the fifteenth Business Day after the Equity
Value Determination Date in respect of such purchase.
(e) On the Alternative Purchase Completion Date:
(i) Metro shall deliver to the Company:
(A) by wire transfer of immediately available funds
to an account designated in writing by the Company to Metro at
least two Business days prior to the Alternative Purchase
Completion Date, an
15
<PAGE>
amount (the "Alternative Purchase Shares Purchase Price")
equal to the product of 89,209 and the Alternative Purchase
Shares Per Share Purchase Price;
(B) a certificate duly executed by Metro confirming
with respect to the Telegate Exchange Shares the
representations and warranties set forth in Clause 16.8, 16.9
and 16.10; and
(ii) the Company shall deliver to Metro:
(A) under seal, one or more share certificates
representing the Telegate Exchange Shares registered in the
name of Metro or, at Metro's request, Ligapart and bearing the
legends set forth in Clause 10; and
(B) an opinion of counsel to the Company, in form and
substance reasonably satisfactory to Metro, that the Telegate
Exchange Shares have been duly authorized and, assuming that
they have been issued and paid for in accordance with the
terms of this Agreement, have been validly issued and are
fully paid and nonassessable.
3.4 Payment of Taxes and Expenses. (a) Except as otherwise
provided herein, the Company shall pay all expenses in connection with, and all
taxes and other governmental charges that may be imposed with respect to, the
issuance or delivery of the Telegate Exchange Shares, unless such tax or charge
is imposed by law upon Metro, in which case such taxes or charges shall be paid
by Metro, who shall be reimbursed therefor by the Company, provided that in no
case will the Company be liable for any Income Taxes of Metro or its Affiliates.
The Company shall not be required, however, to pay any tax or other charge
imposed in connection with any transfer arising out of the issuance of any share
certificate for Telegate Exchange Shares in any name other than that of Metro or
Ligapart, and in such case the Company shall not be required to issue or deliver
any
16
<PAGE>
share certificate until such tax or other charge has been paid or satisfied
or it has been established to the satisfaction of the Company that no such tax
or other charge is due.
(b) Except as otherwise provided herein, Metro shall pay all
expenses in connection with, and all taxes and other governmental charges that
may be imposed with respect to, the transfer and delivery of the Telegate
Shares, unless such tax or charge is imposed by law upon the Company, in which
case such taxes or charges shall be paid by the Company, who shall be reimbursed
therefor by Metro, provided that in no case will Metro be liable for any Income
Taxes of the Company or its Affiliates. Metro shall not be required, however, to
pay any tax or other charge imposed in connection with any transfer arising out
of the issuance of any share certificate for Telegate Shares in any name other
than that of the Company or a Subsidiary of the Company, and in such case Metro
shall not be required to deliver any share certificate until such tax or other
charge has been paid or satisfied or it has been established to the satisfaction
of Metro that no such tax or other charge is due.
3.5 No Rights as Stockholder. Metro will not have any voting
or other rights as a stockholder of the Company with respect to any Telegate
Exchange Shares until the issuance to Metro of a share certificate or
certificates representing the Telegate Exchange Shares. No adjustment shall be
made for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
3.6 Reservation and Authorization of Shares. The Company
shall at all times reserve and keep available for issuance authorized but
unissued Shares in the number of the Telegate Exchange Shares. The Telegate
Exchange Shares when issued against receipt of the Telegate Shares or the
Alternative Purchase Shares Purchase Price, as the case may be, as provided in
this Clause 3, shall be duly and validly issued and fully paid and
nonassessable.
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CLAUSE 4
THE ADDITIONAL OPTION
4.1 Additional Option. In consideration of the sum of $1 now
paid by Metro to the Company (receipt of which the Company hereby acknowledges),
the Company hereby grants to Metro, an option (the "Additional Option") to
purchase, subject to the terms and conditions hereof, up to 17,934 Shares (the
"Additional Option Shares") at a purchase price per Share of $315 (the
"Additional Option Per Share Exercise Price").
4.2 Duration. The Additional Option shall terminate at 5:00
p.m., New York City time, on September 8, 1998 (the "Additional Option
Termination Date"). In addition, if the Additional Option is exercised in part,
the unexercised portion of such Option shall terminate immediately after giving
effect to such partial exercise.
4.3 Exercisability. The Additional Option may be exercised on
one occasion in whole or in part at any time on and after the date hereof,
through and including the Additional Option Termination Date.
4.4 Manner of Exercise. (a) The Additional Option may be
exercised by written notice to the Company given not fewer than ten and not more
than 45 days prior to the Business Day on which such Option is to be exercised
(the "Additional Option Completion Date"), specifying the Additional Option
Completion Date and the percentage of the Additional Option Shares with respect
to which such Option is being exercised (the "Additional Option Exercise
Shares").
(b) On the Additional Option Completion Date:
(i) Metro shall deliver to the Company:
(A) by wire transfer of immediately available funds
to an account designated in writing by the Company to Metro at
least two Business days prior
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to the Additional Option Completion Date, an amount (the
"Additional Option Aggregate Exercise Price") equal to the
product of number of Additional Option Exercise Shares and the
Additional Option Per Share Exercise Price;
(B) a certificate duly executed by Metro confirming
with respect to the Additional Option Exercise Shares the
representations and warranties set forth in Clause 16.8, 16.9
and 16.10; and
(ii) the Company shall deliver to Metro:
(A) under seal, one or more share certificates
representing the Additional Option Exercise Shares registered
in the name of Metro or, at Metro's request, Ligapart and
bearing the legends set forth in Clause 10; and
(B) an opinion of counsel to the Company, in form and
substance reasonably satisfactory to Metro, that the
Additional Option Exercise Shares have been duly authorized
and, assuming that they have been issued and paid for in
accordance with the terms of this Agreement, have been validly
issued and are fully paid and nonassessable.
4.5 Payment of Taxes and Expenses. Except as otherwise
provided herein, the Company shall pay all expenses in connection with, and all
taxes and other governmental charges that may be imposed with respect to, the
issuance or delivery of the Additional Option and the Additional Option Exercise
Shares, unless such tax or charge is imposed by law upon Metro, in which case
such taxes or charges shall be paid by Metro, who shall be reimbursed therefor
by the Company, provided that in no case will the Company be liable for any
Income Taxes of Metro or its Affiliates. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
arising out of the issuance of any share certificate for Exercise Shares in any
name other than that
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of Metro or Ligapart, and in such case the Company shall not be required to
issue or deliver any share certificate until such tax or other charge has been
paid or satisfied or it has been established to the satisfaction of the Company
that no such tax or other charge is due.
4.6 No Rights as Stockholder. Metro will not, as holder of the
Additional Option, have any voting or other rights as a stockholder of the
Company with respect to any Additional Option Shares until the exercise of the
Additional Option and the issuance to Metro of a share certificate or
certificates representing the Additional Option Exercise Shares. No adjustment
shall be made for dividends or other rights for which the record date is prior
to the issuance of such certificate or certificates.
4.7 Reservation and Authorization of Shares. The
Company shall at all times reserve and keep available for issuance upon the
exercise of the Additional Option such number of its authorized but unissued
Shares as will be sufficient to permit the exercise in full of the Additional
Option. All Shares issued upon exercise of the Additional Option and payment
therefor, all in accordance with the terms hereof, shall be duly and validly
issued and fully paid and nonassessable.
CLAUSE 5
THE PARENT EXCHANGE
5.1 The Exchange Option. During the period from and including
the date hereof through and including June 21, 1998, the Parent, the Company and
Metro will negotiate in good faith the terms on which Metro would exchange the
Subscription Shares and the Additional Option Shares and Telegate Exchange
Shares, or its right to acquire the Additional Option Shares and the Telegate
Exchange Shares, for Class A common shares, par value $.00457 per share, of the
Parent ("Parent Shares"). None of the parties will have any obligations with
respect to such an exchange unless and
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until they shall enter into definitive
agreements with respect thereto.
CLAUSE 6
THE METRO PUT
6.1 Metro Put. (a) In consideration of the sum of $1 now paid
by Metro to the Company (receipt of which the Company hereby acknowledges), the
Company hereby grants to Metro an option (the "Metro Put") to require the
Company to purchase from Metro, subject to the terms and conditions hereof, at
such purchase price per share as shall be determined in accordance with Clause
6.1(b) (the "Put Exercise Price"), any and all Subscription Shares, Telegate
Exchange Shares, Additional Option Shares and Capital Call Shares issued to
Metro and/or Ligapart (the "Put Shares").
(b) For the purposes of determining the applicable Put
Exercise Price in respect of any exercise of the Metro Put, following delivery
by Metro of a Put Exercise Notice (as defined in Clause 6.4(a)), the Company and
Metro will cause the Equity Value as of December 31 of the year immediately
preceding the year in which such Put Exercise Notice is given (the "Put
Valuation Date") to be determined in accordance with Clause 9. The applicable
Put Exercise Price in respect of such exercise of the Metro Put shall equal the
quotient obtained by dividing the Equity Value as of such Put Valuation Date by
the number of Shares Outstanding as of such Put Valuation Date.
(c) The Company may, at its option, pay the aggregate Put
Exercise Price in respect of any exercise of the Metro Put in cash or Parent
Shares or any combination of cash and Parent Shares. For the purposes of this
Clause 6, the value of a Parent Share used to pay any portion of the Put
Exercise Price in respect of any exercise of the Metro Put shall equal the
average closing price (or, if no closing sale price is reported, the last
reported sale price) of one Parent Share as reported by The NASDAQ National
Market for the 30 trading days immediately preceding the Put Completion
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Date (as defined in Clause 6.4(a)) for such exercise of the Metro Put. If the
Company elects to exercise its option to pay any portion of the aggregate Put
Exercise Price in respect of any exercise of the Metro Put in Parent Shares, the
Company shall give written notice of such election to Metro not later than ten
Business Days prior to the Put Completion Date for such exercise of the Metro
Put.
6.2 Duration. The Metro Put shall terminate at 5:00 p.m. New
York City time on June 10, 2005 (the "Metro Put Termination Date").
6.3 Exercisability. (a) The Metro Put may be exercised on one
occasion in each calender year, commencing 2001, through and including the Metro
Put Termination Date. On each occasion the Metro Put may be exercised with
respect to a number of Put Shares up to, but not in excess of, one-third of the
aggregate number of Subscription Shares, Telegate Exchange Shares, Additional
Option Shares and Capital Call Shares issued to Metro and/or Ligapart. For the
purposes of this Clause 6, with respect to any exercise of the Metro Put, such
exercise shall be deemed to be first in respect of Subscription Shares, Telegate
Exchange Shares and Capital Call Shares then owned by Metro and/or Ligapart and
only to the extent that no such Shares remain, with respect to Additional Option
Shares.
(b) Notwithstanding anything to the contrary in this Clause 6,
the Metro Put may not be exercised with respect to any Put Shares if, on or
prior to the Put Completion Date on which Metro or Ligapart seek to exercise the
Metro Put with respect to such Put Shares, the Company shall have completed a
bona fide public offering of Shares on a firm commitment basis pursuant to a
registration statement filed under the Securities Act or other Applicable
Securities Laws, which offering is underwritten by a syndicate of underwriters
led by one or more underwriters at least one of which is an underwriter of
nationally re cognized standing (an "IPO").
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6.4 Manner of Exercise. (a) The Metro Put may be exercised by
written notice (a "Put Exercise Notice") to the Company given on or prior to
March 31 of the year in which the Metro Put is being exercised, specifying the
number of Put Shares with respect to which the Metro Put is being exercised (the
"Put Exercise Shares"). The completion of each exercise of the Metro Put shall
be effected on the date (the "Put Completion Date") that is (i) if any portion
of the Put Exercise Price is being paid in Parent Shares, the 15th Business Day
after the Equity Value Determination Date in respect of such exercise of the
Metro Put, or (ii) if no portion of the Put Exercise Price is being paid in
Parent Shares, the fifth Business Day after the Equity Value Determination Date
in respect of such exercise of the Metro Put.
(b) On each Put Completion Date:
(i) Metro shall deliver to the Company:
(A) one or more share certificates representing the
Put Exercise Shares, accompanied by stock transfer forms or
other instruments of transfer duly executed in blank, and duly
stamped; and
(B) and in the event any portion of the Put Exercise
Price is paid in Parent Shares, a certificate duly executed by
Metro confirming with respect to such Parent Shares the
representations and warranties set forth in Clause 16.8, 16.9
and 16.10; and
(ii) the Company shall deliver to Metro:
(A) to the extent the Put Exercise Price is paid in
cash, immediately available funds to an account designated in
writing by Metro to the Company at least two Business Days
prior to the Put Completion Date;
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(B) to the extent the Put Exercise Price is paid in
Parent Shares:
(1) one or more share certificates
representing such Parent Shares registered in the
name of Metro or, at Metro's request, Ligapart and
bearing the legend set forth in Clause 10.1(a);
(2) an opinion of counsel to the Parent, in
form and substance reasonably satisfactory to Metro,
that such Parent Shares have been duly authorized
and, assuming that they have been issued and the Put
Exercise Shares delivered to the Company in
accordance with the terms of this Agreement, have
been validly issued and are fully paid and
nonassessable.
(c) Notwithstanding anything to the contrary in this Clause 6,
the provisions of this Clause 6.4(c) shall apply to any exercise of the Metro
Put with respect to any Additional Option Shares. The Put Completion Date with
respect to any Additional Option Shares shall be no earlier than the date that
is 30 days after receipt by the Company of the related Put Exercise Notice. From
and after such date through and including such Put Completion Date, Metro and
the Company shall cooperate to find a third party satisfactory to the Company to
purchase such Additional Option Shares for cash in an amount at least equal to
the Put Exercise Price payable in respect of such Additional Option Shares on a
date that is not later than such Put Completion Date. If the Company shall, on
or prior to such Put Completion Date, give Metro written notice of a binding
written offer of a third party (which notice shall include a copy of such offer)
to purchase such Additional Option Shares for cash in such amount on such Put
Completion Date, such third party shall purchase such Additional Option Shares
on such Put Completion Date in lieu of the Company. If no such notice is given,
or if such notice is given and such third party fails to so purchase such
Additional Option
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Shares, the Company shall purchase such Additional Option Shares on such Put
Completion Date in accordance with Clause 6.4(b).
6.5 Payment of Taxes and Expenses. Except as otherwise
provided herein, the Parent shall pay all expenses in connection with, and all
taxes and other governmental charges that may be imposed with respect to, the
issuance or delivery of Parent Shares in payment of any portion of the Put
Exercise Price, unless such tax or charge is imposed by law upon Metro, in which
case such taxes or charges shall be paid by Metro, who shall be reimbursed
therefor by the Parent, provided that in no case will the Company be liable for
any Income Taxes of Metro or its Affiliates. The Parent shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
arising out of the issuance of any share certificate for Parent Shares in any
name other than that of Metro or Ligapart, and in such case the Parent shall not
be required to deliver any share certificate until such tax or other charge has
been paid or satisfied or it has been established to the satis faction of the
Parent that no such tax or other charge is due.
6.6 Registration Rights. (a) In the event that Metro and/or
Ligapart shall receive any Parent Shares pursuant to Clause 6.4(b)(ii)(B), the
Parent shall, in accordance with Clause 6.7, use its reasonable best efforts to
(a) cause to be filed with, and declared effective by, the Commission a Shelf
Registration Statement covering such Parent Shares and (b) keep such Shelf
Registration Statement continuously effective and the Prospectus included
therein available for resales of such Parent Shares until the date (the
"Registration Termination Date") that is the earlier to occur of (i) the second
anniversary of the date of delivery of such Parent Shares to Metro and/or
Ligapart and (ii) such time as all such Parent Shares shall have been sold
pursuant to such Shelf Registration Statement or shall have ceased to be
Registrable Parent Shares.
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(b) Notwithstanding Clause 6.6(a), during any consecutive
365-day period, the Company may suspend availability of any Shelf Registration
Statement and the Prospectus included therein for (i) up to two consecutive
30-day periods, if the Parent's Board of Directors determines in good faith that
there is a valid purpose for such suspension and (ii) five additional,
non-consecutive 3-day periods, if the Parent's Board of Directors determines in
good faith that the Parent cannot provide adequate disclosure during such period
due to circumstances beyond its control. Written notice of any such suspension
shall be given promptly to Metro. In addition, neither Metro nor Ligapart shall
sell any Parent Shares pursuant to any Shelf Registration Statement during any
Lock-Up Period and the Parent shall not be required to maintain the availability
of any Shelf Registration Station or the Prospectus included therein during such
Lock-Up Period.
(c) Nothing shall prohibit the Parent from including in any
Shelf Registration Statement Parent Shares held by Persons other than Metro and
Ligapart that are required to be included therein pursuant to registration
rights previously granted to such Persons.
6.7 Registration Procedures. If and whenever the
Parent is required to effect the registration of any
Registrable Parent Shares under the Securities Act pursuant
to Clause 6.6, the Parent will:
(a) prepare and file with the Commission as soon as
practicable a Shelf Registration Statement with respect to such
Registrable Parent Shares and use its best efforts to cause such Shelf
Registration Statement to become effective;
(b) until the Registration Termination Date, prepare and file
with the Commission such amendments and supplements to such Shelf
Registration Statement and the Prospectus as may be necessary to keep
such Shelf Registration Statement effective and to comply with the
Securities Act and the rules and regulations
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thereunder with respect to the disposition of all Registrable Parent
Shares covered by such Shelf Registration Statement;
(c) furnish to each Selling Holder such number of conformed
copies of such Shelf Registration Statement and of each such amendment
and supplement thereto (in each case including all exhibits), such
number of copies of the Prospectus included in such Shelf Registration
Statement (including each preliminary prospectus and any summary
prospectus) in conformity with the requirements of the Securities Act,
such documents, if any, incorporated by reference in such Shelf
Registration Statement or Prospectus, and such other documents, as such
Selling Holder may reasonably request;
(d) furnish to each Selling Holder a signed coun terpart,
addressed to such Holder, of (i) an opinion of counsel for the Parent,
dated the effective date of such Shelf Registration Statement and (ii)
a "comfort" letter, dated the effective date of such Shelf Registration
Statement, signed by the independent public accountants who have
certified the Parent's financial statements included in such Shelf
Registration Statement, covering substantially the same matters with
respect to such Shelf Registration Statement (and the Prospectus
included therein) and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten
offerings of securities;
(e) promptly notify each Selling Holder (i) when or if the
Prospectus or any prospectus supplement or post-effective amendment has
been filed, and, with respect to the Shelf Registration Statement or
any post-effective amendment, when the same has become effective, (ii)
of any request by the Commission for
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amendments or supplements to the Shelf Registration Statement or the
Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Shelf
Registration Statement or the initiation of any proceedings for that
purpose and (iv) of the existence of any fact which makes any statement
made in the Shelf Registration Statement, the Prospectus or any
document incorporated therein by reference untrue or which requires the
making of any changes in the Shelf Registration Statement, the
Prospectus or any document incorporated therein by reference in order
to make the statements therein not misleading;
(f) if any fact contemplated by subclause (iv) of Clause
6.7(e) shall exist, prepare a supplement or post-effective amendment to
the Shelf Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchaser of the
Registrable Parent Shares the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein not mislead ing;
(g) use reasonable efforts to obtain the with drawal of any
order suspending the effectiveness of the Shelf Registration Statement
at the earliest possible moment;
(h) cause all Registrable Parent Shares covered by such Shelf
Registration Statement to be listed on each securities exchange or any
automated quotation system on which Parent Shares are then listed; and
(i) give each Selling Holder and its under writers, if any,
and their respective counsel and accountants, the opportunity to
participate in the preparation of such Shelf Registration Statement,
each Prospectus included therein or filed with the Com-
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mission, and each amendment thereof or supplement thereto, and, upon
reasonable notice and at reasonable times, each of them such access to
its books and records and such opportunities to discuss the business of
the Parent with its officers and the independent public accountants who
have certified its financial statements as shall be necessary, in the
opinion of such Holders and such underwriters or their respective
counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
Metro agrees to furnish and to cause Ligapart to furnish to
the Parent such information regarding such Selling Holder and the distribution
of its Registrable Parent Shares being registered as the Parent may from time to
time reasonably request in writing, and to notify the Parent of any material
change therein, and the Parent may exclude from registration the Registrable
Parent Shares of any Selling Holder that fails to furnish such information
within a reasonable time after receiving such request.
Metro agrees that, upon receipt of any notice from the Parent
of the existence of any fact of the kind described in subclause (iii) or (iv) of
Clause 6.7(e), Metro will forthwith discontinue, and/or forthwith cause Ligapart
to discontinue, disposition of Registrable Parent Shares pursuant to the Shelf
Registration Statement covering such Registrable Parent Shares until such
Selling Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Clause 6.6(f), or until it is advised in writing by the Parent
that the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by the Parent, such Selling Holder will deliver
to the Parent all copies, other than permanent file copies then in such Selling
Holder's possession, of the Prospectus covering such Registrable Parent Shares
current at the time of receipt of such notice.
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6.8 Expenses. (a) All expenses incident to the Parent's
performance of or compliance with Clauses 6.6 and 6.7 shall be borne by the
Parent, including, but not limited to, all (i) registration and filing fees,
including NASD fees and fees and expenses associated with filings required to be
made with any national securities exchange or national computerized market
system, (ii) fees and expenses of complying with securities or blue sky laws,
including reasonable fees and disbursements of counsel effecting blue sky
qualifications, (iii) word processing, duplicating and printing expenses,
messenger and delivery expenses, and (iv) fees and disbursements of counsel for
the Parent, of the Parent's independent public accountants (including the
expenses of any special audits or "comfort" letters required by or incident to
such performance and compliance), and of any Person, including special experts,
retained by the Parent in connection with such performance and compliance.
(b) Notwithstanding Clause 6.8(a), each Selling Holder shall
bear the following expenses in connection with any registration of Registrable
Parent Shares: (i) all discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals relating
to the distribution of the Registrable Parent Shares of such Selling Holder,
(ii) all legal and accounting fees and expenses of such Selling Holder and (iii)
all taxes of such Selling Holder.
CLAUSE 7
THE TWISTER OPTION
7.1 Twister Option. (a) In consideration of the sum of $1 now
paid by the Company to Metro (receipt of which Metro hereby acknowledges), Metro
hereby grants to RSL an option (the "Twister Option") to purchase from Metro and
its controlled Affiliates, subject to the terms and conditions hereof and, in
the case of the TCE Shares, the Twister Right of First Refusal, (i) all of the
shares of TCE owned beneficially by Metro and its controlled Affiliates (the
"TCE Shares"), at such aggregate price for the TCE Shares as
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shall be determined in accordance with Clause 7.1(c) (the "TCE Option Exercise
Price"), and (ii) all of the shares of TS owned beneficially by Metro and its
controlled Affiliates (the "TS Shares"), at such aggregate price for the TS
Shares as shall be determined in accordance with Clause 7.1(d) (the "TS Option
Exercise Price").
(b) For the purposes of determining the TCE Option Exercise
Price and the TS Option Exercise Price, after receipt from the Company of a
Twister Option Exercise Notice (as defined in Clause 7.4), Metro will promptly,
and in no event later than the tenth Business Day after receipt of such Twister
Option Exercise Notice, deliver to the Company a written statement certified by
Metro's Chief Financial Officer setting forth, as of the date of such statement,
(i) the total number of shares of TCE outstanding on a fully-diluted basis (the
"Fully-Diluted TCE Shares"), (ii) the number of the TCE Shares, (iii) the total
amount invested by Metro and its Affiliates in TCE (the "Metro Invested
Amount"), (iv) the total number of shares of TS outstanding on a fully-diluted
basis (the "Fully-Diluted TS Shares") and (v) the number of the TS Shares.
(c) The TCE Option Exercise Price shall equal the product of
(i) the lesser of (A) CHF5,000,000 and (B) the Metro Invested Amount and (ii)
the quotient obtained by dividing the number of the TCE Shares by the number of
the Fully-Diluted TCE Shares.
(d) The TS Option Exercise Price shall equal the product of
(i) CHF800,000 and (ii) the quotient obtained by dividing the number of the TS
Shares by the number of the Fully-Diluted TS Shares.
7.2 Duration. The Twister Option shall terminate at 5:00 p.m.
New York City time on December 7, 1998 (the "Twister Option Termination Date").
7.3 Exercisability. The Twister Option may be exercised in
whole, but not in part, at any time after the
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date hereof through and including the Twister Option Termination Date.
7.4 Manner of Exercise. (a) The Twister Option may be
exercised by written notice (a "Twister Option Exercise Notice") to Metro given
not fewer than ten and not more than 45 days prior to the Business Day on which
the Company will exercise the Twister Option (the "Specified Twister Option
Completion Date"). Promptly upon receipt of the Twister Option Exercise Notice,
Metro shall give to the Right of Refusal Holder any notice thereof required
under the Twister Right of First Refusal and shall give to the Company written
notice specifying the earliest Business Day on which the exercise of the Twister
Option may be completed consistent with the terms of the Twister Right of First
Refusal, assuming that the Twister Right of First Refusal is not exercised, and
shall thereafter give prompt written notice to the Company of any acceleration
of such date (the "Earliest Twister Option Completion Date"). Subject to the
exercise of the Twister Right of First Refusal, the exercise of the Twister
Option shall be completed on the date (the "Twister Option Completion Date")
that is the later to occur of (i) the Specified Twister Option Completion Date
and (ii) the Earliest Twister Option Completion Date.
(b) On the Twister Option Completion Date:
(i) the Company shall deliver to Metro:
(A) by wire transfer of immediately available funds
to an account designated in writing by Metro to the Company at
least two Business days prior to the Twister Option Completion
Date, an amount equal to the sum of the TCE Option Exercise
Price and the TS Option Exercise Price;
(B) a certificate duly executed by the Company
confirming with respect to the Twister Shares the
representations and warranties set forth in Clause 14.8, 14.9
and 14.10; and
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(ii) Metro shall deliver to the Company:
(A) appropriate, duly executed, instruments of
transfer, complying with applicable laws, evidencing the
transfer of the Twister Shares to the Company;
(B) a certificate duly executed by Metro confirming
with respect to the Twister Shares the representations and
warranties set forth in Clause 16.7(a).
7.5 Payment of Taxes and Expenses. Except as otherwise
provided herein, Metro shall pay all expenses in connection with, and all taxes
and other governmental charges that may be imposed with respect to, the delivery
of the Twister Shares pursuant to the Twister Option, unless such tax or charge
is imposed by law upon the Company, in which case such taxes or charges shall be
paid by the Company, who shall be reimbursed therefor by Metro, provided that in
no case will Metro be liable for any Income Taxes of the Company or its
Affiliates. Metro shall not be required, however, to pay any tax or other charge
imposed in connection with any transfer arising out of the issuance of any
share certificate for Twister Shares in any name other than that of the Company
or a Subsidiary of the Company, and in such case Metro shall not be required to
deliver any stock certificate until such tax or other charge has been paid or
satisfied or it has been established to the satisfaction of Metro that no such
tax or other charge is due.
7.6 No Transfers of Twister Shares. On and after
the date hereof through and including the Twister Option
Termination Date, Metro and Affiliates shall not Transfer
any Twister Shares.
7.7 Exercise of Twister Right of First Refusal. In the event
that the Twister Right of First Refusal shall be exercised, Metro shall, or
shall cause its controlled Affiliates to, divest the TS Shares and, from and
after the exercise of the Twister Right of First Refusal, shall not
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support, and shall cause its controlled Affiliates not to support, the business
of TCE or TS or their Affiliates.
CLAUSE 8
CONTRIBUTIONS OF ADDITIONAL CAPITAL
8.1 Capital Call. The Company may from time to time request
contributions of additional capital ("Capital Contributions") from its
shareholders (the "Shareholders") in accordance with this Clause 8 (each such
request, a "Capital Call"). If the Company shall make a Capital Call, each
Shareholder shall be entitled to make a Capital Contribution in such amount as
shall be determined in accordance with Clause 8.3 and to receive in
consideration therefor such number of Shares ("Capital Call Shares") as shall be
determined in accordance with Clause 8.4(c).
8.2 Capital Call Notice. If the Company determines to make a
Capital Call, it shall deliver written notice (each, a "Capital Call Notice") to
each Shareholder, specifying the aggregate amount of Capital Contributions
requested by the Company (the "Capital Call Amount").
8.3 Allocation of Capital Contributions. Not later than the
twentieth Business Day following receipt of a Capital Call Notice, each
Shareholder shall deliver written notice (a "Call Acceptance") to the Company
specifying the amount of the Capital Amount (the "Accepted Call Amount") for
which such Shareholder desires to subscribe, which may be up to 100% of the Call
Amount. Each Shareholder that timely delivers a Call Acceptance (each, a
"Subscribing Shareholder") shall have the right, and the obligation, to deliver
to the Company pursuant to Clause 8.4, a Capital Contribution in an amount (the
"Subscribed Amount") equal to:
(a) the lesser of (i) such Subscribing Shareholder's Accepted
Call Amount and (ii) an amount equal to the product of (A) the Capital
Call Amount and (B) an amount (such Subscribing Shareholder's
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"Proportionate Share") equal to the quotient obtained by dividing the
number of Shares owned beneficially by such Subscribing Shareholder by
the aggregate amount of Shares owned beneficially by all Subscribing
Shareholders;
plus, if the amount of such Subscribing Shareholder's Accepted Call
Amount exceeds the amount of such Subscribing Shareholder's
Proportionate Share (the amount of such excess, such Subscribing
Shareholder's "Additional Accepted Call Amount"),
(b) an amount equal to the product of (i) the amount, if any,
by which the aggregate of the amounts, if any, by which the
Proportionate Share of each Subscribing Shareholder exceeds the amount
of such Subscribing Shareholder's Accepted Call Amount and (ii) an
amount equal to the quotient obtained by dividing such Subscribing
Shareholder Additional Accepted Call Amount by the aggregate Additional
Accepted Call Amounts of all Subscribing Shareholders.
8.4 Completion of Capital Calls. (a) Not later than the
twenty-fifth Business Day following delivery of a Capital Call Notice the
Company shall deliver to each Subscribing Shareholder written notice specifying
(i) the Subscribed Amount of each Subscribing Shareholder, the aggregate amount
of which shall, in no event, exceed the Capital Call Amount, and (ii) the date
on which the completion of the Capital Call shall be effected, which shall be
not fewer than 30 and not more than 45 Business Days following the date of such
Capital Call Notice (the "Capital Call Completion Date").
(b) On each Capital Call Completion Date:
(i) each Subscribing Shareholder shall deliver to the Company:
(A) by wire transfer of immediately available funds
to an account designated in writing by the
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Company to such Subscribing Shareholder at least two Business
days prior to such Capital Call Completion Date, an amount
equal to such Subscribing Shareholder's Subscribed Amount; and
(B) a certificate duly executed by such Subscribing
Shareholder confirming with respect to such Subscribing
Shareholder's Capital Call Shares (1) in the case of Metro,
the representations and warranties set forth in Clause 16.8,
16.9 and 16.10 and (2) in the case of each other Subscribing
Shareholder, representations and warranties to similar effect;
and
(ii) the Company shall deliver to each Subscribing
Shareholder:
(A) under seal, one or more share certificates
representing that number of Capital Call Shares determined in
accordance with Clause 8.4(c) registered in the name of such
Subscribing Shareholder (or, in the case of Metro, at Metro's
request, Ligapart) and bearing the legends set forth in Clause
8; and
(B) an opinion of counsel to the Company, in form and
substance reasonably satisfactory to such Subscribing
Shareholder, that such Subscribing Shareholder's Capital Call
Shares have been duly authorized and, assuming that they have
been issued and paid for in accordance with the terms of this
Agreement, have been validly issued and are fully paid and
nonassessable.
(c) The number of Capital Call Shares issuable to any
Subscribing Shareholder on any Capital Call Completion Date shall be equal to
the product of (i) the quotient obtained by dividing the amount of such
Subscribing Shareholder's Subscribed Amount by the aggregate invested capital in
the Company as of such Capital Call Completion
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Date and (ii) the number of Shares Outstanding as of such Capital Call
Completion Date.
CLAUSE 9
DETERMINATION OF EQUITY VALUE
9.1 Preliminary Determination. Whenever a determination of the
Equity Value is required pursuant to Clause 3.3 or Clause 6, each of the Company
and Metro, at its own expense, shall promptly engage an internationally
recognized investment banking firm (each, an "Appraiser") to determine the
Equity Value and shall notify the other party in writing of such selection. Each
of the Company and Metro shall cause its Appraiser to determine the Equity Value
as of the applicable Put Valuation Date. Within 30 days after the later to occur
of (a) the date on which the parties are required to engage their Appraisers and
(b) the date on which, as the case may be, audited financial statements of the
Company as of and for the year ended December 31, 1999 (in the event the
Alternative Purchase Valuation Date is December 31, 1999) or the applicable Put
Valuation Date are available, or the date on which unaudited financial
statements of the Company as of and for the six months ended June 30, 1999 (in
the event the Alternative Purchase Valuation Date is June 30, 1999) are
available, each of the Company and Metro shall provide the other with written
notice (a "Valuation Notice") of the Equity Value determined by its Appraiser.
9.2 Final Determination. The Company and Metro shall cause the
Appraisers to cooperate with each other to concur as to the Equity Value within
ten days of receipt by each of the Company and Metro of a Valuation Notice from
the other. Such determination of the Equity Value by the concurrence of the
Appraisers shall be final and binding upon the parties, absent manifest error.
If the Appraisers cannot concur as to the Equity Value within such ten-day
period, the Company and Metro shall cause the Appraisers to select an
independent and internationally recognized investment banking firm acceptable to
both appraisers (the "Independent Appraiser") to resolve the dispute between the
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Appraisers and determine the Equity Value. The fees and expenses resulting from
the valuation by the Independent Appraiser shall be borne equally by each of the
Company and Metro. The determination of the Equity Value by the Independent
Appraiser shall be final and binding upon the parties, absent manifest error. No
Appraiser or Independent Appraiser shall have any liability to the Company or
Metro in connection with any determination of the Equity Value absent gross
negligence or bad faith on the part of such Appraiser or Independent Appraiser.
9.3 Alternative Valuation. Notwithstanding the foregoing
Clauses 9.1 and 9.2, upon any occasion that a provision of this Agreement
requires the determination of the Equity Value, the parties hereto may agree to
deem the Equity Value to be any amount determined by them in good faith,
including, but not limited to, the Equity Value as of the last prior Valuation
Date.
CLAUSE 10
LEGENDS ON SHARE CERTIFICATES
10.1 Legends. Metro acknowledges that each certificate
representing any Covered Shares, including, but not limited to, each certificate
issued upon the transfer of any Covered Shares, shall bear each of the legends
required pursuant to this Clause 10.1.
(a) With respect to any Covered Shares, unless such Covered
Shares have been sold to the public pursuant to an effective registration
statement under the Securities Act or Rule 144 under the Securities Act, or
unless otherwise freely transferable without registration under the Securities
Act, each certificate representing such Covered Shares shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED
UNDER ANY STATE
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SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) (A) SUCH
DISPOSITION IS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (B) THE HOLDER
HEREOF SHALL HAVE DELIVERED TO THE COMPANY AN OPINION OF
COUNSEL, WHICH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH
DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SUCH
ACT OR (C) A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION, REASONABLY SATISFACTORY TO COUNSEL FOR
THE COMPANY, SHALL HAVE BEEN OBTAINED WITH RESPECT TO SUCH
DISPOSITION AND (ii) SUCH DISPOSITION IS IN COMPLIANCE WITH
ANY APPLICABLE STATE SECURITIES LAWS."
(b) Prior to the termination of the restrictions on transfer
set forth in 10.1, each certificate representing Covered Shares (other than
Parent Shares) shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A STOCK SUBSCRIPTION, STOCK OPTION AND
STOCKHOLDERS AGREEMENT, DATED AS OF JUNE 10, 1998, AND NEITHER
THIS CERTIFICATE NOR THE SHARES REPRESENTED BY IT ARE
ASSIGNABLE OR OTHERWISE TRANSFERRABLE EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF SUCH STOCK SUBSCRIPTION, STOCK OPTION
AND STOCKHOLDERS AGREEMENT, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY."
CLAUSE 11
RESTRICTIONS ON TRANSFER; COMPANY IPO
11.1 Restrictions on Transfer. Subject to Clause 11.2, neither
Metro nor Ligapart shall effect any Transfer of the Additional Option or any
Covered Shares (other than Parent Shares) without the prior written consent of
the Company except (a) to the Company pursuant to the Metro Put
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and (b) to Metro's controlled Affiliates, provided that Metro or Ligapart, as
the case may be, shall deliver or cause to deliver to the Company at the time of
any such Transfer to a controlled Affiliate a duly executed written
acknowledgment by such controlled Affiliate that such controlled Affiliate shall
not effect any Transfer of the Additional Option or Covered Shares without the
prior written consent of the Company except to Metro or a controlled Affiliate
of Metro from which a similar duly executed written acknowledgment is received
by the Company. In addition, neither Metro nor any of its controlled Affiliates
shall effect any Transfer of any shares of capital stock of any controlled
Affiliate of Metro that holds the Additional Option or any Covered Shares (other
than Parent Shares), as a result of which Transfer such controlled Affiliate
would cease to be a controlled Affiliate of Metro, without the prior written
consent of the Company except to Metro or a controlled Affiliate of Metro from
which the Company has received a duly executed acknowledgment that such
controlled Affiliate is bound by the terms of this Clause 11.
11.2 Termination. The restrictions on Transfers under Clause
11.1 shall terminate with respect to the Covered Shares upon the consummation by
the Company of an IPO.
11.3 Company IPO. In the event the Company shall determine to
effect an IPO in which selling stockholders participate, Metro shall be entitled
to include Covered Shares in such IPO on a pro rata basis with such other
selling securityholders.
CLAUSE 12
METRO RIGHTS AS STOCKHOLDER
12.1 Designation of Director. For so long as Metro and its
controlled Affiliates beneficially own all of the Subscription Shares or Shares
representing not less than 5% of the Shares Outstanding, Metro shall have the
right to
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nominate one candidate for election to the Board of Directors of the Company
(the "Board"). Metro may elect, at its option, not to have a designated director
on the Board. In the event that Metro shall exercise its rights under this
Clause 12.1, the Parent shall vote in favour of a slate of Directors which
includes Metro's nominee pursuant to this Clause 12.1 or clause (a)(ii) of the
first sentence of Clause 12.2. If clause (a)(i) of the first sentence of Clause
12.2 shall apply and a candidate nominated by Metro to fill any vacancy referred
to therein shall not have been appointed to fill such vacancy within five
Business Days of the Board having been given the name of such candidate by Metro
pursuant to such clause (a)(i), then the Parent shall act by written consent, or
call an Extraordinary General Meeting of shareholders of the Company, to fill
such vacancy and pursuant to such written consent or at such Extraordinary
General Meeting, as the case may be, vote to appoint Metro's nominee to fill
such vacancy.
12.2 Amendment of Articles. In the event that a vacancy shall
be created on the Board as a result of the death, resignation or removal (with
or without cause) of a director nominated by Metro in accordance with Clause
12.1, (a) the Board shall within five Business Days of the creation of such
vacancy request Metro to nominate a candidate to be appointed by such Board to
fill such vacancy, (b) if such vacancy shall have been created immediately
before or at the annual meeting of the Company, Metro shall have the right to
nominate a candidate to fill such vacancy, Metro shall be entitled to provide
for an alternate Director to attend any meeting of the Board at which the
Director nominated by Metro is unable to attend. If required to give effect to
the provisions of this Clause 12, the Articles of Association of the Company
shall be amended in accordance with this Clause 12.2.
12.3 Additional Rights. (a) In the event that the Company
shall issue Shares ("New Issue Shares") to any Person other than Metro or an
Affiliate of Metro (a "New Issue Shares Purchaser") in a transaction the sole
purpose of which is to issue Shares solely for cash consideration
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(other than in an IPO), Metro shall have the right (the "Pre-emptive Right") to
purchase, subject to the terms and conditions hereof, that number of Shares
determined in accordance with Clause 12.3(b) (the "Pre-emptive Shares") at a
purchase price per Share determined in accordance with Clause 12.3(c) (the
"Pre-emptive Shares Per Share Purchase Price"). Notwithstanding the foregoing,
the Pre-emptive Right shall terminate in the event that (i) Metro or any of its
controlled Affiliates dispose (other than to Metro or a controlled Affiliate of
Metro) of any Shares, (ii) Metro fails on any occasion to exercise the
Pre-emptive Right or its right under Clause 3.3 to acquire the Telegate Exchange
Shares (unless it has otherwise acquired the Telegate Exchange Shares) or its
right under Clause 8 to acquire any Capital Call Shares, or (iii) the Additional
Option shall expire unexercised.
(b) The number of the Pre-emptive Shares shall equal that
number of Shares that, when taken together with the Shares owned by Metro and
its Affiliates immediately prior to the issuance of the New Issue Shares, shall
equal the same percentage of the Shares Outstanding on the Preemptive Share
Purchase Completion Date (as defined in Clause (d)) after giving effect to the
issuance of the New Issue Shares and the Pre-emptive Shares as Metro and its
Affiliates held immediately prior to the issuance of such New Issue Shares and
Pre-emptive Shares.
(c) The Pre-emptive Shares Per Share Purchase Price shall be
an amount equal to the quotient obtained by dividing the aggregate cash
consideration to be paid by the New Issue Shares Purchaser by the number of the
New Issue Shares.
(d) The Company shall give Metro written notice of any
proposed issue of New Issue Shares by specifying (i) the number of such New
Issue Shares, (ii) the Aggregate Cash Consideration to be paid therefore and
(iii) the date on which the completion of the issuance of the New Issue Shares
shall be effected, which shall be a Business Day that is not fewer than 30 and
not more than 45 days following the
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date of such New Issue Share Notice (the "New Issue Shares Purchase Completion
Date").
(e) In the event that Metro desires to exercise its right to
purchase Pre-emptive Shares in connection with the issuance of such New Issue
Shares, Metro shall give the Company written notice (a "Pre-emptive Share
Notice") thereof not fewer than 10 days prior to the New Issue Shares Purchase
Completion Date.
(f) If Metro shall timely deliver a Pre-emptive
Share Purchase Notice, on the New Issue Share Purchase
Completion Date:
(i) Metro shall deliver to the Company:
(A) by wire transfer of immediately available funds
to an account designated in writing by the Company to Metro at
least two Business days prior to the New Issue Share Purchase
Completion Date, an amount equal to the product of the number
of the Pre-emptive Shares and the Pre-emptive Shares Per Share
Purchase Price;
(B) a certificate duly executed by Metro confirming
with respect to the Pre-emptive Shares the representations and
warranties set forth in Clause 16.8, 16.9 and 16.10; and
(ii) the Company shall deliver to Metro:
(A) under seal, one or more share certificates
representing the Pre-emptive Shares registered in the name of
Metro or, at Metro's request, Ligapart and bearing the legends
set forth in Clause 10; and
(B) an opinion of counsel to the Company, in form and
substance reasonably satisfactory to Metro, that the
Pre-emptive Shares have been duly authorized and, assuming
that they have been
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issued and paid for in accordance with the terms of this
Agreement, have been validly issued and are fully paid and
nonassessable.
12.4 Payment of Taxes and Expenses. (a) Except as otherwise
provided herein, the Company shall pay all expenses in connection with, and all
taxes and other governmental charges that may be imposed with respect to, the
issuance or delivery of the Pre-emptive Shares or the Alternative Purchase
Shares, unless such tax or charge is imposed by law upon Metro, in which case
such taxes or charges shall be paid by Metro, who shall be reimbursed therefor
by the Company, provided that in no case will the Company be liable for any
Income Taxes of Metro or its Affiliates. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
arising out of the issuance of any share certificate for Pre-emptive Purchase
Shares in any name other than that of Metro or Ligapart, and in such case the
Company shall not be required to issue or deliver any share certificate until
such tax or other charge has been paid or satisfied or it has been established
to the satisfaction of the Company that no such tax or other charge is due.
CLAUSE 13
METRO COVENANT NOT TO COMPETE
13.1 Non-Competition. On and after the date hereof through and
including the first anniversary of the expiration of the term of the Services
Agreement (the "Non-Compete Period"), Metro and its controlled Affiliates
(which shall not include Metro AG and controlled Affiliates) shall not operate
or manage, or acquire any equity interest in, any telecommunications business
which is engaged in telecommunications services of a type currently conducted by
the Company and which competes with the Company, other than the businesses set
forth in Schedule 13.1 (the "Specified Companies"), provided that Metro and its
controlled Affiliates (a) may acquire less than 5% of the outstanding equity
securities of a publicly traded company engaged in a
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competing business and (b) may make a passive equity investment in any private
company, such equity interest not to exceed the greater of (i) 25% of the equity
of such entity and (ii) $2,000,000. During the Non-Compete Period, Metro shall
give the Company at least fourteen Business Days' prior written notice of any
proposed joint ventures, investments or other arrangements by Metro with a
telecommunications company, similar in nature to that contemplated by the
Services Agreement, other than the joint ventures or arrangements with any
Specified Company. The Company may, in its sole discretion, by written notice to
Metro no later than the tenth Business Day after the Company's receipt of notice
thereof, prohibit Metro from entering into such proposed arrangement.
Notwithstanding anything to the contrary in this Clause 13.1, this Clause 13.1
shall not prohibit Metro's controlled Affiliates from marketing and selling
products and services competitive with the products and services marketed and
sold by the Company and its Affiliates.
CLAUSE 14
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Metro as follows:
14.1 Corporate Status; Subsidiaries. (a) The Company is a
corporation duly organized, validly existing and in good standing under the laws
of England.
(b) Schedule 14.1(b) lists all of the Company's Subsidiaries.
Each such Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation.
14.2 Authorization, etc. The Company has full corporate power
and authority to execute and deliver this Agreement and the Services Agreement
and to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder and thereunder. The execution and delivery of
this Agreement and the Services Agreement and the consummation of the
transactions contemplated hereby and
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thereby have been duly authorized by all requisite corporate action on the part
of the Company. This Agreement and the Services Agreement have been duly
executed and delivered by the Company and constitute the legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms.
14.3 Conflicts. The execution and delivery by the Company of
this Agreement and the Services Agreement and the consummation by the Company of
the transactions contem plated hereby and thereby, do not and will not conflict
with, or result in any violation of or default under (or any event that, with
notice or lapse of time or both, would constitute a default under), or give rise
to any right of termination, cancellation or acceleration of any obligation or
loss of material benefit under, or result in the creation of a Lien on any
property or assets of the Company pursuant to, any provision of (a) the
Memorandum or Articles of Association of the Company, (b) any mortgage,
indenture, loan agreement, note, bond, deed of trust, other agreement,
commitment or obligation for the borrowing of money or the obtaining of credit,
lease or other agreement, contract, license, franchise, permit or instrument to
which the Company is a party or by which it may be bound, or (c) any judgment,
order, decree, law, statute, rule or regulation applicable to the Company, other
than, in the case of clauses (b) or (c), any conflicts, violations, defaults,
terminations, cancellations, accelerations, losses of benefits or Liens that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
14.4 Consents. Except for any Consents where the failure to
obtain such Consents, either in any individual case or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect, no Consent of any
court, Governmental Entity or third person is required to be obtained by the
Company in connection with the execution and delivery by the Company of this
Agreement or the Services Agreement or the consummation by the Company of the
transactions contemplated hereby and thereby.
14.5 Compliance with Laws. The businesses of the Company has
not been, and is not being, conducted in violation of its internal policies and
procedures or of any
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law, ordinance, regulation, judgment, order, decree, license or permit of any
Governmental Entity, except for possible violations which individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
14.6 Litigation. There is no action, claim, suit, arbitration
or proceeding pending or, to the Company's knowledge, threatened against the
Company and there is no investigation pending or, to the Company's knowledge,
threatened against the Company, in each case, before any court or Governmental
Entity, that could have a Material Adverse Effect.
14.7 Capitalization. (a) As of the date hereof, the authorized
capital of the Company is (pound)100,000 divided into 10,000,000 shares, par
value (pound).01 per share, of which 1,000,000 are issued and are held by RSL
Communications PLC. All of the issued Shares have been duly authorized and
validly issued and are fully paid and nonassessable. The Subscription Shares and
any Exercise Shares and Capital Call Shares to be issued and sold to Metro
pursuant to this Agreement have been duly authorized and, when issued and sold
to Metro in accordance with the terms of this Agreement, such shares will be
validly issued, fully paid and nonassessable.
(b) Except as provided in this Agreement, there are no (i)
preemptive or similar rights on the part of any holders of any class of
securities of the Company; (ii) subscriptions, options, warrants, conversion,
exchange or other rights, agreements or commitments of any kind obligating the
Company to issue or sell, or cause to be issued and sold, any shares of capital
stock of the Company or any securities convertible into or exchangeable for any
such shares; or (iii) shareholder agreements, voting trusts or other agreements
or understandings to which the Company is a party or to which the Company is
bound relating to the voting, registration, transfer, purchase, redemption or
other acquisition of any shares of the capital of the Company.
(c) Schedule 14.1(b) lists for each Subsidiary of the Company
the percentage ownership of such Subsidiary held by the Company and its
Subsidiaries. All issued and outstanding shares of capital stock of the
Company's
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Subsidiaries have been duly authorized and validly issued and are fully paid and
nonassessable.
14.8 Investment Intention. In connection with any acquisition
by the Company pursuant to this Agreement of the Telegate Shares or the Twister
Option, the Company will confirm that it is acquiring the Telegate Shares or the
Twister Shares, as the case may be, solely for its own account for investment
and not with a view to or for sale in connection with any distribution thereof
in contravention of the Securities Act or any Applicable Securities Laws. The
Company further agrees that it will not, directly or indirectly, effect a
Transfer or offer, or solicit offers, to effect a Transfer of any Telegate
Shares or Twister Shares, except in compliance with the Securities Act, and the
rules and regulations of the SEC thereunder, and in compliance with applicable
state securities or "blue sky" laws and all other Applicable Securities Laws.
14.9 Ability to Bear Risk. The Company's financial situation
is such that it can afford to bear the economic risk of holding the Telegate
Shares and the Twister Shares for an indefinite period and the Company can
afford to suffer the complete loss of its investment in the Telegate Shares and
the Twister Shares.
14.10 Access to Information. The Company has been granted the
opportunity to ask questions of, and receive answers from, representatives of
Metro concerning the terms and conditions of the purchase of the Telegate Shares
and the Twister Shares and the Company's knowledge and experience in financial
and business matters is such that it is capable of evaluating the risks of its
investment in the Telegate Shares and the Twister Shares.
CLAUSE 15
REPRESENTATIONS AND WARRANTIES OF THE PARENT
The Parent represents and warrants to Metro as follows:
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15.1 Corporate Status. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of Bermuda.
15.2 Authorization, etc. The Parent has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and to perform its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of the Parent. This Agreement has been duly
executed and delivered by the Parent and constitutes the legal, valid and
binding obligation of the Parent enforceable against the Parent in accordance
with its terms.
15.3 Conflicts. The execution and delivery by the Parent of
this Agreement and the consummation by the Parent of the transactions
contemplated hereby, do not and will not conflict with, or result in any
violation of or default under (or any event that, with notice or lapse of time
or both, would constitute a default under), or give rise to any right of
termination, cancellation or acceleration of any obligation or loss of material
benefit under, or result in the creation of a Lien on any property or assets of
the Parent pursuant to, any provision of (a) the Certificate of Incorporation,
Memorandum of Association or Bye-Laws of the Parent, (b) any mortgage,
indenture, loan agreement, note, bond, deed of trust, other agreement,
commitment or obligation for the borrowing of money or the obtaining of credit,
lease or other agreement, contract, license, franchise, permit or instrument to
which the Parent is a party or by which it may be bound, or (c) any judgment,
order, decree, law, statute, rule or regulation applicable to the Parent, other
than, in the case of clauses (b) or (c), any conflicts, violations, defaults,
terminations, cancellations, accelerations, losses of benefits or Liens that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
15.4 Consents. Except for any Consents where the failure to
obtain such Consents, either in any individual case or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect, no Consent of any
court,
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Governmental Entity or third person is required to be obtained by the Parent in
connection with the execution and delivery by the Parent of this Agreement or
the consummation by the Parent of the transactions contemplated hereby.
15.5 Compliance with Laws. The businesses of the Parent has
not been, and is not being, conducted in violation of its internal policies and
procedures or of any law, ordinance, regulation, judgment, order, decree,
license or permit of any Governmental Entity, except for possible violations
which individually or in the aggregate would not reasonably be expected to have
a Material Adverse Effect.
15.6 Litigation. There is no action, claim, suit, arbitration
or proceeding pending or, to the Parent's knowledge, threatened against the
Parent and there is no investigation pending or, to the Parent's knowledge,
threatened against the Parent, in each case, before any court or Governmental
Entity, that could have a Material Adverse Effect.
15.7 Registration Statement on Form S-4. The Parent's
Registration Statement on Form S-4 (file no. 33349857), as amended by Amendment
No. 1 to Registration Statement on Form S-4 and by Amendment No. 2 to
Registration Statement on Form S-4 (the "Registration Statement"), was declared
effective on May 12, 1998. As of the date hereof, the Registration Statement
does not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
CLAUSE 16
REPRESENTATIONS AND WARRANTIES OF METRO
Metro represents and warrants to the Company and the Parent as
follows:
16.1 Corporate Status. Metro is a corporation duly organized,
validly existing and in good standing under the laws of Switzerland.
16.2 Authorization, etc. Metro has full corporate power and
authority to execute and deliver this
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Agreement and the Services Agreement and to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Services
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all requisite corporate action on the part
of Metro. This Agreement and the Services Agreement have been duly executed and
delivered by Metro and constitute the legal, valid and binding obligations of
Metro enforceable against Metro in accordance with their respective terms.
16.3 Conflicts. The execution and delivery by Metro of this
Agreement and the Services Agreement and the consummation by Metro of the
transactions contemplated hereby and thereby, do not and will not conflict with,
or result in any violation of or default under (or any event that, with notice
or lapse of time or both, would constitute a default under), or give rise to any
right of termination, cancellation or acceleration of any obligation or loss of
material benefit under, or result in the creation of a Lien on any property or
assets of Metro pursuant to, any provision of (a) the Organizational Documents
of Metro, (b) any mortgage, indenture, loan agreement, note, bond, deed of
trust, other agreement, commitment or obligation for the borrowing of money or
the obtaining of credit, lease or other agreement, contract, license, franchise,
permit or instrument to which Metro is a party or by which it may be bound, or
(c) any judgment, order, decree, law, statute, rule or regulation applicable to
Metro, other than, in the case of clauses (b) or (c), any conflicts, violations,
defaults, terminations, cancellations, accelerations, losses of benefits or
Liens that, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect.
16.4 Consents. Except for any Consents where the failure to
obtain such Consents, either in any individual case or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect, no Consent of or
with any court, Governmental Entity or third person is required to be obtained
by Metro in connection with the execution and delivery by Metro of this
Agreement or the Services Agreement or the consummation by Metro of the
transactions contemplated hereby and thereby.
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16.5 Compliance with Laws. The businesses of Metro has not
been, and is not being, conducted in violation of its internal policies and
procedures or of any law, ordinance, regulation, judgment, order, decree,
license or permit of any Governmental Entity, except for possible violations
which individually or in the aggregate would not reasonably be expected to have
a Material Adverse Effect.
16.6 Litigation. There is no action, claim, suit, arbitration
or proceeding pending or, to Metro's knowledge, threatened against Metro and
there is no investigation pending or, to Metro's knowledge, threatened against
Metro, in each case, before any court or Govern mental Entity, that could have a
Material Adverse Effect.
16.7 Twister Shares; Telegate Shares. (a) As of the date
hereof, the authorized share capital of each of TCE and TS is CHF100,000, all of
which has been issued and is represented by 100 shares of CHF100,000 each, all
of which are owned by Metro and its controlled Affiliates free and clear of any
Liens other than the Right of First Refusal.
(b) The Telegate Shares represent 25%, on a fully diluted
basis, of the share ownership of Telegate AG and are owned free and clear of any
Liens by Metro and Walter Telemarketing und Vertrieb GmbH & Co. KG and Invision
AG, controlled Affiliates of Metro. Metro has the authority to cause the
Telegate Shares to be delivered in accordance with the provisions of Clause 3.
16.8 Investment Intention. Metro is acquiring the Subscription
Shares and the Additional Option, and, in connection with the acquisition by
Metro pursuant to this Agreement of any Covered Shares, Metro will confirm that
it is acquiring such Covered Shares, solely for its own account for investment
and not with a view to or for sale in connection with any distribution thereof
in contravention of the Securities Act or any Applicable Securities Laws. Metro
agrees that it will not, directly or indirectly, effect a Transfer or offer, or
solicit offers, to effect a Transfer of the Additional Option or any of Covered
Shares, except in compliance with the Securities Act, and the rules and
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regulations of the SEC thereunder, and in compliance with applicable state
securities or "blue sky" laws and all other Applicable Securities Laws. Metro
further agrees that it will not effect any Transfer of the Additional Option or
any Covered Shares other than to the Company unless (a) (i) such Transfer is
pursuant to an effective registration statement under the Securities Act, (ii)
Metro shall have delivered to the Company an opinion of counsel, which opinion
and counsel shall be reasonably satisfactory to the Company, to the effect that
such Transfer is exempt from the provisions of Section 5 of the Securities Act
or (iii) a no-action letter from the SEC, reasonably satisfactory to counsel for
the Company, shall have been obtained with respect to such Transfer and (b) such
Transfer is in compliance with any Applicable Securities Laws.
16.9 Ability to Bear Risk. Metro's financial situation is
such that it can afford to bear the economic risk of holding the Additional
Option and the Covered Shares for an indefinite period and Metro can afford to
suffer the complete loss of its investment in the Additional Option and the
Covered Shares.
16.10 Access to Information. Metro has been granted the
opportunity to ask questions of, and receive answers from, representatives of
the Company concerning the terms and conditions of the purchase of the
Additional Option and the Covered Shares and Metro's knowledge and experience in
financial and business matters is such that it is capable of evaluating the
risks of its investment in the Additional Option and the Covered Shares.
CLAUSE 17
CONDUCT OF BUSINESS
17.1 Conduct of Telecommunications Business. The Parent will
conduct its telecommunications business (as currently conducted) in Europe
exclusively through the Company and its Subsidiaries. The Parent will sell the
Internet telephony services of Delta Three, Inc. ("Delta
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Three") in Europe (other than in Denmark) through the Company and its
Subsidiaries. Notwithstanding the foregoing, nothing in this Clause 17.1 shall
prohibit Delta Three from selling its Internet telephony services in Europe
through Persons other than Company and its Subsidiaries; provided, that, if it
does so (other than pursuant to existing arrangements), then Delta Three and the
Company shall arrange for the Company to be compensated for the lost opportunity
resulting therefrom.
CLAUSE 18
MISCELLANEOUS
18.1 Expenses. Except as otherwise specifically provided for
in this Agreement, each party hereto shall bear their respective expenses, costs
and fees (including attorneys', auditors' and financing fees, if any) in
connection with the transactions contemplated hereby and by the Escrow Agreement
and the Services Agreement, whether or not the transactions contemplated hereby
shall be consummated.
18.2 Notices. All notices and other communica tions made in
connection with this Agreement shall be in writing. Any notice or other
communication in connection herewith shall be deemed duly given (a) two Business
Days after it is sent by express, registered or certified mail, return receipt
requested, postage prepaid or (b) one Business Day after it is sent by
overnight courier guaranteeing next day delivery, in each case, addressed as
follows:
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(i) if to the Company or the Parent, to:
RSL COM Europe, Ltd.
Victoria House
London Square
Cross Lanes
Guilford, Surrey, GU1 1UT
Telecopy: 011-44-1483-45-7735
Telephone: 011-44-1483-45-7300
Attention: Richard Williams
with copies to:
RSL Communications, Ltd.
c/o RSL Communications, N. America, Inc.
767 Fifth Avenue, Suite 4300
New York, NY 10153
Telecopy: 212-317-0600
Telephone: 212-317-1800
Attention: Avery S. Fischer, Esq.
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Telecopy: 212-909-6836
Telephone: 212-909-6072
Attention: George E.B. Maguire, Esq.
Levinson Gray
9 Old Queen Street
Westminister
London SW1H 9JA
United Kingdom
Telecopy: 011-44-171-222-2563
Telephone: 011-44-171-222-2299
Attention: Alan Levinson, Esq.
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(ii) if to Metro, to:
Metro Holding AG
Neuhofstrasse 4
6340 Baar
Switzerland
Telecopy: 04-41-41-768-7579
Telephone: 04-41-41-768-7683
Attention: Hugo Truetsch, Esq.
with copies to:
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
Telecopy: 212-661-0989
Telephone: 212-351-4500
Attention: Lowell S. Lifschultz, Esq.
Memery Crystal
31 Southampton Row
London WC1B 5HT
United Kingdom
Telecopy: 011-44-171-242-2058
Telephone: 011-44-171-242-5905
Attention: Lesley Gregory, Esq.
or, in each case, at such other address as may be specified in writing to the
other parties hereto. Any party may give any notice or other communication in
connection herewith using any other means (including, but not limited to, per-
sonal delivery, messenger service, telecopy, telex or ordinary mail), but no
such notice or other communication shall be deemed to have been duly given
unless and until it is actually received by the individual for whom it is
intended.
18.3 Headings. The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
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18.4 Entire Agreement. This Agreement (including the Exhibits
and Schedules referred to herein or delivered hereunder), together with the
Services Agreement, constitute the entire agreement, and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
18.5 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
18.6 Severability. If any provision, including any phrase,
sentence, clause, section or subsection, of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering such provisions in question invalid, inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision herein contained invalid, inoperative, or unenforceable to any extent
whatsoever.
18.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING, BUT NOT LIMITED TO, AS TO VALIDITY, INTERPRETATION AND
EFFECT, BY THE LAWS OF ENGLAND.
18.8 Jurisdiction and Venue. Each party to this Agreement
expressly and irrevocably (a) consents that any legal action or proceeding
against it under, arising out of or in any manner relating to, this Agreement
may be brought in the courts of London, England having jurisdiction thereof, (b)
consents and submits to personal jurisdiction of any such courts in any such
action or proceeding, (c) consents to the service of any complaint, summons,
notice or other process relating to any such action or proceeding by delivery
thereof to him, her or it by hand or by any other manner provided for in Section
18.2, (d) waives any claim or defense in any such action or proceeding based on
any alleged lack of personal jurisdiction, improper venue or forum non coveniens
or any similar basis, and (e) waives all rights, if any, to trial by jury with
respect to any such action or proceeding. Nothing in this Section 18.8 shall
affect or impair in any manner or to any extent the right of
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any party to commence legal proceedings or otherwise proceed against any other
party in any jurisdiction or to serve process in any manner permitted by law.
18.9 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
18.10 Assignment. This Agreement shall not be assignable by
any party without the prior written consent of other parties. Any purported
assignment in violation of this Clause 18.10 shall be void.
18.11 No Third Party Beneficiaries. Except as expressly
provided herein, nothing in this Agreement shall confer any rights upon any
Person other than the parties hereto and each such party's respective heirs,
successors and permitted assigns.
18.12 Amendment; Waivers, etc. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. The
representations and warranties of the parties hereto shall not be affected or
deemed waived by reason of any investigation made by or on behalf of any other
party (including, but not limited to, by any of its advisors, consultants or
representatives) or by reason of the fact that such other party or any such
advisors, consultants or representatives knew or should have known that any such
representation or warranty is or might be inaccurate.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement by their authorized representatives as of the date first above
written.
RSL COM EUROPE, LTD.
By:
----------------------------------
Name:
Title:
RSL COMMUNICATIONS, Ltd.
By:
----------------------------------
Name:
Title:
METRO HOLDING AG
By:
----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
MARKETING AND DISTRIBUTION
SERVICES AGREEMENT
between
RSL COM Europe, Ltd.
and
Metro Holding AG
Dated as of June 10, 1998
- --------------------------------------------------------------------------------
<PAGE>
MARKETING AND DISTRIBUTION
SERVICES AGREEMENT
THIS AGREEMENT, is made the 10th day of June, 1998,
BETWEEN RSL COM Europe, Ltd., whose registered office is at 9 Old Queen
Street London SW1H 9JA (the "Company"), RSL Communications, Ltd., a Bermuda
corporation whose address for service in the United Kingdom is 9 Old Queen
Street London SW1H 9JA (the "Parent"), and Metro Holding AG, a Swiss
Corporation whose address for service in the United Kingdom is c/o Memery
Crystal, 31 Southampton Row, London WC1B 5HT ("Metro").
W I T N E S S E T H:
WHEREAS, the Company directly and through its Affiliates
provides international and domestic telephone services to both carrier and
commercial accounts;
WHEREAS, Metro owns and/or controls, wholesale and retail
Distribution Channels throughout Europe, and, among other things,
distributes to businesses a broad range of products and services;
WHEREAS, Metro believes that the marketing and distribution
in the Territory, through its Distribution Channels of the Company's products,
would be beneficial to such Distribution Channels and to the Company;
WHEREAS, in part consideration for the execution and delivery
by Metro of this Agreement, the Company, RSL Communications, Ltd., the
Company's parent and Metro have entered into a Stock Subscription, Stock Option
and Stockholders Agreement.
NOW, THEREFORE, to implement the foregoing and in
consideration of the mutual agreements contained herein, the parties hereto
hereby agree as follows:
<PAGE>
CLAUSE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the
following terms, not defined elsewhere, have the following meanings:
Affiliate: with respect to any Person, a Person that directly
or indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with such Person. "Control" (including the terms
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting securities,
by contract or credit arrangement, as trustee or executor, or otherwise.
Business Day: any day other than a Saturday, a Sunday, or a
day on which commercial banking institutions are authorized or required by law
to be closed in London.
Business Plan: the meaning given in Clause 2.4(b).
Company: the meaning given in the introductory paragraph of
this Agreement.
Confidentiality Agreements: the letter agreements, each dated
April 1, 1998, between RSL Communications, Ltd. and each of Metro, Metro AG,
debitel Kommunikationstechnik GmbH and Daimler-Benz InterService (debis) AG.
Coordinators: the meaning given in Clause 2.2(j).
Debitel: Debitel Kommunikationstechnik GmbH & Co. KG.
Distribution Channels: means Metro's wholesale and retail
marketing and distribution channels.
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<PAGE>
Effective Date: means the date on which the Completion shall
occur.
Expense Budget: the meaning given in Clause 2.4(b).
Governmental Entity: any governmental or regulatory
authority, agency, court, commission or other entity, domestic or foreign.
Marketing Arrangement: the agreement entered into between the
Company and a Distribution Channel.
Metro: the meaning given in the introductory paragraph of
this Agreement.
Metro AG: Metro AG, Cologne, a German public company.
Metro Coordinator: the meaning given in Clause 2.2(j).
Parent: the meaning given in the introductory paragraph of
this Agreement.
Person: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Entity or other
entity.
RSL Coordinator: the meaning given in Clause 2.2(j).
RSL Products: includes, without limitation, "Call-by-Call",
"Pre-Selection", "Prepaid Calling Card", and any other telecommunication
product or services distributed by the Company or its affiliates from time to
time, provided that prior to January 1, 1999, the term "RSL Products" will not
include the marketing or provision of any service involving the transmission of
voice or facsimile through the Internet.
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<PAGE>
Sales Task Force: the meaning given in Clause 2.4(a).
Stock Subscription, Stock Option and Stockholders Agreement:
means the Stock Subscription, Stock Option and Stockholders Agreement, dated as
of June 10, 1998, among the Company, RSL Communications, Ltd. and Metro.
Subsidiary: with respect to any Person (the "First Parent"),
any other Person (other than a natural person), whether incorporated or
unincorporated, of which at least a majority of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions is
directly or indirectly owned or controlled by the First Person or by one or
more of its respective Subsidiaries or by the First Person and any one or more
of its respective Subsidiaries.
1.2 Other Definitional Provisions. (a) The words "hereof",
"herein" and "hereunder" and words of similar import, when used in this
Agreement, refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(b) Terms defined in the singular have the same meaning when
used in the plural, and vice versa.
(c) References to "Clauses" and "Annexes" refer to Clauses
of, and Annexes to, this Agreement (as each of the same may be amended in
accordance with the terms hereof), unless otherwise specified.
(d) Terms used herein without definition, shall have the
meanings specified thereto in the Stock Subscription, Stock Option and
Stockholders Agreement.
CLAUSE 2
SERVICES; OBLIGATIONS OF PARTIES
4
<PAGE>
2.1 The Services. During the term of this Agreement, Metro
agrees to use its best efforts (a) to assist the Company to negotiate in good
faith and enter into agreements to market and distribute a full range of RSL
Products through Distribution Channels it owns and/or those it controls and the
Distribution Channels of Metro AG, it being understood that although Metro
indirectly is the principal shareholder of Metro AG, it does not control Metro
AG, (b) to use its influence with related and unrelated companies, including,
without limitation, outside of the control of Metro or Metro AG, to assist the
Company in marketing, distributing and selling RSL Products, and (c) to use its
influence to enable the cooperation and commercial relationship between the
Company and Debitel in the field of fixed network resources and mobile
telecommunications services and the distribution and sale of such products and
services and RSL Products by Debitel.
2.2 Metro's Obligations. In furtherance of the services to be
provided by Metro pursuant to Clause 2.1, Metro's obligations shall include,
but shall not be limited to, the following:
(a) Upon request of the Company, provide access to the
management and directors of each of the Distribution
Channels selected by the Company, and otherwise assist
with communications to and the commercial arrangements
with each of the Distribution Channels;
(b) Promote to the Distribution Channels its support of RSL
Products and the potential value of Marketing Arrangements
to the Distribution Channels;
(c) Use it best efforts and its own resources to develop
incentives for the Distribution Channels in connection
with Marketing Arrangements;
(d) Through its participation in the Sales Task Force (as
defined in Clause 2.4), advise the Company in
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<PAGE>
structuring reasonable Marketing Arrangements with the
Distribution Channels, and assist in preparation of joint
business plans in connection therewith;
(e) Consistent with its fiduciary duties and subject to the
Confidentiality Agreements, provide the Company with such
commercial and financial information regarding the
Distribution Channels as the Company may reasonably
request in connection with the developing and structuring
of potential Marketing Arrangements;
(f) Assist the Company in resolving problems or disputes that
may arise with Distribution Channels;
(g) Keep the Company informed of Distribution Channels'
reaction to and implementation of the marketing and sale
of RSL Products;
(h) To extent permitted by applicable law and not disruptive
to Metro's management of, or relations with, its
Distribution Channels, enter into negotiations with the
Company on behalf of the Distribution Channels;
(i) Use its best efforts to cause the Distribution Channels to
comply with their obligations pursuant to the Marketing
Arrangements, provided that nothing in this Clause 2.2(h)
is to be construed as a guarantee by Metro of the
performance of such obligations; and
(j) Provide a Metro executive, reasonably satisfactory to the
Company (the "Metro Coordinator"), to act, jointly with an
executive appointed by the Company (the "RSL Coordinator"
and, together with the Metro Coordinator, the
"Coordinators"), as coordinators of the Sales Task Force.
6
<PAGE>
2.3 The Company's Obligations. During the term of this
Agreement, the Company's obligations shall include, but shall not be limited
to, the following:
(a) Keep Metro informed of the status of its negotiations with
the Distribution Channels;
(b) Invite the Sales Task Force Members to attend all meetings
with the Company and the Distributions Channels;
(c) Make available to Metro and the Sales Task Force summary
statements of operational and financial results with
respect to each of the Marketing Arrangements;
(d) Comply with its obligations pursuant to the Marketing
Arrangements; and
(e) Use its best efforts to provide that its Affiliates and
third party distributors do not market RSL Products to any
Distribution Channels or any retail outlet contained in
the Distribution Channels other than pursuant to Marketing
Arrangements or other transactions entered into pursuant
to this Agreement.
2.4 Sales Task Force. (a) There will be a task force (the
"Sales Task Force") comprised of a team of persons named by each of the
Company and Metro to facilitate and execute marketing and sales of RSL
Products through the Distribution Channels. The Sales Task Force will be
under the immediate supervision of the Coordinators who will be under the
overall management of the Company. Except for the Metro Coordinator, who
will remain an employee of Metro and whose compensation will be paid by
Metro, all members of the Sales Task Force will be employees of the Company
or its Affiliates designated by the Company and their compensation will be
paid by the Company or its Affiliates designated by the Company. The initial
Metro Coordinator will be Klaus-Dieter Susse. The initial RSL Coordinator
will be Jeremy
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<PAGE>
Owen. The other initial members of the Sales Task Force and their
responsibilities are set forth in Annex A hereto.
(b) A business plan for the two-year period commencing the
date hereof reflecting projected Marketing Arrangements is attached as Annex B
hereto (the "Business Plan"). An expense budget for the Sales Task Force for
the one-year period beginning the date hereof is attached as Annex C hereto
(the "Expense Budget"). This Agreement, the Business Plan and Expense Budget
contemplate the Distribution Channels will not be materially reduced by
dispositions, consolidation or closures from the Distribution Channels existing
on the date hereof, but nothing herein shall constitute a commitment by Metro
to maintain its existing Distribution Channels.
CLAUSE 3
TERM
3.1 Term. The term of this Agreement shall commence on the
Effective Date and shall expire on the fifth anniversary thereof and shall
not be earlier terminated. In the event of material breach by Metro or the
Company of its obligations hereunder or under the Stock Subscription, Stock
Option and Shareholders Agreement, damages recoverable by the non-breaching
party shall take into account, without limitation, any and all amounts paid
by the non-breaching party pursuant to the Stock Subscription, Stock Option
and Shareholders Agreement and all costs and expenses incurred by the
non-breaching party hereunder and thereunder.
CLAUSE 4
MISCELLANEOUS
4.1 Expenses. Except as otherwise specifically provided
for in this Agreement, each party hereto shall bear their respective
expenses, costs and fees (including attorneys', auditors' and financing
fees, if any) in connection with the transactions contemplated hereby,
8
<PAGE>
whether or not the transactions contemplated hereby shall be consummated.
4.2 Notices. All notices and other communications made in
connection with this Agreement shall be in writing. Any notice or other
communication in connection herewith shall be deemed duly given (a) two
Business Days after it is sent by express, registered or certified mail,
return receipt requested, postage prepaid or (b) one Business Day after it
is sent by overnight courier guaranteeing next day delivery, in each case,
addressed as follows:
(i) if to the Company or the Parent, to:
RSL COM Europe, Ltd.
Victoria House
London Square
Cross Lanes
Guilford, Surrey, GU1 1UT
Telecopy: 011-44-1483-45-7735
Telephone: 011-44-1483-45-7300
Attention: Richard Williams
with copies to:
RSL Communications, Ltd.
c/o RSL Communications, N. America, Inc.
767 Fifth Avenue , suite 4300
New York, NY 10153
Telecopy: 212-317-0600
Telephone: 212-317-1800
Attention: Avery S. Fischer, Esq.
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Telecopy: 212-909-6836
Telephone: 212-909-6072
Attention: George E.B. Maguire, Esq.
Levinson Gray
9
<PAGE>
9 Old Queen Street
Westminster
London SW1H 9JA
United Kingdom
Telecopy: 011-44-171-222-3563
Telephone: 011-44-171-222-2299
Attention: Alan Levinson, Esq.
(ii) if to Metro, to:
Metro Holding AG
Neuhofstrasse 4
6340 Baar
Switzerland
Telecopy: 04-41-41-768-7579
Telephone: 04-41-41-768-7683
Attention: Hugo Truetsch, Esq.
with copies to:
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
Telecopy: 212-661-0989
Telephone: 212-351-4500
Attention: Lowell S. Lifschultz, Esq.
Memery Crystal
31 Southampton Row
London WC1B 5HT
United Kingdom
Telecopy: 011-44-171-242-2058
Telephone: 011-44-171-242-5905
Attention: Lesley Gregory, Esq.
or, in each case, at such other address as may be specified in writing to
the other parties hereto. Any party may give any notice or other
communication in connection herewith using any other means (including, but
not limited to, personal delivery, messenger service, telecopy, telex or
ordinary mail), but no such notice or other communication shall
10
<PAGE>
be deemed to have been duly given unless and until it is actually received by
the individual for whom it is intended.
4.3 Headings. The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
4.4 Entire Agreement. This Agreement (including the Annexes
referred to herein or delivered hereunder), constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
11
<PAGE>
4.5 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
4.6 Severability. If any provision, including any phrase,
sentence, clause, section or subsection, of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering such provisions in question invalid, inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision herein contained invalid, inoperative, or unenforceable to any extent
whatsoever.
4.7 Governing Law. THIS AGREEMENT SHALL BE GOV ERNED IN ALL
RESPECTS, INCLUDING, BUT NOT LIMITED TO, AS TO VALIDITY, INTERPRETATION AND
EFFECT, BY THE LAWS OF ENGLAND.
4.8 Jurisdiction and Venue. Each party to this Agreement
expressly and irrevocably (a) consents that any legal action or proceeding
against it under, arising out of or in any manner relating to, this
Agreement may be brought in the courts of London, England having
jurisdiction thereof, (b) consents and submits to personal jurisdiction of
any such courts in any such action or proceeding, (c) consents to the
service of any complaint, summons, notice or other process relating to any
such action or proceeding by delivery thereof to him, her or it by hand or
by any other manner provided for in Section 4.2, (d) waives any claim or
defense in any such action or proceeding based on any alleged lack of
personal jurisdiction, improper venue or forum non coveniens or any similar
basis, and (e) waives all rights, if any, to trial by jury with respect to
any such action or proceeding. Nothing in this Section 4.8 shall affect or
impair in any manner or to any extent the right of any party to commence
legal proceedings or otherwise proceed against any other party in any
jurisdiction or to serve process in any manner permitted by law.
4.9 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto
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<PAGE>
and their respective heirs, successors and permitted as signs.
4.10 Assignment. This Agreement shall not be assignable by
any party without the prior written consent of other parties.
4.11 No Third Part Beneficiaries. Except as expressly
provided herein, nothing in this Agreement shall confer any rights upon any
Person other than the parties hereto and each such party's respective heirs,
successors and permitted assigns.
4.12 Amendment; Waivers, etc. No amendment, modification
or discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing and duly executed by the party against
whom enforcement of the amendment, modification, discharge or waiver is
sought. Any such waiver shall constitute a waiver only with respect to the
specific matter described in such writing and shall in no way impair the
rights of the party granting such waiver in any other respect or at any
other time. The representations and warranties of the parties hereto shall
not be affected or deemed waived by reason of any investigation made by or
on behalf of any other party (including, but not limited to, by any of its
advisors, consultants or representatives) or by reason of the fact that such
other party or any such advisors, consultants or representatives knew or
should have known that any such representation or warranty is or might be
inaccurate.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement by their authorized representatives as of the date first
above written.
RSL COM EUROPE, LTD.
By:
----------------------------
Name:
Title:
METRO HOLDING AG
By:
----------------------------
Name:
Title:
<PAGE>
EXECUTION FORM
EXCHANGE AGREEMENT dated July 22, 1998 among Ligapart AG ("Ligapart"),
Metro Holding AG ("Metro") and RSL Communications, Ltd. (the "Company").
1. Exchange of Shares. Subject to the terms and conditions hereof, at
the Closing referred to in Section 2, the Company shall issue 1,607,142 shares
(the "Exchange Shares") of the Company's Class A Common Stock, par value $.00457
per share (the "Class A Common Stock"), to Ligapart in exchange for 142,857
shares (the "Surrender Shares") of RSL Europe's shares, par value .01 pounds per
share.
2. Closing. The closing (the "Closing") of the exchange of the
Exchange Shares for the Surrender Shares (the "Exchange") shall take place at
the offices of the Company, 767 Fifth Avenue, New York, New York 10153, on
Tuesday, July 28, 1998, at 10:00 A.M. New York time, or at such other time and
place as the Sellers and the Buyer may agree upon in writing. At the Closing:
(a) Ligapart shall deliver to the Company one or more
certificates representing the Surrender Shares duly endorsed in blank
or accompanied by stock powers or other instruments of transfer duly
executed in blank and bearing or accompanied by all requisite stock
transfer stamps; and
(b) the Company shall deliver to Ligapart:
(i) one or more share certificates representing the Exchange
Shares registered in the name of Ligapart and bearing the legends
set forth in Clause 10.1 of the Amended and Restated Share
Subscription, Share Option and Shareholders Agreement dated June
10, 1998 (the "Amended and Restated Agreement") between RSL COM
Europe, Ltd. ("RSL Europe"), the Company and Metro; and
(ii) an opinion of counsel to the Company, in form and
substance reasonably satisfactory to Ligapart, that the Exchange
Shares have been duly authorized and, assuming that they have been
issued and the Surrender Shares delivered to the Company in
accordance with the terms of this Agreement, have been validly
issued and are fully paid and nonassessable.
<PAGE>
3. Representations and Warranties.
3.1 Representations and Warranties of the Company. The Company
represents and warrants to Ligapart and Metro as follows:
(a) Corporate Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of Bermuda.
(b) Authorization, etc. The Company has full corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all requisite corporate action on the part of the
Company. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms.
(c) Conflicts. The execution and delivery by the Company of this
Agreement and the consummation by the Company of the transactions
contemplated hereby, do not and will not conflict with, or result in
any violation of, or default under, any provision of (i) the Company's
Organizational Documents, (ii) any Contract to which the Company is a
party or by which the Company may be bound, or (iii) any judgment,
order, decree, law, statute, rule or regulation applicable to the
Company, other than, in the case of clauses (ii) or (iii), any
conflicts, violations or defaults that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(d) Capitalization. As of July 10, 1998, the authorized capital of
the Company consisted of 438,000,000 shares of Common Stock, par value
$.00457 per share, of which 14,181,171 shares of Class A Common Stock
and 28,455,081 shares of Class B Common Stock were issued and
outstanding. All of the issued shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable.
The Exchange Shares have been duly authorized and, when issued to
Ligapart in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable.
(e) Litigation. There is no action, claim, suit, arbitration or
proceeding pending or, to the Company's knowledge, threatened against
the Company and there is no investigation pending or, to the Company's
knowledge, threatened against the Company, in each case, before any
court or Governmental Entity, that could have a Material Adverse
Effect.
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<PAGE>
(f) Brokers and Finders. The Company has not employed any broker,
finder or investment banker in connection with the transactions
contemplated herein so as to give rise to any claim against Ligapart or
Metro for any brokerage, finder's or investment banker's commission,
fee or similar compensation.
3.2 Representation and Warranties of Ligapart and Metro. Ligapart and
Metro jointly and severally represent and warrant to the Company as follows:
(a) Corporate Status. Each of Ligapart and Metro is a corporation
duly organized, validly existing and in good standing under the laws of
Switzerland.
(b) Authorization, etc. Each of Ligapart and Metro has full
corporate power and authority to execute and deliver this Agreement and
to perform its respective obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite
corporate action on the part of Ligapart and Metro. This Agreement has
been duly executed and delivered by Ligapart and Metro and constitutes
the legal, valid and binding obligations of Ligapart and Metro
enforceable against them in accordance with its terms.
(c) No Conflicts. The execution and delivery by Ligapart and Metro
of this Agreement and the consummation by Ligapart and Metro of the
transactions contemplated hereby, do not and will not conflict with, or
result in any violation of or default under, any provision of (i) their
respective Organizational Documents, (ii) any Contract to which either
of them is a party or by which either of them may be bound, or (iii)
any judgment, order, decree, law, statute, rule or regulation
applicable to either of them, other than, in the case of clauses (ii)
or (iii), any conflicts, violations or defaults that, individually or
in the aggregate, would not reasonably be expected to have a Material
Adverse Effect.
(d) Litigation. There is no action, claim, suit, arbitration or
proceeding pending or, to knowledge of Ligapart or Metro, threatened
against either of them and there is no investigation pending or, to the
knowledge of Ligapart or Metro, threatened against either of them, in
each case, before any court or Governmental Entity, that could have a
Material Adverse Effect.
(e) Brokers and Finders. Neither Ligapart nor Metro has employed
any broker, finder or investment banker in connection with the
3
<PAGE>
transactions contemplated herein so as to give rise to any claim
against the Company for any brokerage, finder's or investment banker's
commission, fee or similar compensation.
(f) Title to Surrender Shares. Ligapart owns the Surrender Shares
beneficially and of record and free and clear of any Liens.
(g) Investment Intention. Ligapart is acquiring the Exchange
Shares solely for its own account for investment and not with a view to
or for sale in connection with any distribution thereof in
contravention of the Securities Act of 1933, as amended (the
"Securities Act"), or any Applicable Securities Laws. Ligapart agrees
that it will not, directly or indirectly, effect a Transfer or offer,
or solicit offers, to effect a Transfer of the Exchange Shares, except
in compliance with the Secu rities Act and the rules and regulations
thereunder, and in compliance with applicable state securities or "blue
sky" laws and all other Applicable Securities Laws.
(h) Ability to Bear Risk. Ligapart's financial situation is such
that it can afford to bear the economic risk of holding the Exchange
Shares for an indefinite period and Ligapart can afford to suffer the
complete loss of its investment in the Exchange Shares.
(i) Access to Information; No Reliance. Ligapart has been granted
the opportunity to ask questions of, and receive answers from,
representatives of the Company and RSL Europe concerning the Exchange
Shares and the Surrender Shares and Ligapart's knowledge and experience
in financial and business matters is such that it is capable of
evaluating the risks of its investment in the Exchange Shares. Ligapart
has not relied on any representation of the Company or RSL Europe
written or oral other than the representations and warranties contained
in this Agreement and the Amended and Restated Agreement.
3.3 Certain Definitions. As used in this Section 3, the following
terms have the following meanings:
Applicable Securities Laws: all laws, rules and regulations of any
Governmental Entity of competent jurisdiction applicable to any Transfer of
Shares.
Contract: in the case of the Company, Ligapart or Metro, any mortgage,
indenture, loan agreement, note, bond, deed of trust, other agreement,
commitment or obligation for the borrowing of money or the obtaining of credit,
lease or other
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<PAGE>
agreement, contract, license, franchise permit or instrument to which such
person is a party or by which such person may be bound.
Governmental Entity: any governmental or regulatory authority, agency,
court, commission or other entity, domestic or foreign.
Lien: any mortgage, pledge, hypothecation, security interest, option or
other similar encumbrance.
Material Adverse Effect: with respect to the Company, Ligapart or
Metro, a material adverse effect on the ability of such person to consummate the
transactions contemplated by this Agreement.
Organizational Documents: with respect to the Company, Metro or
Ligapart, its articles or certificate of incorporation or memorandum and
articles of association and by-laws.
Transfer: any transfer, sale, pledge, hypothecation or other
disposition.
4. Conditions to Closing.
4.1 The Company's Conditions. The obligation of the Company to
consummate the Exchange is subject to the satisfaction or waiver by the Company
of the condition that the representations and warranties of Ligapart and Metro
contained in Section 3.2 shall be true and correct in all material respects on
the date of the Closing.
4.2 Ligapart's Conditions. The obligations of Ligapart to consummate
the Exchange is subject to the satisfaction or waiver by Ligapart of the
condition that the representations and warranties of the Company contained in
Section 3.1 shall be true and correct in all material respects on the date of
the Closing.
5. Limitation on Sale of Shares. Metro and Ligapart shall not, and
shall cause their controlled Affiliates (as defined in the Amended and Restated
Agreement) not to, sell prior to April 1, 2001 any Exchange Shares, Additional
Option Shares or Telegate Exchange Shares. The term "Additional Option Shares"
means any shares of Class A Common Stock acquired upon exercise of the
Additional Option (as defined in the letter dated July 7, 1998 (the "Option
Letter") from the Company to Metro). The term "Telegate Exchange Shares" means
any shares of Class A Common Stock issued by the Company to Metro as
contemplated by the Option Letter in connection with the acquisition by RSL
Europe of the Telegate Shares (as defined in the Amended and Restated
Agreement).
5
<PAGE>
6. Registration Rights.
6.1 Demand Registration. (a) At any time after March 31, 2001, Metro
may request that the Company effect a registration under the Securities Act of
all or part of the Registrable Shares then held by Metro and its Affiliates by
delivering to the Company a written notice requesting such registration and
specifying the number of Registrable Shares to be included in such registration
and the intended method of disposition thereof (a "Demand Notice"). Metro shall
be entitled to have one such registration of Registrable Shares effected
pursuant to this Section 6 (the "Demand Registration").
(b) Within 45 days after receipt of a Demand Notice, the Company shall
commence in accordance with Section 6.2 the registration of the Registrable
Shares specified in such Demand Notice, provided that the Company may delay
filing the related Registration Statement for up to 60 days if the Company's
Board of Directors determines in good faith that there is a valid purpose for
such suspension. Written notice of any such delay shall be given promptly to
Metro. Notwithstanding anything to the contrary in this Section 6.1, the Company
shall not be required to effect the Demand Registration until a period of 180
days shall have elapsed from the effective date of any registration statement
previously filed by the Company or of any registration statement that the
Company has been requested prior to, or within 30 days after, receipt of the
Demand Notice to prepare and file pursuant to registration rights granted by the
Company prior to June 10, 1998 to persons other than Metro and its Affiliates.
6.2 Registration Procedures. If the Company is required to effect the
registration of any Registrable Shares under the Securities Act pursuant to
Section 6.1, the Company will:
(a) prepare and file with the United States Securities and Exchange
Commission (the "Commission") as soon as practicable a Registration
Statement with respect to such Registrable Shares and use its best efforts
to cause such Registration Statement to become effective;
(b) until the earlier of (i) such time as all such Registrable Shares
have been disposed of by the Selling Holders in accordance with the intended
method of disposition set forth in such Registration Statement and (ii) the
expiration of 180 days after such Registration Statement becomes effective,
prepare and file with the Commission such amendments and supplements to such
Registration Statement and the Prospectus as may be necessary to keep such
Registration Statement effective and to comply with the Securities Act and
the rules and regulations thereunder with respect to the disposition of all
Registrable Shares covered by such Registration Statement;
6
<PAGE>
(c) furnish to each Selling Holder such number of conformed copies of
such Registration Statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
Prospectus included in such Registration Statement (including each
preliminary prospectus and any summary prospectus) in conformity with the
requirements of the Securities Act, such documents, if any, incorporated by
reference in such Registration Statement or Prospectus, and such other
documents, as such Selling Holder may reasonably request;
(d) furnish to each Selling Holder a signed counterpart, addressed to
such Holder, of (i) an opinion of counsel for the Company, dated the
effective date of such Registration Statement and (ii) a "comfort" letter,
dated the effec tive date of such Registration Statement, signed by the
independent public ac countants who have certified the Company's financial
statements included in such Registration Statement, covering substantially
the same matters with respect to such Registration Statement (and the
Prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in under written offerings of
securities;
(e) promptly notify each Selling Holder (i) when or if the Prospectus
or any prospectus supplement or post-effective amendment has been filed,
and, with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
Commission for amendments or supplements to the Registration Statement or
the Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose
and (iv) of the existence of any fact which makes any statement made in the
Registration Statement, the Prospectus or any document incorporated therein
by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein
by reference in order to make the statements therein not misleading;
(f) if any fact contemplated by subclause (iv) of Section 6.2(e) shall
exist, prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchaser of the Registrable Shares the Prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
7
<PAGE>
(g) use reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(h) cause all Registrable Shares covered by such Registration Statement
to be listed on each securities exchange or any automated quotation system
on which shares of Class A Common Stock are then listed; and
(i) give each Selling Holder and its underwriters, if any, and their
respective counsel and accountants, the opportunity to participate in the
preparation of such Registration Statement, each Prospectus included therein
or filed with the Commission, and each amendment thereof or supplement
thereto, and, upon reasonable notice and at reasonable times, each of them
such access to its books and records and such opportunities to discuss the
business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be
necessary, in the opinion of such Holders and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning
of the Securities Act.
Metro agrees to furnish and to cause Ligapart to furnish to the Company
such information regarding such Selling Holder and the distribution of its
Registrable Shares being registered as the Company may from time to time
reasonably request in writing, and to notify the Company of any material change
therein, and the Company may exclude from registration the Registrable Shares of
any Selling Holder that fails to furnish such information within a reasonable
time after receiving such request.
Metro agrees that, upon receipt of any notice from the Company of the
existence of any fact of the kind described in subclause (iii) or (iv) of
Section 6.2(e), Metro will forthwith discontinue, and/or forthwith cause
Ligapart to discontinue, disposition of Registrable Shares pursuant to the
Registration Statement covering such Registrable Shares until such Selling
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6.2(f), or until it is advised in writing by the Company
that the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by the Company, such Selling Holder will deliver
to the Company all copies, other than permanent file copies then in such Selling
Holder's possession, of the Prospectus covering such Registrable Shares current
at the time of receipt of such notice.
6.3 Expenses. (a) All expenses incident to the Company's performance
of or compliance with Section 6 shall be borne by the Company, including, but
not limited to, all (i) registration and filing fees, including NASD fees and
fees and expenses associated with filings required to be made with any national
securities exchange or national computerized
8
<PAGE>
market system, (ii) fees and expenses of complying with securities or blue sky
laws, including reasonable fees and disbursements of counsel effecting blue sky
qualifications, (iii) word processing, duplicating and printing expenses,
messenger and delivery expenses, and (iv) fees and disbursements of counsel for
the Company, of the Company's independent public accountants (including the
expenses of any special audits or "comfort" letters required by or incident to
such performance and compliance), and of any Person, including special experts,
retained by the Company in connection with such performance and compliance.
(b) Notwithstanding Section 6.3(a), each Selling Holder shall bear the
following expenses in connection with any registration of Registrable Shares:
(i) all discounts, commissions or fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals relating to the
distribution of the Registrable Shares of such Selling Holder, (ii) all legal
and accounting fees and expenses of such Selling Holder and (iii) all taxes of
such Selling Holder.
6.4 Certain Definitions. As used in this Section 6, the following
terms have the following meanings:
Prospectus: the prospectus included in the Registration Statement,
including all amendments (including, but not limited to, post-effective
amendments) and supplements to such prospectus and all material incorporated
by reference in such prospectus.
Registrable Shares: any Exchange Shares, Additional Option Shares or
Telegate Exchange Shares held by Metro and/or Ligapart or a controlled
Affiliate of Metro, provided that any particular Registrable Shares shall
cease to be Registrable Shares when (a) a Registration Statement with
respect to the sale of Registrable Shares shall become effective under the
Securities Act on such Registrable Shares that have been disposed of in
accordance with such Registration Statement or (b) such Registrable Shares
shall have been distributed to the public pursuant to Rule 144 under the
Securities Act.
Registration Statement: a registration statement of the Company on the
appropriate form covering Registrable Shares, including the Prospectus
contained therein, all amendments (including, but not limited to,
post-effective amendments) and supplements to such registration statement,
all exhibits to such registration statement and all material incorporated by
reference in such registration statement.
Selling Holder: in connection with any registration of Registrable
Shares pursuant to Section 6, the holder of such Registrable Shares.
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<PAGE>
7. Standstill. Until the later of (a) such time as neither Metro nor
any of its Affiliates (as defined in the Amended and Restated Agreement) owns
less than 2% of the capital stock of the Company and RSL Europe and (b) June 10,
2003, neither Metro, Ligapart nor any of their controlled Affiliates will (or
will assist or encourage others to), directly or indirectly, without the prior
written approval of the Company's Board of Directors (or the prior approval
memorialized in the minutes of meetings of the Company's Board of Directors):
(i) acquire or agree, offer, seek or propose to acquire, ownership,
including, but not limited to, beneficial ownership as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended ("Beneficial
Ownership"), of:
(A) any capital stock (or securities exchangeable for, or
convertible into, capital stock) of the Company, or any rights or
options to acquire such ownership from a third party or otherwise,
other than:
(x) pursuant to this Agreement, the Amended and Restated
Agreement or the Share Purchase Agreement dated the date hereof
between Metro and certain stockholders of the Company named
therein, or
(y) an acquisition, after giving effect to which, Metro and
its Affiliates do not have Beneficial Ownership of more than 10%
of the shares of capital stock then outstanding of the Company; or
(B) any of the assets or businesses or securities (other than
capital stock (or securities exchangeable for, or convertible into,
capital stock) of the Company) of the Company, or any subsidiary or
division thereof, or any rights or options to acquire such ownership
from a third party or otherwise;
(ii) seek or propose to influence or control the Company's management
or policies;
(iii) make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are used in the rules of the
Securities and Exchange Commission) to vote, or seek to advise or influence
any person or entity with respect to the voting of, any voting securities of
the Company;
(iv) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the foregoing;
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<PAGE>
(v) disclose any intention, plan or arrangement inconsistent with the
foregoing;
(vi) publicly request the Company, directly or indirectly, to amend or
waive any provisions of this Section 4; or
(vii) take any action which might require the Company to make a public
announcement regarding a possible transaction involving the Company.
Metro will cause its controlled Affiliates to comply, and will use its
reasonable efforts to influence its related companies that are not controlled
Affiliates (including, but not limited to, Metro AG, a public company not under
Metro's control) to comply, with the provisions of this Section 7.
8. Metro Guarantee of Ligapart's Obligations. Metro hereby
irrevocably and unconditionally guarantees the full and timely performance by
Ligapart of all of its obligations hereunder.
9. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered by hand or commercial courier
or sent by telecopy as follows:
RSL Communications, Ltd. c/o RSL Communications
N. America, Inc.
767 Fifth Avenue, Suite 4300
New York, New York 10153
fax: (212) 317-0600
Metro Holding AG Neuhofstrasse 4
CH-6340 Baar
Switzerland
fax: 011-4-41-41-768-7579
Ligapart AG Neuhofstrasse 4
CH-6340 Baar
Switzerland
fax: 011-4-41-41-768-7579
or at such other address or fax number as a party may specify to the other
parties by notice.
10. Jurisdiction and Venue.
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10.1 Consent to Jurisdiction. Each of the parties hereto irrevocably
(a) 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, (b) 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 (c) submits to the exclusive jurisdiction of such courts in
any such suit, action or proceeding.
10.2 The Metro Agent. Each of Metro and Ligapart hereby appoints
Epstein Becker & Green, P.C., 250 Park Avenue, New York, New York 10177,
Attention: Lowell S. Lifschultz, Esq., as its authorized agent (the "Metro
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 the Company or RSL Europe, 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. Each of Metro and
Ligapart represents and warrants that the Metro Authorized Agent has agreed to
act as such agent for service of 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.
Service of process upon the Metro Authorized Agent and written notice of such
service to Metro or Ligapart, as the case may be, shall be deemed, in every
respect, effective service of process upon Metro or Ligapart, as the case may
be.
10.3 The Company Agent. 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 "Company 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, New York court by Metro or Ligapart, 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 Company Authorized Agent has agreed to act as such agent for
service of 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. Service of process upon the
Company Authorized Agent and written notice of such service to the Company shall
be deemed, in every respect, effective service of process upon the Company.
11. Governing Law. This agreement shall be construed in accordance
with and governed by the laws of the State of New York without regard to the
conflicts of law rules thereof.
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<PAGE>
12. Binding Effect; Assignments. This Agreement shall enure to the
benefit of and be binding upon the parties, their respective heirs, successors
and permitted assigns. This Agreement may not be assigned by any of the parties
hereto without the prior written consent of the other parties.
13. Miscellaneous. This Agreement may be amended and the performance
thereof may be waived only by an instrument in writing signed by the party
sought to be charged. This Agreement may be executed in any number of
counterparts all of which shall constitute one and the same instrument. This
Agreement, the Amended and Restated Agreement and the Services Agreement (as
defined in the Amended and Restated Agreement) constitute the entire agreement
among the parties relating to the subject matter hereof and supersede all prior
agreements and understandings, whether written or oral.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
RSL COMMUNICATIONS, LTD.
By:
--------------------------------------
Name:
Title:
LIGAPART AG
By:
--------------------------------------
Name:
Title:
METRO HOLDING AG
By:
--------------------------------------
Name:
Title:
14
<PAGE>
AMENDED AND RESTATED
SHARE SUBSCRIPTION, SHARE OPTION
AND SHAREHOLDERS AGREEMENT
THIS AGREEMENT, is made the 22nd day of July, 1998, BETWEEN
RSL COM Europe, Ltd. a United Kingdom corporation (the "Company"), RSL
Communications, Ltd., a Bermuda corporation (the "Parent"), and Metro Holding
AG, a Swiss corporation ("Metro").
WHEREAS,
(A) the Company, the Parent and Metro have entered into that
certain Share Subscription, Share Option and
Shareholders Agreement dated June 10, 1998 (the
"Original Agreement");
(B) pursuant to the Original Agreement, (i) Metro and the
Company have entered into that certain Marketing and
Distribution Services Agreement dated June 10, 1998
(the "Services Agreement") and (ii) Metro has purchased
from the Company, and the Company has issued and sold
to Metro, 142,857 shares (the "Subscription Shares") of
the Company's shares, par value(pound).01 per share
(the "Shares");
(C) pursuant to that certain letter dated July 7, 1998 (the
"Option Letter") from the parent to Metro, the Parent
granted Metro on the terms and conditions set forth in
the Option Letter, an option (the "Exchange Option") to
exchange the Subscription Shares for 1,607,142 newly
issued shares (the "Parent Exchange Shares") of the
Parent's Class A Common Stock, par value $.00457 per
share ("Parent Shares");
(D) Metro has elected to exercise the Exchange Option, and
concurrently herewith, Metro and the Parent are
entering into an exchange agreement (the "Exchange
Agreement") providing for the exchange of the
Subscription Shares for the Parent Exchange Shares;
(E) the parties desire to amend the Original Agreement as
provided herein;
NOW, THEREFORE, the parties agree that the Original Agreement is hereby
amended and restated in its entirety as provided herein:
<PAGE>
CLAUSE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement and the
Schedules hereto, the following terms, not defined elsewhere, have the following
meanings:
Additional Shares: the 1,607,142 Parent Shares to be purchased
by Metro or, at Metro's election, Ligapart pursuant to the Share Purchase
Agreement.
Affiliate: with respect to any Person, a Person that directly
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with such Person. "Control" (including the terms
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting securities, by
contract or credit arrangement, as trustee or executor, or otherwise.
Applicable Securities Laws: all laws, rules and regulations of
any Governmental Entity of competent jurisdiction applicable to any Transfer of
Telegate Exchange Shares.
Appraiser: the meaning given in Clause 9.1.
Business Day: any day other than a Saturday, a Sunday, or a
day on which commercial banking institutions are authorized or required by law
to be closed in London.
Commission: the United States Securities and Exchange
Commission.
Company: the meaning given in the introductory paragraph of
this Agreement.
Consent: any consent, approval, authorization, order, notice,
filing, registration or qualification of or with or waiver from any Person.
Covered Shares: the Telegate Exchange Shares, the Parent
Exchange Shares and the Additional Shares.
Delta Three: the meaning given in Clause 17.1.
Earliest Twister Option Completion Date: the meaning given in
Clause 7.4(a).
Exchange Option: the meaning given in WHEREAS Clause (C).
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Fully-Diluted TCE Shares: the meaning given in Clause 7.1(b).
Fully-Diluted TS Shares: the meaning given in Clause 7.1(b).
Governmental Entity: any governmental or regulatory authority,
agency, court, commission or other entity, domestic or foreign.
Income Tax: any federal, state, provincial, local or foreign
income, alternative, minimum, accumulated earnings, personal holding company,
franchise, capital stock, net worth, capital, profits or windfall profits tax or
other similar tax, estimated tax, duty or other governmental charge or
assessment or deficiencies thereof.
Independent Appraiser: the meaning given in Clause 9.2.
Ligapart: Ligapart AG, a wholly owned Subsidiary of Metro.
Material Adverse Effect: with respect to the Company, the
Parent or Metro, a material adverse effect (a) on the properties, assets,
liabilities, business, financial condition or results of operations of such
Person and its Subsidiaries taken as a whole or (b) that would have a material
adverse effect on the ability of such Person to consummate the transactions
contemplated by this Agreement, the Exchange Agreement or the Services
Agreement.
Metro: the meaning given in the introductory paragraph of this
Agreement.
Metro Invested Amount: the meaning given in Clause 7.1(b).
Metro Telegate Party: each of Metro Vermogensverwaltung GmbH &
Co. Kommanditgesellschaft, Walter Telemarketing und Vertrieb GmbH & Co. KG and
Invision AG.
Non-Compete Period: the meaning given in Clause 13.1.
Option Letter: the meaning given in WHEREAS Clause (C).
Original Agreement: the meaning given in WHEREAS Clause (A).
Parent: the meaning given in the introductory paragraph of
this Agreement.
Parent Exchange Shares: the meaning given in WHEREAS Clause
(C).
Parent Shares: the meaning given in WHEREAS Clause (C).
3
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Person: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Entity or other
entity.
Prospectus: the prospectus included in any Shelf Registration
Statement, including all amendments (including, but not limited to,
post-effective amendments) and supplements to such prospectus and all material
incorporated by reference in such prospectus.
Right of Refusal Holder: the minority shareholder of TCE.
RSL Com Party: each of the Parent, the Company and RSL Com
Deutschland GmbH.
Securities Act: the United States Securities Act of 1933, as
amended.
Services Agreement: the meaning given in WHEREAS Clause (B).
Share Purchase Agreement: the Share Purchase Agreement dated
the date hereof among Ronald S. Lauder, Fisher Investment Partners, L.P., Fleur
Harlan, Bukfenc, Inc., Tarlovsky Investment Partners, Nesim Bildirici, L.P.,
Robert Finkel, as trustee of Waltham Trust, Jacob Davidson and Metro.
Shares: the meaning given in WHEREAS Clause (B).
Specified Companies: the meaning given in Clause 13.1.
Specified Twister Option Completion Date: the meaning given in
Clause 7.4(a).
Subscription Shares: the meaning given in WHEREAS Clause (B).
Subsidiary: with respect to any Person (the "First Person"),
any other Person (other than a natural person), whether incorporated or
unincorporated, of which at least a majority of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is directly or
indirectly owned or controlled by the First Person or by one or more of its
respective Subsidiaries or by the First Person and any one or more of its
respective Subsidiaries.
TCE: TCE Network AG, a Swiss corporation.
TCE Option Exercise Price: the meaning given in Clause 7.1(a).
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TCE Shares: the meaning given in Clause 7.1(a).
Telegate: Telegate Holding GmbH.
Telegate AG: Telegate Aktiengesellschaft fur telefonische
Inforormationsdienste.
Telegate Agreement: the Option Agreement dated May 28, 1998
between Metro Vermogensverwaltung GmbH & Co. Kommanditgesellschaft, Walter
Telemarketing und Vertrieb GmbH & Co. KG, Invision AG, the Company and RSL Com
Deutschland GmbH.
Telegate EBITDA: for any period the consolidated earnings
before interest, taxes, depreciation and amortization of Telegate AG for such
period, determined on the same basis as used in preparing Telegate AG's audited
annual accounts for 1997.
Telegate Equity Value: the meaning given in Clause 3.1(b).
Telegate Exchange Shares: the meaning given in Clause 3.1(a).
Telegate Shares: ordinary shares of Telegate representing 25%,
on a fully-diluted basis of the Shares of Telegate AG, beneficially owned by
Metro and its Affiliates.
Transfer: with respect to any property and any Person, any
transfer, sale, pledge hypothecation or other disposition of such Property by
such Person.
TS: Twister Communications Network AG, a Swiss corporation.
TS Option Exercise Price: the meaning given in Clause 7.1(a).
TS Shares: the meaning given in Clause 7.1(a).
Twister Option: the meaning given in Clause 7.1(a).
Twister Option Completion Date: the meaning given in Clause
7.4(a).
Twister Option Exercise Notice: the meaning given in Clause
7.4(a).
Twister Option Termination Date: the meaning given in Clause
7.2.
Twister Right of First Refusal: the right of first refusal in
favor of the Right of Refusal Holder with respect to the TCE Shares.
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Twister Shares: the TCE Shares and the TS Shares.
Valuation Notice: the meaning given in Clause 9.1.
1.2 Other Definitional Provisions. (a) The words "hereof",
"herein" and "hereunder" and words of similar import, when used in this
Agreement, refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(b) Terms defined in the singular have the same meaning when
used in the plural, and vice versa.
(c) References to "Clauses", "Exhibits" and "Schedules" refer
to Clauses of, and Exhibits and Schedules to, this Agreement (as each of the
same may be amended in accordance with the terms hereof), unless otherwise
specified.
CLAUSE 2
[Intentionally Omitted]
CLAUSE 3
EXCHANGE FOR THE TELEGATE SHARES
3.1 The Exchange. (a) If the Company shall acquire the
Telegate Shares pursuant to the Telegate Agreement, the Parent shall issue to
the Metro Telegate Parties as payment in full of the purchase price therefor
that number of Parent Shares (the "Telegate Exchange Shares") determined in
accordance with Clause 3.1(b) and Clause 9. The Company and the Metro Telegate
Parties agree that, pursuant to Clause 2.4 of the Telegate Agreement, the Metro
Telegate Parties shall have the right to require the Company to acquire the
Telegate Shares only if the Telegate EBITDA shall have been positive for a three
month period ending on or before May 31, 1999.
(b) For the purposes of determining the number of the Telegate
Exchange Shares, the Company and Metro will promptly upon receipt of an
Acceptance Notice (as defined in the Telegate Agreement) engage their respective
Appraisers and cause the equity value of Telegate as of the Initial Closing Date
(as defined in the Telegate Agreement) (the "Telegate Equity Value") to be
determined in accordance with Clause 7. The number of the Telegate Exchange
Shares shall equal the quotient obtained by dividing 25% of the Telegate Equity
Value by the average closing price (or, if no closing sale price is reported,
the last reported sale price) of one Parent Share as reported by The NASDAQ
National Market for the 30
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trading days immediately preceding the date on which the Company is to acquire
the Telegate Shares pursuant to the Telegate Agreement.
(c) Notwithstanding anything to the contrary in this Agreement
or in the Telegate Agreement, neither the Parent nor the Company shall have any
obligation to acquire the Telegate Shares, and the Put Option (as defined in the
Telegate Agreement) shall not be exercisable by the Beneficiaries (as defined in
the Telegate Agreement), if any class of equity securities of Telegate is then
publicly traded.
3.2 Completion of the Exchange. On the date on which the
Company is to acquire the Telegate Shares pursuant to the Telegate Agreement,
subject to the satisfaction or waiver of all conditions to such acquisition
thereunder:
(a) the Metro Telegate Parties shall deliver to the Company:
(i) a duly executed and notarized public deed or
deeds, complying with German law, evidencing the transfer of
the Telegate Shares to the Company; and
(ii) a certificate duly executed by the Metro
Telegate Parties and its Affiliates confirming, (A) with
respect to the Telegate Exchange Shares, representations and
warranties to the effect set forth in Clauses 16.8, 16.9 and
16.10 and (B) with respect to the Telegate Shares,
representations and warranties to the effect set forth in
Clause 16.7(b);
(b) the Parent shall deliver to the Metro Telegate Parties:
(i) one or more share certificates representing the
Telegate Exchange Shares registered in the name of the Metro
Telegate Parties, allocated amongst them as they shall
request, and bearing the legends set forth in Clause 10.1;
(ii) an opinion of counsel to the Parent, in form and
substance reasonably satisfactory to the Metro Telegate
Parties, that the Telegate Exchange Shares have been duly
authorized and, assuming that they have been issued and the
Telegate Shares delivered to the Company in accordance with
the terms of this Agreement, have been validly issued and are
fully paid and nonassessable.
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(c) the Company shall deliver to the Metro Telegate Parties a
certificate duly executed by the Company confirming with respect to the
Telegate Shares the representations and warranties set forth in Clause
14.8, 14.9 and 14.10.
3.3 Payment of Taxes and Expenses. (a) Except as otherwise
provided herein, the Parent shall pay all expenses in connection with, and all
taxes and other governmental charges that may be imposed with respect to, the
issuance or delivery of the Telegate Exchange Shares, unless such tax or charge
is imposed by law upon the Metro Telegate Parties, in which case such taxes or
charges shall be paid by the Metro Telegate Parties, who shall be reimbursed
therefor by the Parent, provided that in no case will the Parent be liable for
any Income Taxes of the Metro Telegate Parties or their Affiliates. The Parent
shall not be required, however, to pay any tax or other charge imposed in
connection with any transfer arising out of the issuance of any share
certificate for Telegate Exchange Shares in any name other than that of the
Metro Telegate Parties, and in such case the Parent shall not be required to
issue or deliver any share certificate until such tax or other charge has been
paid or satisfied or it has been established to the satisfaction of the Parent
that no such tax or other charge is due.
(b) Except as otherwise provided herein, the Metro Telegate
Parties shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the transfer and
delivery of the Telegate Shares, unless such tax or charge is imposed by law
upon the Company, in which case such taxes or charges shall be paid by the
Company, who shall be reimbursed therefor by the Metro Telegate Parties,
provided that in no case will the Metro Telegate Parties be liable for any
Income Taxes of the Company or its Affiliates. The Metro Telegate Parties shall
not be required, however, to pay any tax or other charge imposed in connection
with any transfer arising out of the issuance of any share certificate for
Telegate Shares in any name other than that of the Company or a Subsidiary of
the Company, and in such case the Metro Telegate Parties shall not be required
to deliver any share certificate until such tax or other charge has been paid or
satisfied or it has been established to the satisfaction of the Metro Telegate
Parties that no such tax or other charge is due.
3.4 No Rights as Stockholder. The Metro Telegate Parties will
not have any voting or other rights as a stockholder of the Parent with respect
to any Telegate Exchange Shares until the issuance to the Metro Telegate Parties
of a share certificate or certificates representing the Telegate Exchange
Shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the issuance of such certificate or certificates.
3.5 Reservation and Authorization of Shares. The Parent shall
at all times reserve and keep available for issuance authorized but unissued
Parent Shares in the number of the Telegate Exchange Shares. The Telegate
Exchange Shares when issued against receipt
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by the Company of the Telegate Shares as provided in this Clause 3, shall be
duly and validly issued and fully paid and nonassessable.
3.6 Telegate IPO. The Company and Metro shall use their
reasonable efforts to effect a public offering of shares of Telegate AG,
provided that (a) neither party shall have any obligation under this Clause 3.6
unless such offering may be effected based on an equity valuation of Telegate
AG, after giving effect to such offering, of no less than DM 240,000,000 and (b)
the Company shall have no obligation under this Clause 3.6 if the issuance of
shares of Telegate AG in such public offering would violate any obligation or
covenant of the Company under any of its agreements relating to borrowed money.
CLAUSE 4
[Intentionally Omitted]
CLAUSE 5
[Intentionally Omitted]
CLAUSE 6
[Intentionally Omitted]
CLAUSE 7
THE TWISTER OPTION
7.1 Twister Option. (a) In consideration of the sum of $1
previously paid by the Company to Metro (receipt of which Metro hereby
acknowledges), Metro hereby grants to RSL an option (the "Twister Option") to
purchase from Metro and its controlled Affiliates, subject to the terms and
conditions hereof and, in the case of the TCE Shares, the Twister Right of First
Refusal, (i) all of the shares of TCE owned beneficially by Metro and its
controlled Affiliates (the "TCE Shares"), at such aggregate price for the TCE
Shares as shall be determined in accordance with Clause 7.1(c) (the "TCE Option
Exercise Price"), and (ii) all of the shares of TS owned beneficially by Metro
and its controlled Affiliates (the "TS Shares"), at such aggregate price for the
TS Shares as shall be determined in accordance with Clause 7.1(d) (the "TS
Option Exercise Price").
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(b) For the purposes of determining the TCE Option Exercise
Price and the TS Option Exercise Price, after receipt from the Company of a
Twister Option Exercise Notice (as defined in Clause 7.4), Metro will promptly,
and in no event later than the tenth Business Day after receipt of such Twister
Option Exercise Notice, deliver to the Company a written statement certified by
Metro's Chief Financial Officer setting forth, as of the date of such statement,
(i) the total number of shares of TCE outstanding on a fully-diluted basis (the
"Fully-Diluted TCE Shares"), (ii) the number of the TCE Shares, (iii) the total
amount invested by Metro and its Affiliates in TCE (the "Metro Invested
Amount"), (iv) the total number of shares of TS outstanding on a fully-diluted
basis (the "Fully-Diluted TS Shares") and (v) the number of the TS Shares.
(c) The TCE Option Exercise Price shall equal the product of
(i) the lesser of (A) CHF5,000,000 and (B) the Metro Invested Amount and (ii)
the quotient obtained by dividing the number of the TCE Shares by the number of
the Fully-Diluted TCE Shares.
(d) The TS Option Exercise Price shall equal the product of
(i) CHF800,000 and (ii) the quotient obtained by dividing the number of the TS
Shares by the number of the Fully-Diluted TS Shares.
7.2 Duration. The Twister Option shall terminate at 5:00 p.m.
New York City time on December 7, 1998 (the "Twister Option Termination Date").
7.3 Exercisability. The Twister Option may be exercised in
whole, but not in part, at any time after the date hereof through and including
the Twister Option Termination Date.
7.4 Manner of Exercise. (a) The Twister Option may be
exercised by written notice (a "Twister Option Exercise Notice") to Metro given
not fewer than ten and not more than 45 days prior to the Business Day on which
the Company will exercise the Twister Option (the "Specified Twister Option
Completion Date"). Promptly upon receipt of the Twister Option Exercise Notice,
Metro shall give to the Right of Refusal Holder any notice thereof required
under the Twister Right of First Refusal and shall give to the Company written
notice specifying the earliest Business Day on which the exercise of the Twister
Option may be completed consistent with the terms of the Twister Right of First
Refusal, assuming that the Twister Right of First Refusal is not exercised, and
shall thereafter give prompt written notice to the Company of any acceleration
of such date (the "Earliest Twister Option Completion Date"). Subject to the
exercise of the Twister Right of First Refusal, the exercise of the Twister
Option shall be completed on the date (the "Twister Option Completion Date")
that is the later to occur of (i) the Specified Twister Option Completion Date
and (ii) the Earliest Twister Option Completion Date.
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(b) On the Twister Option Completion Date:
(i) the Company shall deliver to Metro:
(A) by wire transfer of immediately available funds
to an account designated in writing by Metro to the Company at
least two Business days prior to the Twister Option Completion
Date, an amount equal to the sum of the TCE Option Exercise
Price and the TS Option Exercise Price;
(B) a certificate duly executed by the Company
confirming with respect to the Twister Shares the
representations and warranties set forth in Clause 14.8, 14.9
and 14.10; and
(ii) Metro shall deliver to the Company:
(A) appropriate, duly executed, instruments of
transfer, complying with applicable laws, evidencing the
transfer of the Twister Shares to the Company;
(B) a certificate duly executed by Metro confirming
with respect to the Twister Shares the representations and
warranties set forth in Clause 16.7(a).
7.5 Payment of Taxes and Expenses. Except as otherwise
provided herein, Metro shall pay all expenses in connection with, and all taxes
and other governmental charges that may be imposed with respect to, the delivery
of the Twister Shares pursuant to the Twister Option, unless such tax or charge
is imposed by law upon the Company, in which case such taxes or charges shall be
paid by the Company, who shall be reimbursed therefor by Metro, provided that in
no case will Metro be liable for any Income Taxes of the Company or its
Affiliates. Metro shall not be required, however, to pay any tax or other charge
imposed in connection with any transfer arising out of the issuance of any share
certificate for Twister Shares in any name other than that of the Company or a
Subsidiary of the Company, and in such case Metro shall not be required to
deliver any stock certificate until such tax or other charge has been paid or
satisfied or it has been established to the satisfaction of Metro that no such
tax or other charge is due.
7.6 No Transfers of Twister Shares. On and after the date
hereof through and including the Twister Option Termination Date, Metro and
Affiliates shall not Transfer any Twister Shares.
7.7 Exercise of Twister Right of First Refusal. In the event
that the Twister Right of First Refusal shall be exercised, Metro shall, or
shall cause its controlled Affiliates to,
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divest the TS Shares and, from and after the exercise of the Twister Right of
First Refusal, shall not support, and shall cause its controlled Affiliates not
to support, the business of TCE or TS or their Affiliates.
CLAUSE 8
[Intentionally Omitted]
CLAUSE 9
DETERMINATION OF TELEGATE EQUITY VALUE
9.1 Preliminary Determination. Whenever a determination of the
Telegate Equity Value is required pursuant to Clause 3.1, each of the Parent and
Metro, at its own expense, shall promptly engage an internationally recognized
investment banking firm (each, an "Appraiser") to determine the Telegate Equity
Value and shall notify the other party in writing of such selection. Within 30
days after the date on which the parties are required to engage their
Appraisers, each of the Parent and Metro shall provide the other with written
notice (a "Valuation Notice") of the Telegate Equity Value determined by its
Appraiser.
9.2 Final Determination. The Parent and Metro shall cause the
Appraisers to cooperate with each other to concur as to the Telegate Equity
Value within ten days of receipt by each of the Parent and Metro of a Valuation
Notice from the other. Such determination of the Telegate Equity Value by the
concurrence of the Appraisers shall be final and binding upon the parties,
absent manifest error. If the Appraisers cannot concur as to the Telegate Equity
Value within such ten-day period, the Parent and Metro shall cause the
Appraisers to select an independent and internationally recognized investment
banking firm acceptable to both appraisers (the "Independent Appraiser") to
resolve the dispute between the Appraisers and determine the Telegate Equity
Value. The fees and expenses resulting from the valuation by the Independent
Appraiser shall be borne equally by each of the Parent and Metro. The
determination of the Telegate Equity Value by the Independent Appraiser shall be
final and binding upon the parties, absent manifest error. No Appraiser or
Independent Appraiser shall have any liability to the Parent or Metro in
connection with any determination of the Telegate Equity Value absent gross
negligence or bad faith on the part of such Appraiser or Independent Appraiser.
9.3 Alternative Valuation. Notwithstanding the foregoing
Clauses 9.1 and 9.2, upon any occasion that a provision of this Agreement
requires the determination of the Telegate Equity Value, the parties hereto may
agree to deem the Telegate Equity Value to be any amount mutually determined by
them in good faith.
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CLAUSE 10
LEGENDS ON SHARE CERTIFICATES
10.1 Legends. Metro acknowledges that each certificate
representing any Telegate Exchange Shares, including, but not limited to, each
certificate issued upon the transfer of any Telegate Exchange Shares, shall bear
each of the legends required pursuant to this Clause 10.1.
(a) Each certificate representing Telegate Exchange Shares,
unless such Telegate Exchange Shares have been sold to the public pursuant to an
effective registration statement under the Securities Act or Rule 144 under the
Securities Act, or unless otherwise freely transferable without registration
under the Securities Act, shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO AN EFFECTIVE REG ISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED
UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED,
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
(i) (A) SUCH DISPOSITION IS PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (B) THE HOLDER HEREOF SHALL HAVE DELIVERED TO THE
COMPANY AN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL
BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
SUCH DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
SUCH ACT OR (C) A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION, REASONABLY SATISFACTORY TO COUNSEL FOR
THE COMPANY, SHALL HAVE BEEN OBTAINED WITH RESPECT TO SUCH
DISPOSITION AND (ii) SUCH DISPOSITION IS IN COMPLIANCE WITH
ANY APPLICABLE STATE SECURITIES LAWS."
(b) Prior to April 1, 2001, each certificate representing
Telegate Exchange Shares shall bear the following legend:
"NEITHER THIS CERTIFICATE NOR THE SHARES
REPRESENTED BY IT ARE ASSIGNABLE OR OTHERWISE
TRANSFERRABLE PRIOR TO APRIL 1, 2001."
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CLAUSE 11
RESTRICTIONS ON TRANSFER
11.1 Restrictions on Transfer. Prior to April 1, 2001, neither
Metro nor Ligapart shall effect any Transfer of Covered Shares without the prior
written consent of the Company except to Metro's controlled Affiliates, provided
that Metro or Ligapart, as the case may be, shall deliver or cause to be
delivered to the Parent at the time of any such Transfer to a controlled
Affiliate a duly executed written acknowledgment by such controlled Affiliate
that such controlled Affiliate shall not effect any Transfer of any Covered
Shares without the prior written consent of the Parent except to Metro or a
controlled Affiliate of Metro from which a similar duly executed written
acknowledgment is received by the Parent. In addition, neither Metro nor any of
its controlled Affiliates shall effect any Transfer of any shares of capital
stock of any controlled Affiliate of Metro that holds any Covered Shares, as a
result of which Transfer such controlled Affiliate would cease to be a
controlled Affiliate of Metro, without the prior written consent of the Parent,
except to Metro or a controlled Affiliate of Metro from which the Parent has
received a duly executed acknowledgment that such controlled Affiliate is bound
by the terms of this Clause 11.
CLAUSE 12
[Intentionally Omitted]
CLAUSE 13
METRO COVENANT NOT TO COMPETE
13.1 Non-Competition. On and after June 10, 1998 through and
including the first anniversary of the expiration of the term of the Services
Agreement (the "Non-Compete Period"), Metro and its controlled Affiliates (which
shall not include Metro AG and controlled Affiliates) shall not operate or
manage, or acquire any equity interest in, any telecommunications business which
is engaged in telecommunications services of a type currently conducted by the
Company and which competes with the Company, other than the businesses set forth
in Schedule 13.1 (the "Specified Companies"), provided that Metro and its
controlled Affiliates (a) may acquire less than 5% of the outstanding equity
securities of a publicly traded company engaged in a competing business and (b)
may make a passive equity investment in any private company, such equity
interest not to exceed the greater of (i) 25% of the equity of such entity and
(ii) $2,000,000. During the Non-Compete Period, Metro shall give the Company at
least fourteen Business Days' prior written notice of any proposed joint
ventures, investments or other arrangements by Metro with a telecommunications
company, similar in nature to that contemplated by the Services Agreement, other
than the joint
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ventures or arrangements with any Specified Company. The Company may, in its
sole discretion, by written notice to Metro no later than the tenth Business Day
after the Company's receipt of notice thereof, prohibit Metro from entering into
such proposed arrangement. Notwithstanding anything to the contrary in this
Clause 13.1, this Clause 13.1 shall not prohibit Metro's controlled Affiliates
from marketing and selling products and services competitive with the products
and services marketed and sold by the Company and its Affiliates.
CLAUSE 14
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Metro as follows:
14.1 Corporate Status; Subsidiaries. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of England.
14.2 Authorization, etc. The Company has full corporate power
and authority to execute and deliver this Agreement and the Services Agreement
and to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder and thereunder. The execution and delivery of
this Agreement and the Services Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action on the part of the Company. This Agreement and the
Services Agreement have been duly executed and delivered by the Company and
constitute the legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms.
14.3 Conflicts. The execution and delivery by the Company of
this Agreement and the Services Agreement and the consummation by the Company of
the transactions contemplated hereby and thereby, do not and will not conflict
with, or result in any violation of or default under (or any event that, with
notice or lapse of time or both, would constitute a default under), or give rise
to any right of termination, cancellation or acceleration of any obligation or
loss of material benefit under, or result in the creation of a Lien on any
property or assets of the Company pursuant to, any provision of (a) the
Memorandum or Articles of Association of the Company, (b) any mortgage,
indenture, loan agreement, note, bond, deed of trust, other agreement, com
mitment or obligation for the borrowing of money or the obtaining of credit,
lease or other agreement, contract, license, franchise, permit or instrument to
which the Company is a party or by which it may be bound, or (c) any judgment,
order, decree, law, statute, rule or regulation applicable to the Company, other
than, in the case of clauses (b) or (c), any conflicts, violations, defaults,
terminations, cancellations, accelerations,
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losses of benefits or Liens that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
14.4 Consents. Except for any Consents where the failure to
obtain such Consents, either in any individual case or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect, no Consent of any
court, Governmental Entity or third person is required to be obtained by the
Company in connection with the execution and delivery by the Company of this
Agreement or the Services Agreement or the consummation by the Company of the
transactions contemplated hereby and thereby.
14.5 Compliance with Laws. The businesses of the Company has
not been, and is not being, conducted in violation of its internal policies and
procedures or of any law, ordinance, regulation, judgment, order, decree,
license or permit of any Governmental Entity, except for possible violations
which individually or in the aggregate would not reasonably be expected to have
a Material Adverse Effect.
14.6 Litigation. There is no action, claim, suit, arbitration
or proceeding pending or, to the Company's knowledge, threatened against the
Company and there is no investigation pending or, to the Company's knowledge,
threatened against the Company, in each case, before any court or Governmental
Entity, that could have a Material Adverse Effect.
14.7 [Intentionally Omitted]
14.8 Investment Intention. In connection with any acquisition by the
Company pursuant to this Agreement of the Telegate Shares or the Twister Option,
the Company will confirm that it is acquiring the Telegate Shares or the Twister
Shares, as the case may be, solely for its own account for investment and not
with a view to or for sale in connection with any distribution thereof in
contravention of the Securities Act or any Applicable Securities Laws. The
Company further agrees that it will not, directly or indirectly, effect a
Transfer or offer, or solicit offers, to effect a Transfer of any Telegate
Shares or Twister Shares, except in compliance with the Securities Act, and the
rules and regulations of the SEC thereunder, and in compliance with applicable
state securities or "blue sky" laws and all other Applicable Securities Laws.
14.9 Ability to Bear Risk. The Company's financial situation
is such that it can afford to bear the economic risk of holding the Telegate
Shares and the Twister Shares for an indefinite period and the Company can
afford to suffer the complete loss of its investment in the Telegate Shares and
the Twister Shares.
16
<PAGE>
14.10 Access to Information. The Company has been granted the
opportunity to ask questions of, and receive answers from, representatives of
Metro concerning the terms and conditions of the purchase of the Telegate Shares
and the Twister Shares and the Company's knowledge and experience in financial
and business matters is such that it is capable of evaluating the risks of its
investment in the Telegate Shares and the Twister Shares.
CLAUSE 15
REPRESENTATIONS AND WARRANTIES OF THE PARENT
The Parent represents and warrants to Metro as follows:
15.1 Corporate Status. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of Bermuda.
15.2 Authorization, etc. The Parent has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and to perform its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of the Parent. This Agreement has been duly
executed and delivered by the Parent and constitutes the legal, valid and
binding obligation of the Parent enforceable against the Parent in accordance
with its terms.
15.3 Conflicts. The execution and delivery by the Parent of
this Agreement and the consummation by the Parent of the transactions
contemplated hereby, do not and will not conflict with, or result in any
violation of or default under (or any event that, with notice or lapse of time
or both, would constitute a default under), or give rise to any right of
termination, cancellation or acceleration of any obligation or loss of material
benefit under, or result in the creation of a Lien on any property or assets of
the Parent pursuant to, any provision of (a) the Certificate of Incorporation,
Memorandum of Association or Bye-Laws of the Parent, (b) any mortgage,
indenture, loan agreement, note, bond, deed of trust, other agreement,
commitment or obligation for the borrowing of money or the obtaining of credit,
lease or other agreement, contract, license, franchise, permit or instrument to
which the Parent is a party or by which it may be bound, or (c) any judgment,
order, decree, law, statute, rule or regulation applicable to the Parent, other
than, in the case of clauses (b) or (c), any conflicts, violations, defaults,
terminations, cancellations, accelerations, losses of benefits or Liens that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
17
<PAGE>
15.4 Consents. Except for any Consents where the failure to
obtain such Consents, either in any individual case or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect, no Consent of any
court, Governmental Entity or third person is required to be obtained by the
Parent in connection with the execution and delivery by the Parent of this
Agreement or the consummation by the Parent of the transactions contemplated
hereby.
15.5 Compliance with Laws. The businesses of the Parent has
not been, and is not being, conducted in violation of its internal policies and
procedures or of any law, ordinance, regulation, judgment, order, decree,
license or permit of any Governmental Entity, except for possible violations
which individually or in the aggregate would not reasonably be expected to have
a Material Adverse Effect.
15.6 Litigation. There is no action, claim, suit, arbitration
or proceeding pending or, to the Parent's knowledge, threatened against the
Parent and there is no investigation pending or, to the Parent's knowledge,
threatened against the Parent, in each case, before any court or Governmental
Entity, that could have a Material Adverse Effect.
15.7 Registration Statement on Form S-4. The Parent's
Registration Statement on Form S-4 (file no. 33349857), as amended by Amendment
No. 1 to Registration Statement on Form S-4 and by Amendment No. 2 to
Registration Statement on Form S-4 (the "Registration Statement"), was declared
effective on May 12, 1998. As of the date hereof, the Registration Statement,
taken together with all information that, as of the date hereof, is publicly
available or has been previously disclosed to Metro, does not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
CLAUSE 16
REPRESENTATIONS AND WARRANTIES OF METRO
Metro represents and warrants to the Company and the Parent as
follows:
16.1 Corporate Status. Metro is a corporation duly organized,
validly existing and in good standing under the laws of Switzerland.
16.2 Authorization, etc. Metro has full corporate power and
authority to execute and deliver this Agreement and the Services Agreement and
to consummate the transactions contemplated hereby and thereby and to perform
its obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Services Agreement and
18
<PAGE>
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all requisite corporate action on the part of Metro. This
Agreement and the Services Agreement have been duly executed and delivered by
Metro and constitute the legal, valid and binding obligations of Metro
enforceable against Metro in accordance with their respective terms.
16.3 Conflicts. The execution and delivery by Metro of this
Agreement and the Services Agreement and the consummation by Metro of the
transactions con templated hereby and thereby, do not and will not conflict
with, or result in any violation of or default under (or any event that, with
notice or lapse of time or both, would constitute a default under), or give rise
to any right of termination, cancellation or acceleration of any obligation or
loss of material benefit under, or result in the creation of a Lien on any
property or assets of Metro pursuant to, any provision of (a) the Organizational
Documents of Metro, (b) any mortgage, indenture, loan agreement, note, bond,
deed of trust, other agreement, commitment or obligation for the borrowing of
money or the obtaining of credit, lease or other agreement, contract, license,
franchise, permit or instrument to which Metro is a party or by which it may be
bound, or (c) any judgment, order, decree, law, statute, rule or regulation
applicable to Metro, other than, in the case of clauses (b) or (c), any
conflicts, violations, defaults, terminations, cancellations, accelerations,
losses of benefits or Liens that, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
16.4 Consents. Except for any Consents where the failure to
obtain such Consents, either in any individual case or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect, no Consent of or
with any court, Governmental Entity or third person is required to be obtained
by Metro in connection with the execution and delivery by Metro of this
Agreement or the Services Agreement or the consummation by Metro of the
transactions contemplated hereby and thereby.
16.5 Compliance with Laws. The businesses of Metro has not
been, and is not being, conducted in violation of its internal policies and
procedures or of any law, ordinance, regulation, judgment, order, decree,
license or permit of any Governmental Entity, except for possible violations
which individually or in the aggregate would not reasonably be expected to have
a Material Adverse Effect.
16.6 Litigation. There is no action, claim, suit, arbitration
or proceeding pending or, to Metro's knowledge, threatened against Metro and
there is no investigation pending or, to Metro's knowledge, threatened against
Metro, in each case, before any court or Governmental Entity, that could have a
Material Adverse Effect.
16.7 Twister Shares; Telegate Shares. (a) As of the date
hereof, the authorized share capital of each of TCE and TS is CHF100,000, all of
which has been issued and is
19
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represented by 100 shares of CHF1,000 each, all of which (except for 49% of the
shares of TCE) are owned by Metro and its controlled Affiliates free and clear
of any Liens other than the Right of First Refusal.
(b) The Telegate Shares represent 25%, on a fully diluted
basis, of the share ownership of Telegate AG and are owned free and clear of any
Liens by Metro Vermogensverwaltung GmbH & Co. Kommanditsgesellschaft, Walter
Telemarketing und Vertrieb GmbH & Co. KG and Invision AG, Affiliates of Metro.
Metro has the authority to cause the Telegate Shares to be delivered in
accordance with the provisions of Clause 3.
16.8 Investment Intention. Metro acquired the Subscription
Shares, and, in connection with the acquisition by Metro pursuant to this
Agreement of any Telegate Exchange Shares, Metro will confirm that it is
acquiring such Telegate Exchange Shares, solely for its own account for
investment and not with a view to or for sale in connection with any
distribution thereof in contravention of the Securities Act or any Applicable
Securities Laws. Metro agrees that it will not, directly or in directly, effect
a Transfer or offer, or solicit offers, to effect a Transfer of any Telegate
Exchange Shares, except in compliance with the Securities Act, and the rules and
regulations of the SEC thereunder, and in compliance with applicable state
securities or "blue sky" laws and all other Applicable Securities Laws. Metro
further agrees that it will not effect any Transfer of any Telegate Exchange
Shares unless (a) (i) such Transfer is pursuant to an effective registration
statement under the Securities Act, (ii) Metro shall have delivered to the
Parent an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the Parent, to the effect that such Transfer is exempt from the
provisions of Section 5 of the Securities Act or (iii) a no-action letter from
the SEC, reasonably satisfactory to counsel for the Parent, shall have been
obtained with respect to such Transfer and (b) such Transfer is in compliance
with any Applicable Securities Laws.
16.9 Ability to Bear Risk. At the time of its acquisition of
the Subscription Shares, Metro's financial situation was such that it could
afford to bear the economic risk of holding the Subscription Shares for an
indefinite period and could afford to suffer the complete loss of its investment
in the Subscription Shares. Metro's financial situation is such that it can
afford to bear the economic risk of holding any Telegate Exchange Shares for an
indefinite period and Metro can afford to suffer the complete loss of its
investment in any Telegate Exchange Shares.
20
<PAGE>
16.10 Access to Information. Prior to its acquisition of the
Subscription Shares, Metro was granted the opportunity to ask questions of, and
receive answers from, representatives of the Company concerning the terms and
conditions of the purchase of the Subscription Shares and Metro's knowledge and
experience in financial and business matters was such that it was capable of
evaluating the risks of its investment in the Subscription Shares. Metro has
been granted the opportunity to ask questions of, and receive answers from,
representatives of the Parent concerning the terms and conditions of the
purchase of any Covered Shares, and Metro's knowledge and experience in
financial and business matters is such that it is capable of evaluating the
risks of its investment in the Telegate Shares.
CLAUSE 17
CONDUCT OF BUSINESS
17.1 Conduct of Telecommunications Business. The Parent will
conduct its telecommunications business (as currently conducted) in Europe
exclusively through the Company and its Subsidiaries. The Parent will sell the
Internet telephony services of Delta Three, Inc. ("Delta Three") in Europe
(other than in Denmark) through the Company and its Subsidiaries.
Notwithstanding the foregoing, nothing in this Clause 17.1 shall prohibit Delta
Three from selling its Internet telephony services in Europe through Persons
other than Company and its Subsidiaries; provided, that, if it does so (other
than pursuant to existing arrangements), then Delta Three and the Company shall
arrange for the Company to be compensated for the lost opportunity resulting
therefrom.
CLAUSE 18
MISCELLANEOUS
18.1 Expenses. Except as otherwise specifically provided for
in this Agreement, each party hereto shall bear their respective expenses, costs
and fees (including attorneys', auditors' and financing fees, if any) in
connection with the transactions contemplated hereby and by the Escrow Agreement
and the Services Agreement, whether or not the transactions contemplated hereby
shall be consummated.
18.2 Notices. All notices and other communications made in
connection with this Agreement shall be in writing. Any notice or other
communication in connection herewith shall be deemed duly given (a) two Business
Days after it is sent by express, registered or certified mail, return receipt
requested, postage prepaid or (b) one Business Day after it is sent by overnight
courier guaranteeing next day delivery, in each case, addressed as follows:
21
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(i) if to any RSL Com Party, to such party:
c/o RSL Communications, N. America, Inc.
767 Fifth Avenue, Suite 4300
New York, NY 10153
Telecopy: 212-317-0600
Telephone: 212-317-1800
Attention: Avery S. Fischer, Esq.
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Telecopy: 212-909-6836
Telephone: 212-909-6072
Attention: George E.B. Maguire, Esq.
(ii) if to Metro or any Metro Telegate Party, to:
Metro Holding AG
Neuhofstrasse 4
6340 Baar
Switzerland
Telecopy: 04-41-41-768-7579
Telephone: 04-41-41-768-7683
Attention: Hugo Truetsch, Esq.
with a copy to:
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
Telecopy: 212-661-0989
Telephone: 212-351-4500
Attention: Lowell S. Lifschultz, Esq.
or, in each case, at such other address as may be specified in writing to the
other parties hereto. Any party may give any notice or other communication in
connection herewith using any other means (including, but not limited to,
personal delivery, messenger service, telecopy, telex or ordinary mail), but no
such notice or other communication shall be deemed to have
22
<PAGE>
been duly given unless and until it is actually received by the individual for
whom it is intended.
18.3 Headings. The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
18.4 Entire Agreement. This Agreement (including the Exhibits
and Schedules referred to herein or delivered hereunder), together with the
Services Agreement and the Exchange Agreement, constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
18.5 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
18.6 Severability. If any provision, including any phrase,
sentence, clause, section or subsection, of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering such provisions in question invalid, inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision herein contained invalid, inoperative, or unenforceable to any extent
whatsoever.
18.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING, BUT NOT LIMITED TO, AS TO VALIDITY, INTERPRETATION AND
EFFECT, BY THE LAWS OF NEW YORK.
18.8 Jurisdiction and Venue.
18.9 Consent to Jurisdiction. Each of the parties hereto
irrevocably (a) 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, (b) 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 (c) submits to the exclusive
jurisdiction of such courts in any such suit, action or proceeding.
18.10 The Metro Agent. Each of Metro and each Metro Telegate
Party hereby appoints Epstein Becker & Green, P.C., 250 Park Avenue, New York,
New York 10177, Attention: Lowell S. Lifschultz, Esq., as its authorized agent
(the "Metro 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 RSL
23
<PAGE>
Com Party, 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. Each of Metro and each Metro Telegate Party represents and warrants
that the Metro Authorized Agent has agreed to act as such agent for service of
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. Service of process upon the
Metro Authorized Agent and written notice of such service to Metro or any Metro
Telegate Party, as the case may be, shall be deemed, in every respect, effective
service of process upon Metro or such Metro Telegate Party, as the case may be.
18.11 The Company Agent. Each RSL Com Party hereby appoints
RSL Communications N. America, Inc. ("RSL USA"), 767 Fifth Avenue, Suite 4300,
New York, New York 10153, as its authorized agent (the "Company 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, New York court by Metro or any Metro Telegate Party,
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. Each
RSL Com Party represents and warrants that the Company Authorized Agent has
agreed to act as such agent for service of 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. Service of process upon the Company Authorized Agent and written
notice of such service to any RSL Com Party shall be deemed, in every respect,
effective service of process upon such RSL Com Party.
18.12 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
18.13 Assignment. This Agreement shall not be assignable by
any party without the prior written consent of other parties. Any purported
assignment in violation of this Clause 18.10 shall be void.
18.14 No Third Party Beneficiaries. Except as expressly
provided herein, nothing in this Agreement shall confer any rights upon any
Person other than the parties hereto and each such party's respective heirs,
successors and permitted assigns.
18.15 Amendment; Waivers, etc. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to
24
<PAGE>
the specific matter described in such writing and shall in no way impair the
rights of the party granting such waiver in any other respect or at any other
time. The representations and warranties of the parties hereto shall not be
affected or deemed waived by reason of any investigation made by or on behalf of
any other party (including, but not limited to, by any of its advisors, consul
tants or representatives) or by reason of the fact that such other party or any
such advisors, consultants or representatives knew or should have known that any
such representation or warranty is or might be inaccurate.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement by their authorized representatives as of the date first above
written.
RSL COM EUROPE, LTD.
By:
--------------------------------------
Name:
Title:
RSL COMMUNICATIONS, Ltd.
By:
--------------------------------------
Name:
Title:
METRO HOLDING AG
By:
--------------------------------------
Name:
Title:
for the purpose of Clauses 3.1, 3.2, 3.3,
3.4 and 3.5:
RSL COM DEUTSCHLAND GMBH
By:
--------------------------------------
Name:
Title:
<PAGE>
METRO VERMOGENSVERWALTUNG
GMBH & CO. KOMMANDITSGESELLSCHAFT
By:
--------------------------------------
Name:
Title:
WALTER TELEMARKETING AND
VERTRIEB GMBH & CO. KG
By:
--------------------------------------
Name:
Title:
INVISION AG
By:
--------------------------------------
Name:
Title:
27
<PAGE>
SCHEDULE 13.1
CERTAIN JOINT VENTURES AND ARRANGEMENTS
Company Share(%)
primus-online Handel und Dienstleistung
GmbH & Co. KG, Koln 50
Pago Handelsgesellschaft GmbH & Co. KG, Koln 100
quantum vorteile direkt Verbraucherservice
GmbH & Co. KG, Koln 100
Satway Business Television GmbH & Co. KG, Koln 100
MSG Media Support Group GmbH, Koln 100
metronet Kommunikationsdienste GmbH & Co. KG, Koln 100
Experian Deutschland GmbH, Hamburg 50
Telegate Holding GmbH, Munchen 45.82
Walter Verwaltungs GmbH & Co. KG, Ettlingen 50
debitel Kommunikationstechnik GmbH & Co. KG,
Stuttgart 35.93
FreeCom Distribution & Service GmbH, Saarbrucken 51
Primus Digital TV GmbH, Koln 100
Micatel Teleservice GmbH & Co. KG, Dusseldorf 100
primus-online Handel und Dienstleistung Verwaltung
GmbH, Koln 100
Pago Handelsgesellschaft mbH, Koln 100
quantum vorteile direkt Verbraucherservice
Verwaltungs GmbH, Koln 100
Satway Business Television Verwaltungs GmbH, Koln 100
metronet Kommunikationsdienste Verwaltungs GmbH, Koln 80
Walter Verwaltungs GmbH, Ettlingen 50
debitel Kommunikationsdienste Verwaltung GmbH,
Stuttgart 35.93
Micatel Teleservice GmbH, Dusseldorf 100
Interline Telco AG, Baar 65
Interline Kommunikationsdienste GmbH, Dusseldorf 100
Twister Communications Network AG, Uetikon 100
TCE Network AG, Baar 51
Ozemail Ltd. 5.2
<PAGE>
-----------------------------
SHARE PURCHASE AGREEMENT
between
BRITISH COLUMBIA RAILWAY COMPANY
and
RSL COM HOLDINGS CANADA INC.
Dated June 24, 1998
-----------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE I INTERPRETATION................................................................2
1.1 Definitions............................................................................2
1.2 Other Terms...........................................................................11
1.3 Gender and Number.....................................................................12
1.4 Currency..............................................................................12
1.5 Schedules.............................................................................12
1.6 Tender................................................................................12
1.7 Performance on Holidays...............................................................13
ARTICLE II PURCHASE AND SALE OF SHARES..................................................13
2.1 Purchase and Sale of Shares...........................................................13
2.2 Determination of Working Capital......................................................13
2.3 Purchase Price Adjustment.............................................................14
2.4 Disputes..............................................................................14
2.5 Closing...............................................................................14
2.6 Transfers and Payment.................................................................14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BCR........................................15
3.1 Representations and warranties of BCR.................................................15
(a) Incorporation and Qualification.......................................................15
(b) Capitalization........................................................................15
(c) Authority, Filings, Consents and Approvals............................................15
(d) Conduct of Business - Changes.........................................................16
(e) Financial Statements..................................................................17
(f) Absence of Undisclosed Liabilities....................................................18
(g) No Conflict...........................................................................18
(h) Compliance............................................................................19
(i) Litigation............................................................................19
(j) Employees.............................................................................19
(k) Benefit Plans.........................................................................20
(l) Assets................................................................................24
(m) Tax Returns...........................................................................24
(n) Payment of Taxes......................................................................24
(o) Reassessments.........................................................................25
(p) Withholdings..........................................................................25
(q) Tax Status............................................................................25
(r) Contracts.............................................................................25
(s) Licences..............................................................................26
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(t) Environmental Matters.................................................................26
(u) Brokers and Finders...................................................................27
(v) Books and Records.....................................................................27
(w) Absence of Guarantees.................................................................28
(x) Restrictions on Business..............................................................28
(y) Condition of Assets...................................................................28
(z) Insurance.............................................................................28
(aa) Intellectual Property Rights..........................................................29
(bb) Occupational Health and Safety........................................................29
(cc) Workers' Compensation.................................................................29
(dd) Leases................................................................................29
(ee) No Expropriation......................................................................30
(ff) Major Suppliers and Customers.........................................................30
(gg) Year 2000.............................................................................30
(hh) Credit Facilities.....................................................................31
(ii) Copies of Documents etc...............................................................31
(jj) Pension Plan Administration...........................................................31
(kk) Vacation Pay..........................................................................31
3.2 No Other Presentations or Warranties..................................................31
3.3 Survival of Representations and Warranties............................................31
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER......................................32
4.1 Representations and Warranties of Buyer...............................................32
(a) Incorporation and Qualification.......................................................32
(b) Authority; Filings, Consents and Approvals............................................32
(c) No Conflict...........................................................................33
(d) Brokers and Finders...................................................................33
(e) Financial Capability..................................................................33
(f) Securities Act........................................................................33
4.2 No Other Representations or Warranties................................................34
4.3 Survival of Representations and Warranties............................................34
ARTICLE V COVENANTS AND AGREEMENTS OF BCR AND BUYER....................................34
5.1 Access and Information................................................................34
5.2 Registrations, Filings and Consents; Proceedings......................................35
5.3 Operation of Business.................................................................36
5.4 Retention of Books and Records........................................................37
5.5 Closing Date Financial Information....................................................38
5.6 Telecommunications Services Agreement.................................................38
5.7 Non-Competition Agreement.............................................................38
5.8 Capitalization of Inter-corporate Debt................................................38
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
5.9 Further Assurances....................................................................38
5.10 Continue Insurance....................................................................39
5.11 Comply with Laws......................................................................39
5.12 Brokerage Fees........................................................................39
5.13 Disclosure of Breaches................................................................39
5.14 Pension Plan..........................................................................39
5.15 Value Allocation Schedule.............................................................39
5.16 Transfer of Telecommunication Assets..................................................39
5.17 Permitted Transfers...................................................................40
5.18 Permitted Retention Bonuses and Permitted Severance Arrangements......................40
ARTICLE VI CONDITIONS TO CLOSING........................................................40
6.1 Conditions for the Benefit of Buyer...................................................40
6.2 Conditions for the Benefit of BCR.....................................................43
6.3 Termination if Conditions Not Met.....................................................44
ARTICLE VII INDEMNIFICATION.......................................................................44
7.1 Definitions...........................................................................44
7.2 Indemnification by BCR................................................................45
7.3 Indemnification by the Buyer..........................................................46
7.4 Agency for Representatives............................................................46
7.5 Notice of Third Party Claims..........................................................46
7.6 Defence of Third Party Claims.........................................................46
7.7 Assistance for Third Party Claims.....................................................47
7.8 Settlement of Third Party Claims......................................................47
7.9 Direct Claims.........................................................................48
7.10 Failure to Give Timely Notice.........................................................48
7.11 Limitation............................................................................48
ARTICLE VIII ARBITRATION...........................................................................49
8.1 Arbitration...........................................................................49
8.2 Location of Arbitration...............................................................49
8.3 Applicable Law........................................................................49
ARTICLE IX MISCELLANEOUS................................................................49
9.1 Amendment and Modification; Waiver....................................................49
9.2 Return of Information.................................................................49
9.3 Expenses..............................................................................49
9.4 Public Disclosure.....................................................................50
9.5 Assignment............................................................................50
9.6 Entire Agreement......................................................................50
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
9.7 Fulfillment of Obligations............................................................50
9.8 Parties in Interest; No Third Party Beneficiaries.....................................50
9.9 Schedules.............................................................................50
9.10 Counterparts..........................................................................51
9.11 Section Headings......................................................................51
9.12 Notices...............................................................................51
9.13 Governing Law, Submission to Jurisdiction; Selection of Forum.........................52
</TABLE>
iv
<PAGE>
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made the 24"' of June, 1998
BETWEEN:
BRITISH COLUMBIA RAILWAY COMPANY, a corporation
incorporated under the British Columbia Railway Act,
(hereinafter called "BCR"),
OF THE FIRST PART,
- and -
RSL COM HOLDINGS CANADA INC., a corporation, incorporated
under the laws of Canada
(hereinafter called "Buyer"),
OF THE SECOND PART.
WHEREAS, BCR owns all of the issued and outstanding shares in
the capital of Westel Telecommunications Ltd., a corporation incorporated under
the Company Act of British Columbia ("Westel"); and
WHEREAS, BCR desires to sell and transfer to Buyer, and Buyer
desires to purchase from BCR, all of the issued and outstanding shares in the
capital of Westel, as more if specifically provided herein; and
WHEREAS as soon as practicable after the purchase of such
shares, the Buyer intends to sell the telecommunication facilities assets of
Westel to MK Telecom Network Inc., a "Canadian Carrier" within the meaning of
the Telecommunications Act (Canada) and the Regulations thereto.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and conditions
herein. set forth, the parties hereto agree as follows:
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ARTICLE I
INTERPRETATION
1.1 Definitions. Unless otherwise specifically provided or the context
otherwise requires, where used in this Agreement and in the Schedules hereto,
the following terms shall have the meanings set forth or as referenced below
(a) "Accounts Receivable" means the accounts receivable of
Westel.
(b) "Adjustment Date" means the tenth Business Day after the
final Working Capital calculation is delivered by the
Buyer's auditor to each party in accordance with Section
2.3 or is settled by arbitration pursuant to Section 2.4,
whichever shall last occur.
(c) "Affiliate"
(i) in the case of BCR means a subsidiary of BCR as
defined at the date hereof in subsections 2(3)
through 2(5) of the Canada Business Corporations Act
and also includes any Person other than a body
corporate which is controlled by BCR in any manner
whatsoever that results in control in fact by BCR;
and
(ii) in the case of the Buyer has the meaning ascribed to
it at the date hereof in subsections 2(2) through
2(5) of the Canada Business Corporations Act.
(d) "Agreement" means this agreement, the recitals hereto and
all schedules attached to this Agreement, in each case, as
they may be amended or supplemented from time to time, and
the expressions "hereof", "herein", "hereto", "hereunder",
"hereby", and similar expressions, when used in this
Agreement, refer to this Agreement as a whole and not to
any particular provision of this Agreement; and unless
otherwise indicated, references to Articles and Sections
are to Articles and Sections in this Agreement.
(e) "Applicable Law" means any domestic or foreign statute, law
(including the common law), ordinance, regulation, by-law
(zoning or otherwise), or Order that applies to BCR or
Westel.
(g) "Assets" means all of the assets, real and personal,
tangible and intangible, and undertaking of Westel,
including those tangible assets listed in Schedule 1.1(g).
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(h) "Audited Financial Information" has the meaning set forth
in Section 3.1 (e).
(i) "BC Rail" means the partnership between BC Rail Ltd., BCR
Properties Ltd. and British Columbia Railway Company formed
pursuant to a partnership agreement executed 15 December,
1997,
(j) "Benefit Plans" means all bonus, deferred compensation,
incentive compensation, share purchase, share appreciation
and share option, severance or termination pay,
hospitalization or other medical benefits, life or other
insurance, dental, disability, salary continuation,
vacation, supplemental unemployment benefits, profit
sharing, mortgage assistance, employee loan, employee
assistance, pension, retirement or supplemental retirement
plan or agreement (including any defined benefit or defined
contribution pension plan and any group registered
retirement savings plan), and each other employee benefit
plan or agreement (whether oral or written, formal or
informal, funded or unfunded) sponsored, maintained or
contributed to or required to be contributed to by Westel
for the benefit of any of its employees, whether or not
insured and whether or not subject to any Applicable Law,
except that the term "Benefit Plans" shall not include any
statutory plans with which Westel is required to comply,
including the Canada/Quebec Pension Plan or plans
administered pursuant to applicable provincial health tax,
workers' compensation and employment insurance legislation.
(k) "Business" means the business carried on by Westel of
providing and reselling telecommunication services,
including voice services, data services, private line
services, LAN management services and system design
services.
(l) "Business Day" means any day other than a Saturday, a
Sunday or a day on which banks in Vancouver, British
Columbia are authorized or obligated by law to close.
(m) "Buyer" means RSL COM Holdings Canada Inc.
(n) "Canadian Carrier" means MK Telecom Network Inc., a
corporation incorporated under the laws of Canada.
(o) "Closing" has the meaning set forth in Section 2.5.
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(p) "Closing Date" has the meaning set forth in Section 2.5.
(q) "Closing Working Capital" means the Working Capital of
Westel as of the close of business on the day preceding the
Closing Date, as determined pursuant to Section 2.2.
(r) "Collective Agreement" means any collective agreement,
letters of understanding, letters of intent or other
written communication with any trade union or association
which may qualify as a trade union, which would cover any
employees.
(s) "Competition Act" means the Competition Act (Canada) R.S.,
1985, c.C- 34, as amended.
(t) "Competition Act Approval" means either:
(i) the issuance of an advance ruling certificate by the
Director under Section 102(l) of the Competition Act
to the effect that he is satisfied that he would not
have sufficient grounds upon which to apply to the
Competition Tribunal for an order under section 92
of the Competition Act with respect to the
transactions contemplated by this Agreement; or
(ii) the expiration of the waiting period under section
123 of the Competition Act with neither the Buyer
nor BCR having been advised in writing by the
Director that the Director has determined to make,
is threatening to make or has made an application
for an order under section 92 or 100 of the
Competition Act in respect (of the transactions
contemplated by this Agreement.
(u) "Condition of the Business" means the condition of Westel
including the Assets, liabilities, operations, activities,
earnings, affairs and financial position of Westel.
(v) "Confidentiality Agreement" has the meaning set forth
in Section 5.1(c).
(w) "Continuing Affiliate" means an Affiliate of BCR
other than Westel.
(x) "Copyright" means all copyright of Westel, whether
registered or not.
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(y) "Current Assets" of Westel at any time means the current
assets of Westel determined in accordance with Generally
Accepted Accounting Principles, consistently applied except
that
(iii) all capital assets and work in progress which become
assets of Westel after April 30, 1998 as a result of
Permitted Capital Expenditures (other than the lease
of radios from Royal Bank of Canada or any assets
financed by way of indebtedness to a party other
than BCR or its Affiliates) shall be regarded as
current assets for the purposes of this definition
and their value shall be equal to the amount of the
Permitted Capital Expenditures made in respect
thereof, and
(iv) any cash, accounts receivable or other proceeds of
the Permitted Transfers shall not be regarded as
current assets for the purposes of this definition.
(z) "Current Liabilities" of Westel at any time, means the
current liabilities of Westel determined in accordance with
Generally Accepted Accounting Principles, consistently
applied and for greater certainty includes
(i) all accounts payable and accrued liabilities,
including income taxes and current year's bonuses
for all employees of Westel,
(ii) any overdraft in Westel's bank accounts at that
time, except that Inter- corporate Debt shall not be
included in such; determination;
(aa) "Director" means the Director of Investigation and Research
appointed under the Competition Act.
(bb) "Disposal" means any disposal by any means, including
discharging, dumping, incineration, spraying, pumping,
injecting, depositing or burying.
(cc) "Encumbrance" means any encumbrance of any kind whatever
and includes a security interest, mortgage, lien, hypothec,
pledge, hypothecation, assignment, charge, security under
Section 426 or Section 427 of the Bank Act (Canada), trust
or deemed trust (whether contractual, statutory or
otherwise arising), a voting trust or pooling agreement
with respect to securities, an adverse claim or any other
right, option or claim of others of any kind whatever
affecting the Assets or the Shares, any covenant or other
agreement, restriction or limitation on the transfer of the
Shares, a deposit
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by way of security and an easement, restrictive covenant,
agreement or right of way (registered or unregistered),
restriction, encroachment, burden or title reservation of
any kind with respect to real property.
(dd) "Environmental Compliance Review" includes all
environmental audits, environmental assessments and all
environmental studies or evaluations related in any way to
Westel or the Business or Assets;
(ee) "Environmental Laws" includes all federal, provincial,
municipal or local statutes, regulations, by-laws or rules,
and Orders of any Governmental Authority and the common
law, relating in whole or in part to the environment and
includes those laws relating to the storage, generation,
use, handling, manufacture, processing, transportation,
import, export, treatment, Release or Disposal of any
Hazardous Substance and any laws relating to asbestos or
asbestos-containing materials in the workplace environment.
(ff) "Environmental Permits" includes all permits, certificates,
approvals, consents, authorizations, registrations, and
licenses issued, granted, conferred, created or required by
any Governmental Authority pursuant to any Environmental
Laws;
(gg) "Expired Leases" means those real property leases,
statutory rights of way, rights of occupancy and licenses
of occupancy to which Westel, or BCR on Westel's behalf is
a party and which have expired or are expected by Westel to
expire during the period from the date hereof to the
Closing Date listed in Part II of Schedule 3.1(dd) hereto.
(hh) "Financial Statements" has the meaning set forth in
Section 3.1(e).
(ii) "Generally Accepted Accounting Principles" means generally
accepted accounting principles from time to time approved
by the Canadian Institute of Chartered Accountants, or any
successor institute, applicable as at the date on which any
calculation or determination is required to be made in
accordance with generally accepted accounting principles.
(jj) "Governmental Authority" means any domestic or foreign
government whether federal, provincial, or municipal and
any governmental agency, governmental authority,
governmental tribunal or governmental commission of any
kind whatever
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(kk) "Hazardous Substance" means any waste, hazardous substance,
hazardous material, toxic substance, dangerous substance or
dangerous good or contaminant as defined in any
Environmental Law.
(ll) "including" means "including" and the term "including"
shall not be construed to limit any general statement which
it follows to the specific or similar items or matters
immediately following it;
(mm) "Indemnified Party" has the meaning set forth in
Section 7.1.
(nn) "Indemnifier" has the meaning set forth In Section 7.1.
(oo) "Intellectual Property Rights" means:
(A) (i) the Trade Marks; and
(ii) the Copyrights;
set forth on Schedule 3.1(aa); and
(B) (i) all trade secrets and confidential
information of Westel;
(ii) all computer software and related manuals
owned by or licensed to Westel;
(iii) all know-how of the Business including
(x) all information of a scientific,
technical or business nature
whether in oral, written, graphic,
machine readable, electronic or
physical form; and
(y) all patterns, plans, designs,
research data, research plans,
trade secrets and other proprietary
know-how, processes, formulas,
drawings, technology, unpatented
blue prints, flow sheets, equipment
and parts lists, instructions,
manuals, records and procedures.
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(pp) "Inter-corporate Debt" at any time means all indebtedness
owing by Westel to BCR or any Affiliate of BCR or to any
other Person with whom BCR does not deal at arm's length
(within the meaning of the Income Tax Act (Canada)) at that
time, other than trade payables arising in the ordinary
course of business;
(qq) "Leases" means the real property leases, statutory rights
of way, rights of occupancy and licenses of occupancy to
which Westel, or BCR on Westel's behalf, is a party, listed
in Part I of Schedule 3.1(dd) but does not include the
Expired Leases.
(rr) "Liabilities" has the meaning set forth in Section 3.1(f).
(ss) "Lenders" means those lenders listed in Schedule 1.1(ss).
(tt) "March 31 Working Capital" means the Working Capital of
Westel as of the close of business on March 31, 1998, as
determined pursuant to Section 2.2.
(uu) "Material" means having an actual or potential economic
impact on Westel of at least $50,000.
(vv) "Material Adverse Effect" means an effect which is or would
reasonably be expected to be Materially adverse to Westel
or to the Condition of the Business.
(ww) "Non-Competition Agreement" means the non-competition
agreement to be entered into between BCF, the Buyer, the
Canadian Carrier and Westel at the Closing Time in the form
attached hereto as Schedule 6.1(h).
(xx) "Notice Period" has the meaning set forth in Section 7.6.
(yy) "Order" means any order, judgment, injunction, decree,
award or writ of any court, tribunal, arbitrator,
Governmental Authority, or other Person who is authorized
to make legally binding determinations.
(zz) "ordinary course" when used in relation to the conduct of
the Business means any transaction which constitutes an
ordinary business activity of Westel conducted in a
commercially reasonable and businesslike manner consistent
with Westel's past practices.
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(aaa) "Pension Plan" means each of the Benefit Plans that is a
"registered pension plan" as that term is defined in
subsection 248(l) of the Income Tax Act (Canada).
(bbb) "Permitted Capital Expenditures" means those capital
expenditures listed in Schedule 5.3(g)(1) and any others
mutually agreed to in writing by Buyer and BCR.
(ccc) "Permitted Retention Bonuses" means the stay bonuses,
retention payments, success fees or similar compensation
payable to the employees of Westel listed in Schedule
3.1(d)(v)(D) hereto.
(ddd) "Permitted Severance Arrangements" means the severance
arrangements applicable to the employees of Westel listed
in Schedule 3. 1 (d)(v)(D) hereto.
(eee) "Permitted Encumbrances" means the Encumbrances listed in
Schedule 1.1(eee) hereto and any easement, restrictive
covenant, agreement or right of way (registered or
unregistered), restriction, encroachment, burden or title
reservation of any kind with respect to real property or
Leases which will not individually or in the aggregate have
a Material Adverse Effect on the value of the Assets or the
Business or the ability of Westel to carry on the Business
as it has in the past.
(fff) "Permitted Transfers" means the transfers of Assets listed
in Schedule 3.1(d)(v)(A) hereto by Westel to BC Rail
provided the transfers take place as described in Section
5.17.
(ggg) "Person" means any individual, corporation, partnership,
firm, joint venture, association, joint-share company,
trust, unincorporated organization, governmental or
regulatory body or other entity.
(hhh) "Prime Rate" for any day means the rate of interest
expressed as a rate per annum that Bank of Montreal
establishes at its head office in Toronto as the reference
rate of interest that it will charge on that day for
Canadian dollar demand loans to its customers in Canada and
which it at present refers to as its prime rate.
(iii) "Purchase Price" has the meaning set forth in Section 2.1.
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(jjj) "Quarterly Financial Information" has the meaning set forth
in Section 3.1(e).
(kkk) "Release" includes releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting,
migrating, escaping, leaching, disposing, dumping,
depositing, spraying, burying, abandoning, incinerating,
seeping or placing, or any similar action defined in any
Environmental Law.
(lll) "Rules of Procedure" mean the British Columbia
International Commercial Arbitration Centre's rules of
procedure for arbitration.
(mmm) "Securities Act" means the Securities Act, R.S.B.C. 1996,
chapter 418, as amended.
(nnn) "Shares" means the 41,000,000 common shares in the capital
of Westel owned by BCR and any other shares of Westel
issued to BCR after the date hereof pursuant to Section
5.8.
(ooo) "Taxes" means all taxes and similar governmental charges,
including:
(i) Canadian federal, provincial, municipal and local,
foreign or other income, franchise, capital, real
property, personal property, withholding, payroll,
employer health, transfer, sales, use, excise, goods
and services, consumption, anti-dumping, countervail
and value added taxes, all other taxes of any kind
for which Westel may have any liability imposed by
Canada or any province, municipality, country or
foreign government or subdivision or agency thereof,
whether disputed or not;
(ii) assessments, charges, duties, fees, imposts, levies
or other governmental charges and interest,
penalties or additions associated therewith; and
(iii) all Canada Pension Plan contributions and employment
insurance premiums.
(ppp) "Tax Returns" means all reports, returns and other
documents filed or required to be filed by Westel in
respect of Taxes or in respect of or pursuant to any
domestic or foreign federal, provincial, state, municipal,
territorial or other taxing statute.
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(qqq) "Termination Assets" means those tangible telecommunication
Assets of Westel which are required to be sold in order for
Westel not to be a "telecommunications common carrier"
within the meaning of the Telecommunications Act (Canada).
(rrr) "Telecommunications Services Agreement" means the Agreement
to be entered into between BC Rail and Westel on the
Closing, in the form attached hereto as Schedule 1.1(rrr).
(sss) "Telecommunications Warranties" has the meaning set out in
Section 5.16.
(ttt) "Time of Closing" means 10:00 a.m. Vancouver time on the
Closing Date or such other time on that date as the parties
agree in writing that the Closing shall take place;
(uuu) "Trade Marks" means the trade-marks. trade names, designs,
graphics, logos and other commercial symbols of or relating
to the Business, whether registered or not, which are
listed in Schedule 3.1(aa).
(vvv) "Transaction Documents" means:
(i) this Agreement;
(ii) the Non-Competition Agreement;
(iii) the Telecommunications Services Agreement; and
(iv) the documents and agreements to be delivered by each
party hereto to the other at the Time of Closing.
(www) "Value Allocation Schedule" means Schedule l.l.
(xxx) "Working Capital" of Westel at any time means an amount
equal to the Current Assets minus the Current Liabilities,
at that time.
1.2 Other Terms. Other terms may be defined elsewhere in the text of this
Agreement and, unless otherwise indicated, shall have such meaning throughout
this Agreement.
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1.3 Gender and Number. The terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa and words importing
gender include all genders.
1.4 Currency. The terms "dollars" and "S" shall mean Canadian Dollars.
1.5 Schedules. The following are the Schedules which form part of this
Agreement and which have been delivered concurrently with execution of this
Agreement. Schedule 3.1(d)(v)(D) - Permitted Retention Bonuses and Permitted
Severance Arrangements has been delivered separately to the Buyer on a
confidential basis:
Schedule 1.1(g) Assets
Schedule 1.1(ss) Lenders
Schedule 1.1(eee) Permitted Encumbrances
Schedule 1.1(rrr) Telecommunications Services Agreement
Schedule 1.1(vvv) Value Allocation Schedule
Schedule 3.1(c) BCR's Consents and Approvals
Schedule 3.1(d)(v)(A) Permitted Transfers
Schedule 3.1(d)(v)(D) Permitted Retention Bonuses and Permitted
Severance Arrangements
Schedule 3.1(e) Financial Statements
Schedule 3.1(f) Material Liabilities
Schedule 3.1(i) Litigation
Schedule 3.1(j) Labour and Employment Relations
Schedule 3.1(k) Benefit Plans
Schedule 3.1(r) Contracts
Schedule 3.1(t) Environmental Matters
Schedule 3.1(z) Insurance
Schedule 3.1(aa) Intellectual Property Rights, including
Trade Marks
Schedule 3.1(dd) Leases and Expired Leases
Schedule 3.1(ff) Major Suppliers and Customers
Schedule 3.1(gg) Millennium Compliant programme
Schedule 4.1(b) Buyer's Consents and Approvals
Schedule 5.3)(g)(i) Permitted Capital Expenditures
Schedule 6.1(g) Resigning Officers
Schedule 6.1(h) Non-Competition Agreement
1.6 Tender. Any tender of documents or money hereunder may be made upon the
parties or their respective counsel and money shall be tendered by official
bank draft drawn upon a Canadian chartered bank by negotiable cheque payable in
Canadian funds and
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certified by a Canadian chartered bank or by wire transfer of funds to a bank
account designated by the payee at least two days prior to the date the payment
is to be made.
1.7 Performance on Holidays If any action is required to be taken pursuant to
this Agreement on or by a specified date which is not a Business Day, then such
action shall be valid if taken on or by the next succeeding Business Day.
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1 Purchase and Sale of Shares. Buyer shall purchase from BCR, and BCR shall
sell to Buyer, the Shares, for an aggregate purchase price in cash of
$55,000,000 as at the Closing Date (the "Purchase Price") subject to an
adjustment as hereinafter provided.
2.2 Determination of Working Capital.
(a) Forthwith following the Closing, Buyer shall cause its
auditor to prepare a calculation of the March 31 Working
Capital and the Closing Working Capital. Such calculations
shall be prepared in accordance with Generally Accepted
Accounting Principles, consistently applied, except as
otherwise specifically provided herein. The Closing Working
Capital shall be calculated on the basis that Westel shall
claim capital cost allowance to the maximum extent
permitted under the Income Tax Act which is necessary to
minimize Westel's income tax liabilities prior to the
Closing Date.
(b) The Buyer shall ensure that its auditor cooperates with the
BCR's auditor in preparing such calculations. Copies of all
working papers of the Buyer's auditor shall be made
available to BCR's auditor for review. Representatives of
BCR or BCR's auditor shall be permitted to be present at
and to participate in any procedures taken in order to make
the calculation of Closing Working Capital. A copy of the
draft calculations of March 31 Working Capital and the
Closing Working Capital shall be delivered to each party
within thirty days (30) days of the Closing Date. The Buyer
shall, and shall cause its auditor to, meet with BCR and
BCR's auditor forthwith thereafter to review such draft
calculations so that the parties can agree on the
calculations of March 31 Working Capital and the Closing
Working, Capital by the fortieth day after the Closing
Date. Failing agreement by such time, the Buyer's auditor
shall deliver the final calculations of March 31 Working
Capital and the Closing Working Capital on the fortieth day
after the Closing Date and any dispenses relating to such
calculations shall be resolved pursuant to Section 2.4.
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2.3 Purchase Price Adjustment. On the Adjustment Date the Purchase Price
shall be adjusted on a dollar for dollar basis as follows:
(a) if the Closing Working Capital exceeds the March 31 Working
Capital, the amount of such excess shall be added to the
Purchase Price; and
(b) if the Closing Working Capital is less than the March 31
Working Capital, the amount of such deficiency shall be
deducted from the Purchase Price.
Any amount to be paid by one party to the other pursuant to this Section 2.3 as
an increase to or a reduction of the Purchase Price, shall be paid on the
Adjustment Date together with interest, compounded monthly, at the Prime Rate
from the Closing Date to the date of payment.
2.4 Disputes. If either BCR or the Buyer disputes any item in the calculation
of the March 31 Working Capital or the Closing Working Capital which could
result in an adjustment to the Purchase Price, it shall give notice to the
other of such dispute on or before the 10th Business Day following the delivery
of the final calculation of the Closing Working Capital. In such event, the
matter in dispute shall be referred to arbitration as provided in Article VIII
and payment of the respective balance due, if any, will be made forthwith after
completion of the arbitration proceedings. Interest shall accrue on any net
amount to be paid pursuant to Section 2.3 from the Closing Date until the date
of payment at the Prime Rate.
2.5 Closing. The completion of the sale and purchase of the Shares by the
transfer and delivery of documents of title thereto and the payment of the
Purchase Price (the "Closing") shall take place at the offices of Ladner Downs,
1200 Waterfront Centre, 200 Burrard Street, Vancouver, British Columbia at
10:00 A.M. local time (the "Time of Closing"), on the date which is five
Business Days after the date on which the conditions of closing set forth in
Article VI have been satisfied or waived by the parties or at such other time
and place as the parties hereto may mutually agree. The date on which the
Closing occurs is called the "Closing Date" and the transaction shall take
effect from the opening of business on the Closing Date.
2.6 Transfers and Payment. At the Time of Closing, upon fulfillment of all the
conditions set out in Article VI that have not been waived in writing by BCR or
Buyer as the case may be, BCR shall deliver to Buyer certificates representing
the Shares, duly endorsed and in form suitable for transfer and free and clear
of all Encumbrances and will cooperate with Buyer in having the Shares
transferred to Buyer or its nominee and in changing the directors to
individuals nominated by Buyer, whereupon, subject to all other terms and
conditions hereof being complied with, Buyer shall pay to BCR the slim of
$55,000,000.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BCR
3.1 Representations and warranties of BCR. BCR represents and warrants to Buyer
as of the date hereof and as of the Closing Date (except that representations
and warranties that are made as of a specific date need be true only as of such
date) as follows:
(a) Incorporation and Qualification. Westel is a corporation duly
incorporated, organized and validly subsisting under the laws
of British Columbia. Westel has all requisite corporate power
and authority to own, lease and operate its properties and to
carry on its business as now being conducted and is duly
registered, licensed or qualified to carry on business in
each jurisdiction in which the nature of the business as now
being conducted by it or the property owned or leased by it
makes such registration, licensing or qualification necessary
where the failure to be so registered or qualified would have
a Material Adverse Effect on the Business.
(b) Capitalization. The authorized capital of Westel consists of
100,000,000 Common shares without par value of which only the
Shares are issued and outstanding. The Shares are duly
authorized, validly issued, fully paid and nonassessable and
are owned of record and beneficially by BCR. BCR has good and
valid title to the Shares free and clear of all Encumbrances
other than restrictions on transfer set out in the articles
of Westel and, upon consummation of the transactions
contemplated in this Agreement, shall have transferred such
title to the Shares to Buyer pursuant to the terms of this
Agreement, free and clear of all Encumbrances, other than
such Encumbrances which were incurred by Buyer or caused to
be incurred by Westel by Buyer as a result of the
transactions contemplated by this Agreement. There are not
now, and at the Closing Date there will not be, any
outstanding options, warrants or rights to purchase or
acquire, or securities convertible into or exchangeable for
or which carry an obligation to purchase or otherwise
acquire, any shares or securities in the capital of Westel
and there are no contracts, commitments, agreements,
understandings, arrangements or restrictions which require
Westel to issue, sell or deliver any of its shares or
securities. Other than those set forth in the articles of
Westel, there are no restrictions on the transfer of the
Shares. Westel has no subsidiaries.
(c) Authority, Filings, Consents and Approvals. BCR is a
corporation duly incorporated, organized and validly
subsisting under the laws of British Columbia. BCR has the
corporate power and authority to enter into this
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Agreement and the Transaction Documents and, subject to the
receipt of the approvals, consents and authorizations
contemplated in this Agreement and the Transaction Documents,
to carry out the transactions contemplated hereby. This
Agreement and the Transaction Documents have been duly
authorized, executed and delivered by BCR and constitute
legal, valid and binding obligations of BCR, enforceable in
accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or
affecting, creditors' rights and to general equity
principles. No other proceedings on the part of' BCR are
necessary to authorize this Agreement and the Transaction
Documents and the consummation of the transactions
contemplated hereby.
Except as set forth in Schedule 3.1(c) or as required by the
Competition Act, the execution, delivery and performance of
this Agreement and the Transaction Documents will not require
BCR or Westel to obtain any consent, waiver, authorization or
approval of, or make any filing with or give notice to, any
Person, except for such consents, waivers, authorizations or
approvals which the failure to obtain would not be reasonably
likely to have a Material Adverse Effect or would not be
reasonably likely to prohibit or materially delay BCR's
ability to perform its obligations under this Agreement.
(d) Conduct of Business - Changes. Since March 31, 1998:
(i) Westel has conducted the Business in the ordinary
course and has used its best efforts to preserve the
Business and the Assets;
(ii) there has not been any change in the Condition of
the Business other than changes in the ordinary
course of business, and such changes have not,
either individually or in the aggregate, been
materially adverse and have not had a material
adverse effect on the Condition of the Business;
(iii) there has not been any damage, destruction, loss,
labour dispute or other event, development or
condition of any character (whether or not covered
by insurance) which has had a material adverse
effect on Westel or the Condition of the Business;
(iv) there has not been any change in the accounting
principles, policies, practices or procedures of
Westel or their application to Westel;
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(v) Westel has not:
(A) transferred, assigned, sold or otherwise
disposed of or created any Encumbrance on
any of the Assets other than in the
ordinary course of business and other than
Permitted Encumbrances and Permitted
Transfers,
(B) made any change in the method of billing
customers or the credit terms made
available by the Business to customers,
except in the ordinary course of business
with a view to the best interests of
Westel;
(C) made any change with respect to any method
of management or operations in respect of
the Business, except in the ordinary course
of business with a view to the best
interests of Westel;
(D) increased the compensation paid or payable
to any employees or increased the benefits
to which such employees are entitled under
any Benefit Plan of the BCR or Westel or
created any new Benefit Plan for any such
employees other than consistent with past
practice and other than Permitted Retention
Bonuses and Permitted Severance
Arrangements;
(E) modified, amended or terminated any
contract to which it is or was a party,
except (x) as provided in the
Telecommunications Services Agreement and
(y) in the ordinary course of business with
a view to the best interests of Westel; or
(F) declared or paid any dividend or other
distribution in respect of any shares,
warrants, rights or similar securities or
purchased or redeemed any such shares,
warrants, rights or similar securities.
(e) Financial Statements. Attached hereto as Schedule 3.1(e) is
a copy of:
(i) the audited balance sheet of Westel as at December
31, 1997 and the statements of operations,
shareholder's equity and cash flows for the fiscal
years ended December 31, 1996 and December 31, 1997
(collectively, with the notes thereto, the "Audited
Financial Information");
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(ii) a copy of the unaudited balance sheet of Westel as
at March 31, 1998 (the "Balance Sheet") and the
related statement of operations, shareholder's
equity and cash flows for the three months then
ended (collectively, with the notes thereto, the
"Quarterly Financial Information"); and
The Audited Financial Information and the Quarterly Financial
Information have been prepared in accordance with Generally
Accepted Accounting Principles applied on a consistent basis
(except as may be noted therein), and the Audited Financial
Information and the Quarterly Financial Information
(collectively the "Financial Statements") present fairly the
financial position of Westel as at December 31, 1997 and
March 31, 1998 respectively and the results of their
operations for the periods then ended.
(f) Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 3.1(f) Westel does not have any liabilities or
obligations of any nature, whether absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, due or to
become due, including any liability for Taxes (collectively,
"Liabilities"), which, either individually or in the
aggregate, are Materially in excess of the Liabilities
reflected or reserved against in the Financial Statements,
except those incurred in the ordinary course of business and
consistent with past practice since the respective dates as
of which the Financial Statements were prepared.
(g) No Conflict. Subject to the receipt of the Lenders',
governmental and regulatory approvals referred to in this
Agreement or disclosed in Schedule 3.1(c), the execution and
delivery of this Agreement by BCR does not, and the
performance of this Agreement by BCR and the consummation by
it of the transactions contemplated by this Agreement shall
not:
(i) conflict with or violate the memorandum or articles
or equivalent organizational documents of BCR or
Westel or any resolution of their directors or
shareholders;
(ii) conflict with or violate any law, rule, regulation,
permit, order, judgment or decree applicable to BCR
or Westel or by which any of their respective
properties is bound or affected, the conflict with
which or violation of which would have a material
adverse effect or would prohibit or materially delay
BCR's ability to perform its obligations under this
Agreement; or
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(iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both
would become a default) under, or give to others any
rights of termination, amendment, acceleration or
cancellation of, or result in the creation of an
Encumbrance on any of the Assets pursuant to, any
note, bond, mortgage, indenture, contract,
agreement, lease, licence, permit, franchise or
other instrument or obligation to which Westel is a
party or by which Westel is bound or affected,
which, in any such case, would have a material
adverse effect or would prohibit or materially delay
BCR's ability to perform its obligations under this
Agreement.
(h) Compliance. Except for any conflicts, defaults or violations
which would not, individually or in the aggregate, have a
material adverse effect, Westel is not in conflict with, or
in default or violation of, (i) its memorandum or articles,
(ii) any Applicable Law applicable to Westel or by which any
one of its Assets is bound or affected. Except for any
conflicts, defaults or violations which would not,
individually or in the aggregate, have a Material Adverse
Effect, Westel is not in conflict with, or in default or
violation of, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other
instrument or obligation to which Westel is a party or by
which Westel is bound or affected.
(i) Litigation. Except as disclosed in Schedule 3.1(i), there are
no claims, actions, proceedings, suits, investigations or
reviews pending or, to the knowledge of BCR, threatened
against Westel before any court, arbitrator or
administrative, governmental or regulatory authority or body,
domestic or foreign, that, individually or in the aggregate,
if adversely determined, would have a Material Adverse
Effect. As at the date hereof, Westel is not subject to any
judgment, order or decree which has or will have a Material
Adverse Effect, except as disclosed in Schedule 3.1(1).
(j) Employees. Schedule 3.1(j) contains:
(i) the names and titles of all employees of Westel
together with the location of their employment;
(ii) the date each employee was hired,
(iii) a list of any written employment contracts between
Westel and its employees;
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(iv) the rate of annual remuneration of each employee at
the date hereof and any bonuses paid since the end
of the last completed financial year in respect of
that year; and
(v) the names of each employee on long term disability,
workers compensation or leave of absence, whether
paid or unpaid.
Westel does not have any formal written short term disability plan. No
employee is employed under a contract which cannot be terminated by
Westel with or without notice, including those employees who are
employed on indefinite hirings requiring reasonable notice of
termination by Applicable Law. Westel is not a party, either directly
or by operation of law, to any Collective Agreement. No trade union,
council of trade unions, employee bargaining agency or affiliated
bargaining agent holds bargaining rights with respect to any of the
employees by way of certification, interim certification, voluntary
recognition, or successor rights. To the knowledge of BCR, there are
no threatened or pending union organizing activities involving the
employees. There are no pending or, to the knowledge of Westel, any
threatened labour disputes or work stoppages which might have a
material adverse effect on the operations of the Business or lead to
an interruption of operations.
(k) Benefit Plans.
(i) Except as set forth in Schedule 3.1(k), Westel is
not a party to or bound by, nor does Westel have any
liability or contingent liability with respect to,
any Benefit Plans that are material to the Business
and that impose any binding legal obligation on
Westel. Schedule 3.1(k) contains a true and complete
list of each Benefit Plan. Schedule 3.1(k) also
identifies each of the Benefit Plans that is a
Pension Plan. Westel has no formal plan or
commitment, whether legally binding or not, to
create any additional Benefit Plan or to modify or
change any existing Benefit Plan that would affect
any employee or former employee of Westel, except
such modification or amendment as may be required to
be made to secure the continued registration of any
existing Benefit Plan with each applicable
Governmental Authority. At the Time of Closing the
pension plan reciprocal agreement identified in
Schedule 3.1(k) shall be terminated.
(ii) Schedule 3.1(k) sets out a list of each of the
following:
(A) each Benefit Plan (including, all amendments
thereto);
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(B) all general written communications to all
employees relating to the Benefit Plan,
whether or not such communications have
been, or are required to be, filed with any
applicable Governmental Authority;
(C) if the Benefit Plan is funded through a
trust or any third party funding
arrangement, the trust or other funding
agreement (including all amendments
thereto) and the latest financial
statements thereof;
(D) all insurance contracts, investment
management agreements, subscription and
participation agreements and record keeping
agreements relating to the Benefit Plans
and all other contracts relating to the
Benefit Plans with respect to which Westel
may have any Material liability;
(E) the annual information return filed in
respect of the Pension Plan with any
applicable Governmental Authority for 1995
and 1996;
(F) the two most recently completed actuarial
reports filed in respect of the Pension
Plan with any applicable Governmental
Authority;
(G) the most recent financial statements filed
in respect of each Pension Plan with any
Governmental Authority;
(H) the most recent letter of confirmation of
registration of the Pension Plan pursuant
to the applicable pension legislation and
the Income Tax Act (Canada); and
(I) any statement of investment policies and
goals prepared in respect of the Pension
Plan, whether or not such statement has
been filed with any applicable Governmental
Authority.
(iii) None of the Pension Plans is a multi-employer
pension plan as defined under the provisions of any
Applicable Law.
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(iv) No Benefit Plan provides benefits, including death
or medical benefits (whether or not insured), with
respect to Employees or former employees of Westel
beyond retirement or other termination of service,
other than:
(A) coverage required by applicable law,
(B) death or retirement benefits under any
Pension Plan,
(C) deferred compensation benefits accrued as
liabilities in the Financial Statements,
(D) other than benefits under the Medical
Services Plan and Extended Health Benefit,
particulars of the retired employees
entitled to such benefits are set forth in
Tab 7 of Schedule 3.1(k), or
(E) benefits the full cost of which is borne by
the Employee or former employee (or his
beneficiary),
(v) There are no pending or (to the knowledge of BCR)
threatened claims by or on behalf of any of the
Benefit Plans, including claims by or on behalf of
any of the Benefit Plans against any Person (other
than routine claims for benefits).
(vi) With respect to each Benefit Plan that is funded
wholly or partially through an insurance policy,
there will be no liability of Westel as of the
Closing Date, under any such insurance policy or
ancillary agreement with respect to such insurance
policy in the nature of a retroactive rate
adjustment, loss sharing arrangement or other actual
or contingent liability arising wholly or partially
out of events occurring prior to the Closing. Except
as disclosed in Schedule 3.1(k), with respect to
each Benefit Plan not funded through an insurance
policy, Westel has either fully funded such Benefit
Plan through a trust or has made appropriate
provision for Westel's liability thereunder in the
Financial Statements, except for the Permitted
Retention Bonuses and Permitted Severance
Arrangements and vacation pay and except as
disclosed in the audited financial statements of the
pension plan as at December 31, 1997.
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(vii) The Pension Plan and all of the amendments thereto
have been accepted for registration by the
Department of National Revenue and any Governmental
Authority having jurisdiction over such Pension
Plans, except for the office of the Superintendent
of Financial Institutions, which registration has
been applied for and with respect to which the
management of Westel responsible for such
registration are not aware of any reason such
registration will not be accepted. Each Pension Plan
remains duly registered and in good standing under,
and has been administered in compliance in all
material respects with, all applicable statutory and
regulatory requirements.
(viii) With respect to each Pension Plan that is a defined
benefit plan, all contributions required to the date
hereof in order for such Pension Plans to comply
with the minimum funding standards imposed by
applicable statutory and regulatory requirements
have been made or properly accrued, and each such
Pension Plan is fully funded on both a "going
concern" and "solvency" or "termination" basis, as
determined in accordance with the actuarial
assumptions and methods used in the most recent
actuarial report filed with (and accepted for filing
by) the applicable Governmental Agencies in respect
of each such Pension Plan, except as disclosed in
the audited financial statements of the pension plan
as at December 31, 1997. All employer contributions
required to the date hereof have been made or
properly accrued. All employee contributions to the
Pension Plans to the date hereof have been properly
withheld by Westel and have been fully paid into the
funding arrangements for the respective Pension Plan
or will be paid in the normal course of business.
(ix) There has been no withdrawal by Westel of assets
from any Pension Plan and no application for
approval of a withdrawal of assets has been made to
any Governmental Authority. Any application of
surplus assets in any of the Pension Plans to offset
required employer contributions to such Pension
Plans has been permitted by law and was permitted
under the terms of the relevant Pension Plan and
associated funding agreement.
(x) BCR is not aware of any occurrence which would
result in the revocation of the registration of any
Pension Plan under the Income Tax Act, Canada and
any applicable pension legislation. BCR is not aware
of any basis on which amounts paid by Westel under
the
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provisions of the Pension Plans would not be
deductible for income tax purposes.
(l) Assets. Westel has good title to all of its Assets, in each
case subject to no Encumbrance except:
(i) for Permitted Encumbrances; and
(ii) as is reflected in the balance sheets forming part
of the Financial Statements of Westel.
Those Assets listed in Schedule 1.1(g) which have a net book
value in excess of $100,000 as at December 31, 1997 or which
are otherwise material to the Business are accurately
described in that Schedule. The Assets constitute all of the
assets which are material to the conduct of the Business as
now conducted by Westel. Since December 31, 1997, Westel has
not transferred, assigned, sold or otherwise disposed of or
created any Encumbrance on any of the Assets other than in
the ordinary course of business and other than Permitted
Encumbrances and Permitted Transfers. Westel does not own any
fee simple absolute interest in land or real property.
(m) Tax Returns. Westel has prepared and filed all Tax Returns on
time and with all appropriate Governmental Authorities for
all fiscal periods ending prior to the date hereof except for
the income tax return with respect to the fiscal period
ending on December 31, 1997, which will be filed on or before
June 30, 1998. Each such Tax Return was correct and complete
in all material respects. True copies of all Tax Returns
prepared and filed by Westel during the past five years have
been given to the Buyer on or before the date hereof.
(n) Payment of Taxes. Westel has paid all Taxes due and payable
and has paid all assessments and reassessments it has
received in respect of Taxes. The provisions for Taxes
reflected in the Financial Statements are sufficient to cover
all liabilities for Taxes that have been assessed against
Westel or that are accruing in respect of the Business, its
operations and property during the periods covered by the
Financial Statements and all prior periods. Except to the
extent provided for in the Quarterly Financial Information,
Westel was not liable for any Taxes at the date thereof or
for the payment of any instalment in respect of Taxes due in
respect of its current taxation year and, except as
aforesaid, no such Taxes were required to be provided for.
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(o) Reassessments. There are no reassessments of Taxes that have
been issued and are outstanding. BCR is not aware of any
pending or threatened assessment or reassessment for Taxes.
Westel has not executed or filed with any Governmental
Authority any agreement extending the period for assessment,
reassessment or collection of any Taxes. Assessments under
the Income Tax Act (Canada) and the Corporations Capital Tax
Act (British Columbia) have been made with respect to Westel
covering all past periods through the Fiscal year ended
December 31, 1996.
(p) Withholdings. Westel has withheld from each payment made to
any of its employees or former employees, officers and
directors, and to all persons who are non-residents of Canada
for the purposes of the Income Tax Act (Canada) all amounts
required by law and will continue to do so until the Closing
and has remitted or will remit, such withheld amounts within
the prescribed periods to the appropriate Governmental
Authority. Westel has or will have remitted to the proper
Governmental Authority within the time required by Applicable
Law, all Canada Pension Plan contributions, employment
insurance premiums, employers health taxes and other Taxes
payable by it in respect of its employees. Westel has charged
and collected and has remitted or will remit on a timely
basis all Taxes as required by Applicable Law on any sale,
supply or delivery whatsoever, made by Westel.
(q) Tax Status. BCR is not a nonresident of Canada, as defined in
the Income Tax Act (Canada). Westel is exempt from income tax
pursuant to section 149(l)(d) of the Income Tax Act (Canada),
which exemption shall cease to apply upon the date hereof,
after which Westel shall be subject to the provisions of
section 149(10) of the Income Tax Act (Canada). Westel is a
registrant for the purposes of the goods and services tax
provided for under the Excise Tax Act and its registration
number is 898772447RT0001.
(r) Contracts. Westel is not a party to, or bound by, any
contract, agreement or commitment of any kind which is to be
performed or as to which Westel may have any right or
obligation after the Closing Date other than
(i) those listed in Part I of Schedule 3.1(r) or
Schedule 3.1(dd);
(ii) those entered into by Westel in connection with this
Agreement and the transactions contemplated hereby;
(iii) those pursuant to which Westel is or would be
obligated to expend, or entitled to receive, less
than $50,000 in any 12-month period; and
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(iv) those contracts which cannot be disclosed to the
Buyer before the Time of Closing because of
confidentiality obligations but, except as indicated
in Part II of Schedule 3.1(r),
(A) contain any minimum commitments on the part
of Westel which are for more than 1/3 of
Westel's normal expected volume
requirements for products or services of
the nature covered by the contracts; or
(B) require that Westel deal with the other
party on an exclusive basis; or
(C) contain any shortfall charge or other
penalty for the failure to use the services
of the other party to such contract; or
(D) none of which in the opinion of BCR, acting
reasonably, is onerous or outside the
ordinary course of the Business.
All contracts to which Westel is a party are in full force
and effect, except for such contracts the invalidity or
unenforceability of which alone or in the aggregate would not
be reasonably likely to have a Material Adverse Effect. There
is not any pending or, to the knowledge of BCR, threatened
cancellation, existing default, or event under any such
contract which, after notice or lapse of time, or both, would
constitute a default, except for such pending or threatened
cancellations, existing defaults or events which, alone or in
the aggregate, would not be reasonably likely to have a
Material Adverse Effect. Except for the contracts referred to
in subparagraph (iv) above, Schedule 3.1(r) specifically
identifies all contracts and agreements containing
confidentiality provisions which could prohibit or restrict
disclosure of information to the Buyer.
(s) Licences. Westel owns, possesses. or has obtained and is in
compliance with, all material governmental licences, permits,
certificates, consents, orders, grants and other
authorizations necessary to conduct its business as now
conducted.
(t) Environmental Matters. Except as disclosed in Schedule
3.1(t), Westel: (i) is in compliance in all material respects
with applicable Environmental Laws and the Environmental
Permits; (ii) has not received any written notices from any
Governmental Authority having jurisdiction alleging the
violation of, or any claim or liability under any applicable
Environmental Law; (iii) is
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not the subject of any Order arising under any Environmental
Law, and (iv) has obtained all Environmental Permits which
are required in order to carry on the Business and operations
as presently conducted under all applicable Environmental
Laws, where non-compliance or failure to obtain the same
would have individually or in the aggregate a material
adverse effect. Neither BCR nor Westel has at any time given
any written undertakings with respect to remedying any breach
of Environmental Laws which have not been duly performed in
accordance with the terms of such undertakings. BCR is not
aware of any situation in which any of the Assets has been
used as or is a landfill, waste disposal site or contaminated
site under the Waste Management Act (British Columbia).
Westel has provided all reports and information to the
appropriate Governmental Authority as required by such
Governmental Authority pursuant to all applicable
Environmental Laws except where a failure to do so is not
expected to give rise to Material liabilities. Copies of such
reports and the Environmental Compliance Reviews in the
possession of Westel are set out in Schedule 3.1(t) and BCR
is not aware of the existence of any others. Except in
compliance with Environmental Laws and except as disclosed in
the Environmental Compliance Reviews, Westel has not caused
or permitted, and BCR has no knowledge of, any Release or
Disposal of any Hazardous Substance on or from any premises
owned or occupied by Westel or of any Release or Disposal of
any Hazardous Substance from a facility owned or operated by
Westel or any Affiliate of or tenant from Westel for which
Westel may have liability except as disclosed in Schedule
3.1(t). All Hazardous Substances generated, handled, stored,
treated, processed, transported or disposed of by or (to its
knowledge) on behalf of Westel have been generated, handled,
stored, treated, processed, transported or disposed of in all
material respects, in compliance with applicable
Environmental Laws and the Environmental Permits.
(u) Brokers and Finders. Other than Nesbitt Burns, BCR and Westel
have not employed any broker, finder, consultant or
intermediary in connection with the transactions contemplated
by this Agreement who would be entitled to a broker's,
finder's or similar fee or commission in connection therewith
or upon the consummation thereof, or if the Closing does not
occur.
(v) Books and Records. The corporate records and minute books of
Westel are maintained in all material respects in accordance
with Applicable Law.
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(w) Absence of Guarantees. Westel has not given nor agreed to
give, and is not a party to or bound by, any guarantee of
indebtedness or other obligations of BCR, any Affiliate or
other third parties nor any other commitment by which Westel
is, or is contingently, responsible for such indebtedness or
other obligations.
(x) Restrictions on Business. Westel is not a party to any
agreement, lease, mortgage, security document, obligation or
negotiable instrument, or subject to any restriction in the
memorandum or its articles or its directors' or shareholders'
resolutions or subject to any restriction imposed by any
Governmental Authority which could materially restrict or
interfere with the conduct of the Business as currently
carried on or the use of the Assets by Westel as currently
used, other than restrictions of general application to the
Business, including general restrictions under the
Telecommunications Act (Canada) and restrictions pursuant to
licenses of occupation relating to lands held by the Crown.
(y) Condition of Assets. All tangible Assets having a book value
in excess of $100,000 or which are otherwise material to the
Business, are in working condition, have been properly
maintained in the ordinary course of business and are
suitable for the operation of the Business as now operated by
Westel.
(z) Insurance. Westel is insured by reputable insurers against
liability, loss and damage in such amounts and against such
risks as are customarily carried and insured against by
owners of comparable businesses, properties and assets, and
such insurance coverage will be continued in full force and
effect to but not including the Closing Date. Schedule 3.1(z)
is a true and complete list of all insurance policies
(specifying the amount of coverage, the type of insurance and
any pending claims thereunder) maintained by Westel in
respect of the Assets and the Business as of the date hereof.
Westel is not in default with respect to any of the
provisions contained in any such insurance policy. For any
current claim that has not been settled or finally
determined, Westel has not failed to give any notice or
present any claim under any such insurance policy in a due
and timely fashion such that the insurer would be entitled to
terminate coverage or deny liability on any such claim. All
such policies of insurance are in full force and effect and
Westel is not in default, whether as to the payment of
premium or otherwise, under the terms of any such policy. The
Buyer acknowledges that to the extent that this insurance is
with BCR Captive Insurance Co. Ltd., it will cease at the
Time of Closing. Except as disclosed in Schedule 3.1(z), BCR,
having made inquiry of its
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manager of risk management and insurance, is not aware of any
events or occurrences which could reasonably form the basis
for a claim under Westel's policies of insurance.
(aa) Intellectual Property Rights. Schedule 3.1(aa) sets forth a
true and complete list of all trade marks which are all trade
marks owned by or licensed to Westel and used in the
Business. The Intellectual Property Rights are owned by
Westel or validly licensed to it. All registrations and
filings necessary to preserve the rights of Westel in and to
the Intellectual Property Rights in Canada have been made.
Except as described in Schedule 3.1(aa) BCR is not aware of
any infringement of, passing-off related to, or other
interference with the Intellectual Property Rights by third
parties or any claim by any Person that any of the
Intellectual Property Rights are, or may be, invalid or
unenforceable or that the Intellectual Property Rights
infringe or are alleged to infringe the intellectual property
rights of any other Person. Westel is not a party to any
claim, or, to BCR's knowledge, subject to any liability,
contingent or otherwise, for trademark, trade name,
industrial design, patent or copyright infringements as to
any products manufactured, produced, used or sold by Westel,
either as plaintiffs or as defendant or any other claims or
liability relating to trademarks, trade names, industrial
designs, patents or copyrights owned or licensed by Westel.
(bb) Occupational Health and Safety. BCR has provided the Buyer
with all inspection reports under all applicable occupational
health and safety laws and there are no outstanding
inspection orders or charges made under such laws. The
Business complies with all occupational health and safety
rules and regulations in all material respects and to the
knowledge of BCR, there are no outstanding violations of such
rules and regulations.
(cc) Workers' Compensation. There are no notices of reassessment
or penalty assessment (collectively, "Assessments") or any
other communications related thereto which Westel has
received from any workers' compensation board or similar
authorities in any jurisdictions where the Business is
carried on and there are no assessments which are unpaid on
the date hereof.
(dd) Leases. Part I of Schedule 3.1(dd) sets forth a true and
complete list of the Leases. Except as disclosed in such
Schedule:
(i) Each of the Leases is unamended (except for
amendments made in the ordinary course of Business)
and is in full force and effect.
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(ii) All payments required to be paid by Westel pursuant
to the Leases have been paid when due and Westel is
not otherwise in material default in meeting its
obligations under any of the Leases.
(iii) No material default exists under, and no event
exists which, but for the passing of time or the
giving of notice, or both, would constitute a
material default, on the part of Westel, or, to the
knowledge of BCR, on the part of any of the other
parties to any of the Leases.
Part II of Schedule 3.1(dd) sets forth a true and
complete list of the Expired Leases. BCR has no
reason to believe that (i) its occupation of any
premises under the Expired Leases will be
terminated; and (ii) the Expired Leases will not be
renewed by the Lessor on normal commercial terms in
the course of usual practices of the lessor or other
party to the Expired Leases.
(ee) No Expropriation. Westel has not received any notice of
expropriation of all or any of the Assets and BCR is not
aware of any expropriation proceeding pending or threatened
against or affecting the Assets nor of any discussions or
negotiations which could lead to any such expropriation.
(ff) Major Suppliers and Customers. BCR has disclosed to the Buyer
on Schedule 3.1(ff), a list of Westel's top 10 customers by
value and Westel's top 10 suppliers by value, for the 31 day
period ending May 31, 1998. To the knowledge of BCR, there is
no Material dispute between Westel and any such supplier or
customer. Westel is not aware of any intention of any such
supplier or customer to change any Material terms upon which
it will conduct business with Westel.
(gg) Year 2000. Schedule 3.1(gg) describes Westel's Millennium
Compliant programme. Except as provided in Schedule 3.1(gg),
all costs known to BCR in carrying out such programme have
been estimated by Westel and included in its budgets, copies
of which have been provided to the Buyer. BCR is not aware of
any Millennium Compliant issues under Westel's control other
than those identified in Schedule 3.1(gg) and it is not aware
of any fact or circumstance which would prevent such
programme from making the software under Westel's control
Millennium Compliant by December 31, 1999. For the purpose of
this paragraph "Millennium Compliant" means the ability of
software to deal with all date information whether before,
during or after January 1, 2000 including, but not limited
to, accepting date input, providing accurate date output and
performing accurate calculations
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involving dates or portions of dates with the same degree of
accuracy as it could before January 1, 2000.
(hh) Credit Facilities. The only credit facilities or similar
arrangements with any lender to which Westel is a party are
as described in Schedule 1.1(ss) and except as disclosed in
that Schedule there are no obligations of Westel which are
guaranteed by BCR.
(ii) Copies of Documents etc. True and complete copies of the
documents and agreements listed in the Schedules hereto which
are in writing, have been made available to the Buyer or its
solicitors for review.
(jj) Pension Plan Administration. BCR has no reason to believe
that John W. Cook, Superannuation Commissioner for the
Province of British Columbia, as administrator of the Westel
pension plan will not act as indicated in the letter from
such administrator attached hereto in Schedule 3.1(k).
(kk) Vacation Pay. As at December 31, 1997, the only outstanding
vacation entitlement for employees of Westel related to 1997
vacations. One of Westel's published employment policies
provides that vacation entitlement can only be carried
forward
(i) for one year; and
(ii) with the concurrence of the company
and expires if not used in that carry forward period.
3.2 No Other Presentations or Warranties. Except for the representations and
warranties contained in this Article III, neither BCR, Westel nor any other
Person makes any other express or implied representation or warranty on behalf
of BCR or Westel.
3.3 Survival of Representations and Warranties. All representations and
warranties made by BCR in this Agreement shall survive the Closing for a period
of 2 years after the Closing Date except for:
(a) the representations and warranties set forth in Sections
3.1(a) and (b) and the first three sentences of Section
3.1(c), which shall survive without time limit;
(b) the representation is and warranties set forth in Section
3.1(t) which shall survive for a period of 5 years after the
Closing Date; and
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(c) the representations and warranties set forth in Sections
3.1(m), 3.1(n) and 3.1(o) which shall survive until the
expiry of the last day upon which any Governmental Authority
may, (in the absence of fraud or any misrepresentation that
is attributable to neglect, carelessness or wilful default,
in which case the representation shall survive without time
limit), issue an assessment for Taxes owing by Westel in
respect of a period ending on or prior to the Time of
Closing.
After the expiration of such time periods, BCR shall have no further liability
hereunder with respect to such representations and warranties except (i) with
respect to claims properly made within such time periods and (ii) for claims
based on fraud.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Representations and Warranties of Buyer. Buyer represents and warrants to
BCR as of the date hereof and as of the Closing Date (except that
representations and warranties that are made as of a specific date need be true
only as of such date) as follows:
(a) Incorporation and Qualification. Buyer is a corporation duly
incorporated, organized and is validly subsisting under the
laws of Canada.
(b) Authority; Filings, Consents and Approvals. Buyer has the
corporate power and authority to enter into this Agreement
and, subject to the receipt of the approvals, consents and
authorizations contemplated in this Agreement, to carry out
the transactions contemplated hereby. This Agreement has been
duly authorized, executed and delivered by Buyer and
constitutes a legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity
principles, and no other proceedings on the part of Buyer are
necessary to authorize this Agreement and the consummation of
the transactions contemplated hereby.
Except as set forth in Schedule 4.1(b) or as required by the
Competition Act or the filing of appropriate notices with the
relevant share exchanges, material change reports and press
releases, the execution, delivery and performance of this
Agreement will not require Buyer or any of its subsidiaries
to obtain any consent, waiver, authorization or approval of,
or make any filing with or give notice to, any Person, except
for such consents, waivers, authorizations or approvals which
the failure to obtain would not be reasonably likely to
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prohibit or materially delay Buyer's ability to perform its
obligations under this Agreement.
(c) No Conflict. Subject to the receipt of the governmental and
regulatory approvals referred to in this Agreement, the
execution and delivery of this Agreement by Buyer does not,
and the performance of this Agreement by Buyer and the
consummation by it of the transactions contemplated by this
Agreement shall not:
(i) conflict with or violate the articles or by-laws of
the Buyer;
(ii) conflict with or violate any law, rule, regulation,
permit, order, judgment or decree applicable to
Buyer or by which its properties are bound or
affected, the conflict with which or violation of
which would prohibit or materially delay Buyer's
ability to perform its obligations under this
Agreement; or
(iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both
would become a default) under, or give to others any
rights of termination, amendment, acceleration or
cancellation of, or result in the creation of an
Encumbrance on any of the Assets of Buyer or its
subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation
to which Buyer is a party or by which Buyer or any
of its properties is bound or affected, which, in
any such case, would prohibit or materially delay
Buyer's ability to perform its obligations under
this Agreement.
(d) Brokers and Finders. Buyer has not employed any broker,
finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement who would be
entitled to a broker's, finder's or similar fee or commission
in connection therewith or upon the consummation thereof, or
if the Closing does not occur.
(e) Financial Capability. On the Closing Date, Buyer will have
sufficient funds to purchase the Shares on the terms and
conditions contemplated by this Agreement.
(f) Securities Act. Buyer is acquiring the Shares solely for the
purpose of investment and not with a view to, or for sale in
connection with, any distribution thereof in violation of the
Securities Act. Buyer acknowledges
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that the Shares are not registered under the Securities Act
or any other applicable securities law, and that such Shares
may not be transferred or sold except pursuant to the
registration provisions of such Securities Act or pursuant to
an applicable exemption therefrom and pursuant to other
applicable securities laws and regulations as applicable.
4.2 No Other Representations or Warranties. Except for the representations and
warranties contained in this Article IV, neither Buyer nor any other Person
makes any other express or implied representation or warranty on behalf of
Buyer.
4.3 Survival of Representations and Warranties. All representations and
warranties made by the Buyer in this Agreement shall survive the Closing for a
period of 2 years after the Closing Date. After the expiration of such time
period, the Buyer shall have no further liability hereunder with respect to
such representations and warranties except (i) with respect to claims properly
made within such time periods and (ii) for claims based on fraud.
ARTICLE V
COVENANTS AND AGREEMENTS OF BCR AND BUYER
5.1 Access and Information.
(a) BCR shall permit Buyer and its representatives after the date
of execution of this Agreement to have reasonable access,
during regular business hours and upon reasonable advance
notice, to the Assets owned or leased by Westel and to the
officers of Westel, subject to BCR's reasonable rules and
regulations, and shall furnish, or cause to be furnished, to
Buyer any financial and operating data or other information
that is available with respect to the Business and Assets of
Westel in order to permit Buyer to complete its due diligence
or as Buyer shall from time to time otherwise reasonably
request, provided that the foregoing shall not require BCR to
permit any inspection, or to disclose any information, that
in its reasonable judgment would result in the disclosure of
any trade secrets of third parties or violate any of BCR's or
Westel's obligations with respect to confidentiality if BCR
shall have used its reasonable best efforts to obtain the
consent of any such third party to such inspection or
disclosure. The Buyer shall also have right to meet with
groups of employees of Westel or otherwise provide to
employees of Westel information regarding the Buyer and its
Affiliates, on reasonable prior notice to BCR in order to
provide information to such employees about the Buyer and its
plans for Westel and the Business including the Buyer meeting
with the members of the Westel management team prior to the
Closing Date for
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the purposes of discussing continued employment terms with
Westel. In the event of the termination of this Agreement,
the Buyer hereby covenants that it shall not, nor shall it
cause its Affiliates not to for one year thereafter, directly
or indirectly, induce any individual who to its knowledge is
then employed on a full time or substantially full time basis
in the Business by Westel, to leave the employ of Westel,
without the prior written consent of Westel, provided however
that this covenant shall not apply to advertisements or
solicitations made generally to the public.
(b) In the event of the termination of this Agreement, Buyer at
its own expense shall promptly deliver (without retaining any
copies thereof) to BCR, or (at BCR's option) confirm in
writing to BCR that it has destroyed all information
furnished to Buyer, any of its Affiliates or its
representatives by BCR, Westel or any of their respective
agents, employees or representatives as a result hereof or in
connection herewith, whether so furnished before or after the
execution hereof. Buyer shall destroy all analyses,
compilations, forecasts, studies or other documents prepared
by Buyer or its representatives which contain or reflect any
such information. Buyer shall at all times prior to the
Closing Date, and in the event of termination of this
Agreement, cause any information so obtained to be kept
confidential and will not use, or permit the use of, such
information in its business or in any other manner or for any
other purpose except as contemplated hereby.
(c) In the event of the termination of this Agreement, all
information provided or obtained pursuant to clause (a) above
shall be held by Buyer in accordance with and subject to the
terms of the confidentiality agreement, dated February 28,
1998, between Buyer and BCR (the "Confidentiality
Agreement").
5.2 Registrations, Filings and Consents; Proceedings.
(a) BCR and Buyer will cooperate and use their respective
reasonable best efforts to fulfill the conditions precedent
to the other party's obligations hereunder, including but not
limited to, securing as promptly as practicable all consents,
approvals, waivers and authorizations required, necessary or
desirable in connection with the transactions contemplated
hereby. Buyer and BCR will promptly file documentary
materials required by the Competition Act, Environmental Laws
and each of the other items listed in Section 3.1(c) and
Section 4.1(b) and promptly file any additional information
requested as soon as practicable after receipt of request
therefor; provided that each party shall duly
file with the Director the notification and
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report form (the "Report") required under the Competition Act
with respect to the sale and purchase of the Shares no later
than three Business Days after the date hereof. Buyer
acknowledges that BCR's ability to assist with filings may be
constrained by confidentiality obligations BCR has to certain
third parties.
(b) Each of Buyer and BCR shall vigorously defend or cause to be
defended any lawsuits or other legal proceedings brought
against it or any Affiliate thereof challenging this
Agreement or the completion of the transactions contemplated
by this Agreement. Neither Buyer nor BCR shall settle or
compromise any claim brought by their respective present,
former or purported holders of any of their securities in
connection with the transactions contemplated by this
Agreement prior to the Closing Date without the prior written
consent of the other party.
5.3 Operation of Business. During the period commencing on the date hereof and
continuing until the Closing Date, unless Buyer shall otherwise agree in
writing (such agreement not to be unreasonably withheld) or as otherwise
expressly contemplated or permitted by this Agreement, BCR will cause Westel:
(a) to carry on its business in the ordinary course and use its
reasonable best efforts to preserve intact its business,
organization, employees, customers, suppliers and goodwill;
(b) not to subdivide, consolidate, redeem, purchase or otherwise
acquire or reclassify any of its outstanding shares of any
class, declare any dividends on or make other distributions
(whether in cash, securities or property or any combination
thereof) in respect of its shares of any class;
(c) not to amend its memorandum or articles or similar o
rganizational documents;
(d) not to issue, authorize or propose or commit to the issuance
of (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or
otherwise), or, directly or indirectly, through an Affiliate
or otherwise, purchase or propose the purchase of, any shares
in its capital of any class or securities convertible into or
exchangeable for, or rights, warrants or options to acquire,
any such shares or other convertible or exchangeable
securities;
(e) not to commit to or merge or consolidate with or into any
other Person;
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(f) not to sell, lease, transfer or otherwise dispose of or
create or suffer to exist any Encumbrance on any of its
Assets except in the ordinary course of business and except
for Permitted Transfers and Permitted Encumbrances;
(g) except for Permitted Capital Expenditures, not to:
(i) incur indebtedness for money borrowed or assume,
guarantee, endorse or otherwise become liable or
responsible for the obligations of any other Person
in excess of such amount, or issue or sell any debt
securities;
(ii) make any new capital expenditures in excess of
$100,000 in the aggregate;
(iii) enter into a contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(h) not to grant to any employee of Westel any increase in
compensation or in severance or termination pay, or enter
into new or amend existing agreements respecting employment
(including benefits) with any employee of Westel, except as
may be required under employment or termination agreements in
effect on the date hereof including the Permitted Retention
Bonuses and the Permitted Severance Arrangements or as may be
required by law or in a manner consistent with past
practices;
(i) not to enter into any transaction or perform any act which
might interfere or be inconsistent with the successful
completion of the transactions contemplated by this Agreement
or which would render inaccurate any of the representations
and warranties set forth herein;
(j) to use its reasonable best efforts to renew each of the
Expired Leases on normal commercial terms and to assign or
transfer leases in BCR's name to Westel; and
(k) to use its reasonable efforts to complete the registration of
its Pension Plan as contemplated by Section 3.1(k)(ii).
5.4 Retention of Books and Records. Buyer shall cause Westel to retain, until
all applicable tax statutes of limitations (including periods of waiver) have
expired, all books, records and other documents pertaining to Westel in
existence on the Closing Date that are required to be retained under current
retention policies and to make the same available after
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the Closing Date for inspection and copying by BCR or its agents at BCR's
expense, during regular business hours and upon reasonable request and upon
reasonable advance notice in connection with any Taxes or Tax Returns of BCR.
After the expiration of such period, no such books and records shall be
destroyed by Buyer without first advising BCR in writing detailing the contents
thereof and giving BCR at least 120 days to obtain possession thereof. Buyer
shall keep such records strictly confidential and use them only for tax and
accounting purposes.
5.5 Closing Date Financial Information. For a period of one year from and after
the Closing Date, to the extent reasonably necessary for BCR or its Continuing
Affiliates to prepare consolidated financial statements or any governmental
permits, licenses or required filings and to comply with reporting obligations
in respect thereof, upon the written request of BCR, Westel will provide, and
Buyer shall use its reasonable best efforts to cause Westel to provide, to BCR
and its accountants within 20 Business Days of such request such computer
support, access to employees and Buyer's accountants and financial information
of Westel as of the Closing Date as BCR may reasonably request in the format
customarily required by BCR or its Affiliates and, upon BCR's request, it will
be accompanied by supplemental financial schedules customarily required by BCR
or its Affiliates in support of such financial information. BCR shall keep such
records strictly confidential and use them only for accounting and tax
purposes.
5.6 Telecommunications Services Agreement. BCR shall cause BC Rail to enter
into, and the parties hereto shall cause Westel to enter into, the
Telecommunications Services Agreement.
5.7 Non-Competition Agreement. The Buyer, Westel and BCR shall each execute and
deliver the Non-Competition Agreement at the Closing Time.
5.8 Capitalization of Inter-corporate Debt. Immediately prior to the Closing
Time, BCR shall subscribe for such number of common shares of Westel at $1.00
per share as is equal to the amount of the Inter-corporate Debt and shall pay
such subscription price to Westel. BCR shall cause Westel to use the
subscription price to repay to BCR, the amount of the Intercorporate Debt at
the Closing Time.
5.9 Further Assurances. Each party shall do such acts and shall execute such
further documents, conveyances, deeds, assignments, transfers and the like, and
will cause the doing of such acts and will cause the execution of such further
documents as are within its power as any other party may in writing at any time
and from time to time reasonably request be done and or executed, in order to
give full effect to the provisions of this Agreement and the transactions
contemplated hereby.
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5.10 Continue Insurance. Up to the Time of Closing, BCR shall cause Westel to
continue in force and good standing all policies of insurance maintained by
Westel and shall present all claims under such policies in a due and timely
manner. The Buyer acknowledges that to the extent placed with BCR Captive
Insurance Co. Ltd., such insurance cannot be continued thereafter. BCR shall
cooperate with the Buyer and shall provide any necessary information to the
Buyer so that the Buyer may arrange for insurance on the Assets and the
Business which is normal and prudent for a business of the type owned and
operated by Westel.
5.11 Comply with Laws. BCR shall cause Westel to comply with all Applicable
Laws affecting Westel which are material to the operation of the Business.
5.12 Brokerage Fees. BCR shall pay all fees and expenses of Nesbitt Burns
payable in connection with this Agreement and the transactions contemplated
hereby.
5.13 Disclosure of Breaches. No party hereto shall be deemed to have breached
any representation, warranty, covenant or agreement in this Agreement, if (i)
such party shall have notified the other parties hereto in writing, on or prior
to the Closing Date, of the breach of, or inaccuracy in, or of any facts or
circumstances constituting or resulting in the breach of or inaccuracy in, such
representation, warranty, covenant or agreement, specifically referring to the
provisions of this Agreement so breached or rendered inaccurate, and (ii) the
other party has permitted the Closing to occur and, for purposes of this
Agreement, is thereby deemed to have waived such breach or inaccuracy;
provided, however, that a disclosure pursuant to this Section 5.13 shall not
prejudice the rights of the parties pursuant to Article VI hereof not to
consummate the transactions contemplated by this Agreement.
5.14 Pension Plan. BCR shall cooperate with the Buyer so that (i) the
administrator and trustee of the Pension Plan is changed to an administrator
and trustee selected by the Buyer and (ii) the investments of the Pension Plan
ire reinvested in investments selected by the administrator appointed by the
Buyer. The Buyer shall use its reasonable best efforts to effect such changes
as soon as practicable after the Closing.
5.15 Value Allocation Schedule. The parties agree that the aggregate value of
the Current Assets as set forth in the Value Allocation Schedule is the fair
market value of such Assets on the date hereof and that the allocation of such
value among classes of assets as set out therein represents an appropriate
allocation of such value.
5.16 Transfer of Telecommunication Assets. BCR acknowledges that the Buyer will
enter into an asset purchase agreement with the Canadian Carrier that will
contain representations, warranties, covenants and indemnities with respect to
the Telecommunication Assets (collectively "Telecommunication Warranties")
which are
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substantially to the same effect as the representations, warranties, covenants
and indemnities given by BCR to the Buyer with respect to the Assets and the
Business and that the giving of such representations, warranties, covenants and
indemnities by the Buyer will be made in reliance on the representations,
warranties, covenants and indemnities given by BCR to the Buyer in this
Agreement. The Buyer may claim against BCR under Article VI for any Loss
suffered or incurred by the Buyer as a result of any claim made by the Canadian
Carrier against the Buyer for any breach of the Telecommunication Warranties
which are result from or relate to any breach by BCR of the representations,
warranties, covenants and indemnities given by BCR to the Buyer in this
Agreement.
5.17 Permitted Transfers. At or before the Time of Closing, BCR may cause
Westel to transfer to BC Rail the Assets listed in Schedule 3.1(d)(v)(A)
provided that such sale shall take place in accordance with the following
terms:
(a) The price for the Assets transferred shall be an amount equal
to the net book value thereof.
(b) The price shall be paid by BCR to Westel by a reduction in
the Inter-corporate Debt.
(c) With respect to those assets described in Part I of Schedule
3.1(d)(v)(A), Westel and BC Rail shall provide in the Telecom
Services Agreement that Westel shall have unrestricted access
to and the right to use the transferred assets free of charge
for the remainder of their useful life without cost to
Westel.
5.18 Permitted Retention Bonuses and Permitted Severance Arrangements. BCR
shall reimburse Westel for all Permitted Retention Bonuses which become payable
to employees of Westel as a result of the Closing and shall indemnify Westel
and save it fully harmless from and against any such liabilities. BCR shall not
be liable to pay any amounts owing under the Permitted Severance Arrangements,
or any other severance arrangements or termination obligations, liabilities,
damages or costs of any kind whatsoever applicable to the employees of Westel
which may arise out of the transactions contemplated herein, whether occurring
before or after the Closing Date, all of which shall continue to be the
responsibility of Westel.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions for the Benefit of Buyer. The obligation of Buyer to consummate
the transactions contemplated by this Agreement shall be subject to the
satisfaction or waiver
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by Buyer in writing on or prior to the Closing Date of each of the following
conditions, all of which are for its exclusive benefit:
(a) Representations and Warranties. Each of the representations
and warranties of BCR contained in this Agreement which
refers to a Material Adverse Effect or otherwise makes
reference to a concept of materiality shall be true when made
and as of the Closing Date, and each of the other
representations and warranties of BCR contained in this
Agreement shall be true in all material respects when made
and as of the Closing Date, with the same effect as though
such representations and warranties had been made on and as
of the Closing Date (except (i) representations and
warranties that are made as of a specific date need be true,
or true in all material respects, as the case may be, only as
of such date and (ii) as expressly permitted by this
Agreement to change between the date of this Agreement and
the Closing Date); each of the covenants and agreements of
BCR to be performed on or prior to the Closing Date shall
have been duly performed in all material respects; and Buyer
shall have received at the Closing certificates to that
effect dated as of the Closing Date and executed on behalf of
BCR by its President or any of its Vice Presidents and its
Secretary or any of its Assistant Secretaries.
(b) Opinion of BCR's Counsel. Buyer shall have received from BCR
an opinion of Ladner Downs, counsel to BCR, dated as of the
Closing Date, acceptable to the Buyer and its counsel, acting
reasonably.
(c) Consents, Authorizations and Representations. Subject to
Section 6.3 hereof, all consents, approvals, orders and
authorizations of any Person or Governmental Authorities (or
registrations, declarations, filings or recordings with any
of them), required for the Closing (other than routine
post-closing notifications or filings), shall have been
obtained or made on or before the Closing, including the
consents and approvals set forth in Schedules 3.1(c) and
4.1(b).
(d) No Material Adverse Change. No material adverse change shall
have occurred since the date hereof with respect to the
Condition of the Business and the Buyer shall have received
immediately prior to Closing a certificate from a senior
officer of BCR certifying, to the best of that officer's
knowledge, information and belief (after due enquiry) that
the condition in this Section has been satisfied.
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(e) Litigation. No order or judgment shall have been made that
prohibits or restricts the Closing. None of the parties
(including the Buyer or Westel), nor any of their respective
directors, officers, employees or agents, shall be a
defendant or third party to or threatened with any litigation
or proceedings before any Court or Governmental Authority
which, in the opinion of the Buyer, acting reasonably, could
prevent or restrict that party from performing any of its
obligations in any Closing Document.
(f) Receipt of Closing Documentation.. All documentation relating
to the sale and purchase of the Shares including all closing
documents relating to the due authorization and completion of
such sale and purchase and all actions and proceedings taken
on or prior to the Closing in connection with the performance
by BCR of its obligations under this Agreement shall be
satisfactory to the Buyer and its counsel, acting reasonably.
The Buyer shall have received copies of the closing documents
and all such documentation or other evidence as it may
reasonably request in order to establish the consummation of
the transactions contemplated hereby and the taking of' all
corporate proceedings in connection therewith in form (as to
certification and otherwise) and substance satisfactory to
the Buyer and its counsel.
(g) Directors of Company. At the Closing Time, all directors of
Westel and the BCR officers as listed in Schedule 6.1(g)
hereto shall submit:
(i) a resignation from all positions with Westel, and
(ii) a release of all claims against Westel up to the
Closing Time except for (i) current unpaid
remuneration and advances made to Westel and (ii)
any matters for which such director is entitled to
indemnity under the by-laws of Westel and any
insurance related thereto.
(h) Non-Competition Agreement. BCR shall have executed and
delivered to the Buyer and Westel a Non-Competition Agreement
in the form of Schedule 6.1(h).
(i) Competition Act Approval. The Competition Act Approval shall
have been obtained.
(j) Telecommunications Services Agreement. Westel and BCR
Partnership shall have entered into the Telecommunications
Services Agreement.
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(k) Permitted Transfers Any transfer of assets pursuant to
Section 5.17 shall be completed to the satisfaction of the
Buyer, acting reasonably.
6.2 Conditions for the Benefit of BCR. The obligation of BCR to consummate the
transactions contemplated by this Agreement shill be subject to the
satisfaction or waiver by BCR in writing on or prior to the Closing Date of
each of the following conditions all of which are for its exclusive benefit:
(a) Representations and Warranties. Each of the representations
and warranties of Buyer contained in this Agreement qualified
by a concept of materiality shall be true when made and as of
the Closing Date, and each of the other representations and
warranties of Buyer contained in this Agreement shall be true
in all material respects when made and as of the Closing
Date, with the same effect as though such representations and
warranties had been made on and as of the Closing Date
(except (i) representations and warranties that are made as
of a specific date need be true, or true in all material
respects, as the case may be, only as of such date and (ii)
as expressly permitted by this Agreement to change between
the date of this Agreement and the Closing Date); each of the
covenants and agreements of Buyer to be performed on or prior
to the Closing Date shall have been duly performed in all
material respects; and BCR shall have received at the Closing
certificates to that effect dated as of the Closing Date and
executed on behalf of Buyer by its President or any of its
Vice Presidents and its Secretary or any of its Assistant
Secretaries.
(b) Opinion of Buyer's Consel. BCR shall have received from
Fasken Campbell Godfrey, as counsel for Buyer, an opinion,
dated as of the Closing Date, acceptable to BCR and its
counsel, acting reasonably.
(c) Telecommunications Services Agreement. Westel and BCR
Partnership shall have entered into the Telecommunications
Services Agreement.
(d) Receipt of Closing Documentation. Buyer shall deliver all
documents reasonably requested by BCR or its counsel and
shall take all actions reasonably necessary to complete the
transactions contemplated by this Agreement.
(e) Litigation. No order shall have been made that prohibits or
restricts the Closing. None of the parties (including BCR or
Westel), nor any of their respective directors, officers,
employees or agents, shall be a defendant or third party to
or threatened with any litigation or proceedings before any
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court or Governmental Authority which, in the opinion of BCR,
acting reasonably, could prevent or restrict that party from
performing any of its obligations in this Agreement or any
closing document.
(f) Consents, Authorizations and Registrations. All consents,
approvals, orders and authorizations of any Person or
Governmental Authorities (or registrations, declarations,
filings or recordings with any of them), required for the
Closing (other than routine post-closing notifications or
filings), shall have been obtained or made on or before the
Closing, Including the consents and approvals set forth in
Schedule 3.1(c).
(g) Release of Guarantee. BCR and its Affiliates shall have been
released from all obligations under any guarantees of the
debts or other obligations of Westel listed on Schedule
3.1(hh).
(h) Permitted Transfers. Any transfer of assets pursuant to
Section 5.17 shall be completed to the satisfaction of BCR,
acting reasonably.
6.3 Termination if Conditions Not Met. If the conditions set out in this
Article VI are not satisfied or waived on or before August 31, 1998 or such
later date as the parties hereto agree to in writing, this Agreement may be
terminated by either party by notice in writing to the other. In the event of a
termination of this Agreement pursuant to this paragraph 6.3, the obligations
of BCR and Buyer under this Agreement shall be at an end except for the
obligations contained in the Confidentiality Agreement, provided that either
BCR or Buyer may also bring an action against the other for damages suffered
where the non-performance or non-fulfillment of the relevant condition is as
result of a breach of covenant, representation or warranty contained in this
Agreement by the other.
ARTICLE VII
INDEMNIFICATION
7.1 Definitions. As used in this Article 7:
"Claim" means any demand, action, suit, proceeding, claim,
assessment, judgment or settlement or compromise relating
thereto which may give rise to a right to indemnification
under Sections 7.2 or 7.3;
"Direct Claim" means any Claim by an Indemnified party
against an Indemnifier which does not result from a Third
party Claim;
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"Indemnifier" means any party obligated to provide
indemnification under this Agreement;
"Indemnified Party" means any Person entitled to
indemnification under this Agreement;
"Indemnity Payment" means any amount of Loss required to be
paid pursuant to Sections 7.2 or 7.3;
"Loss" means any and all loss, liability, damage, cost or
expense actually suffered or incurred by a party resulting
from the subject matter of any Claim, including the costs and
expenses of any action, suit, proceeding, demand, assessment,
judgment, settlement or compromise relating thereto, less the
amount of any judgment awarded as a result of any
counterclaim or set-off relating to that Claim;
"Representative" means each director, officer, employee,
agent, solicitor, accountant, professional advisor and other
representative of an Indemnified party and in the case of the
Buyer includes each director, officer, employee, agent,
solicitor, accountant, professional advisor and other
representative of Westel;
"Third Party Claim" means any Claim asserted against an
Indemnified Party by any Person who is not a party or an
affiliate of such a party;
7.2 Indemnification by BCR. BCR shall indemnify and save harmless the Buyer and
each of its Representatives from and against any and all Loss suffered or
incurred by them, as a result of:
(a) subject to Sections 3.3 and 5.13 and the limits set forth in
Section 7.11, any misrepresentation or breach of warranty
made or given by BCR in this Agreement;
(b) any failure by BCR to observe or perform any covenant or
obligation contained in this Agreement to be observed or
performed by it;
(c) any of the claims, actions, proceedings, suits, or other
matters listed on Schedule 3.1(i).
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In addition, BCR shall indemnify and save harmless the Buyer and each of its
Representatives from and against any and all Loss suffered or incurred by them,
as a result of any Taxes required to be paid by Westel relating to any period
ending on or before the Closing Date, in excess of the Taxes accrued as a
liability on the Financial Statements or included in the calculation of Closing
Working Capital.
7.3 Indemnification by the Buyer. The Buyer shall indemnify, defend and save
harmless BCR and each of its Representatives from and against any and all Loss
suffered or incurred by them, as a result of:
(a) subject to Sections 4.3 and 5.13 and the limits set forth in
Section 7.11, any misrepresentation or breach of any warranty
made or given by the Buyer in this Agreement; and
(b) any failure by the Buyer to observe or perform any covenant
or obligation contained in this Agreement to be observed or
performed by it.
7.4 Agency for Representatives. Each Indemnified Party agrees that it accepts
each indemnity in favour of any of its Representatives as agent and trustee of
that Representative. Each party agrees that an Indemnified Party may enforce an
indemnity in favour of any of that party's Representatives on behalf of that
Representative.
7.5 Notice of Third Party Claims. If an Indemnified Party receives notice of
the commencement or assertion of any Third Party Claim, the Indemnified Party
shall give the Indemnifier reasonably prompt notice thereof, but in any event
no later than 30 days after receipt of such notice of such Third Party Claim.
Such notice to the Indemnifier shall describe the Third Party Claim in
reasonable detail and shall indicate, if reasonably practicable, the estimated
amount of the Loss that has been or may be sustained by the Indemnified Party.
7.6 Defence of Third Party Claims. The Indemnifier may participate in or assume
the defence of any Third Party Claim by giving notice to that effect to the
Indemnified Party not later than 30 days after receiving notice of that Third
Party Claim (the "Notice Period") and may enforce any right of set-off or
counterclaim to which the Indemnified Party may be entitled. The Indemnifier's
right to do so shall be subject to the rights of any insurer or other party who
has potential liability in respect of that Third Party Claim. The Indemnifier
agrees to pay all of its own expenses of participating in or assuming such
defence. The Indemnified Party shall cooperate in good faith in the defence of
each Third Party Claim, even if the defence has been assumed by the Indemnifier
and may participate in such defence assisted by counsel of its own choice at
its own expense. If the Indemnified Party has not received notice within the
Notice Period that the Indemnifier has elected to assume the defence, of
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such Third Party Claim, the Indemnified Party may assume such defence. assisted
by counsel of its own choosing and the Indemnifier shall be liable for all
reasonable costs and expenses paid or incurred in connection therewith and any
Loss suffered or incurred by the Indemnified Party with respect to such Third
Party Claim.
7.7 Assistance for Third Party Claims. The Indemnifier and the Indemnified
Party will use all reasonable efforts to make available to the party which is
undertaking and controlling the defense of any Third Party Claim (the
"Defending Party"),
(a) those employees whose assistance, testimony or presence is
necessary to assist the Defending Party in evaluating and in
defending any Third Party Claim; and
(b) all documents, records and other materials in the possession
of such party reasonably required by the Defending Party for
its use in defending any Third Party Claim,
and shall otherwise cooperate with the Defending Party. The Indemnifier shall
be responsible for all reasonable expenses associated with making such
documents, records and materials available and for all reasonable expenses of
any employees made available by the Indemnified Party to the Indemnifier
hereunder, which expense shall not exceed the actual cost to the Indemnified
Party associated with such employees.
7.8 Settlement of Third Party Claims. If an Indemnifier elects to assume the
defence of, or any counterclaims or claims of set-off with respect to, any
Third Party Claim as provided in Section 7.6, the Indemnifier shall not be
liable for any legal expenses subsequently incurred by the Indemnified Party in
connection with the defence of such Third Party Claim. However, if the
Indemnifier fails to take reasonable steps necessary to defend diligently such
Third Party Claim within 30 days after receiving notice from the Indemnified
Party that the Indemnified Party bona fide believes on reasonable grounds that
the Indemnifier has failed to take such steps, the Indemnified Party may, at
its option, elect to assume the defence of and to compromise or settle the
Third Party Claim assisted by counsel of its own choosing and the Indemnifier
shall be liable for all reasonable costs and expenses paid or incurred in
connection therewith. The Indemnifier shall not settle or compromise any Third
Party Claim without obtaining the prior written consent of the Indemnified
Party, such consent not to be unreasonably withheld so long as all liability of
the Indemnified Party with respect to the Third Party Claim is released. The
Indemnified Party shall not settle or compromise any Third Party Claim without
the prior written consent of the Indemnifier unless such settlement or
compromise is made without any liability to the Indemnifier.
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7.9 Direct Claims. Any Direct Claim shall be asserted by giving the Indemnifier
reasonably prompt written notice thereof, but in any event not later than 60
days after the Indemnified Party becomes aware of such Direct Claim The
Indemnifier shall then have a period of 30 days within which to respond in
writing to such Direct Claim. If the Indemnifier does not so respond within
such 30 day period, the Indemnifier shall be deemed to have rejected such
Claim.
7.10 Failure to Give Timely Notice. A failure to give timely notice as provided
in this Article 7 shall not affect the rights or obligations of any party
except and only to the extent that, as a result of such failure, any party
which was entitled to receive such notice was deprived of its right to recover
any payment under its applicable insurance coverage or was otherwise directly
and materially damaged as a result of such failure.
7.11 Limitation.
(a) No claims for indemnification may be made by the Buyer or its
Representatives against BCR under Section 7.2(a) in respect
of any Loss arising in connection with any misrepresentation
or breach of warranty made or given by BCR in this Agreement
unless the aggregate of all Losses suffered or incurred by
the Buyer or its Representatives in respect of all such
misrepresentations or breaches of warranty, exceeds Five
Hundred Thousand Dollars ($500,000) in the aggregate, in
which event the amount of all such Losses may be recovered by
the Buyer or its Representatives.
(b) No claims for indemnification may be made by BCR or its
Representatives against the Buyer under Section 7.3(a) in
respect of any Loss arising in connection with any
misrepresentation or and breach of warranty made or given by
the Buyer in this Agreement, unless the aggregate of all
Losses suffered or incurred by BCR or its Representatives in
respect of all such misrepresentations or breaches of
warranty, exceeds Five Hundred Thousand Dollars ($500,000) in
the aggregate, in which event the amount of all such Losses
may be recovered by BCR or its Representatives.
(c) The maximum aggregate liability of BCR to the Buyer or its
Representatives hereunder shall not exceed 70% of the amount
of the Purchase Price, as adjusted.
(d) The Buyer may set off against any amount due by it to BCR
hereunder, the amount of any Loss suffered or incurred by it
from time to time.
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ARTICLE VIII
ARBITRATION
8.1 Arbitration. Any dispute between the parties concerning a dispute with
respect to the purchase price adjustment calculations under Section 2.3 shall
be referred to and finally resolved by arbitration in accordance with the
Commercial Arbitration Act of British Columbia and governed by the Rules of
Procedure, using a single arbitrator.
8.2 Location of Arbitration. Any arbitration hereunder shall be held at
Vancouver, British Columbia, unless the parties otherwise agree.
8.3 Applicable Law. The law to be applied in connection with the arbitration
shall be the law of British Columbia, including its conflicts of laws rules.
ARTICLE IX
MISCELLANEOUS
9.1 Amendment and Modification; Waiver. This Agreement may only be amended or
modified in writing, signed by BCR and Buyer, at any time prior to the Closing
with respect to any of the terms contained herein. At any time prior to the
Closing either BCR or Buyer may (i) extend the time for the performance of any
of the obligations or other acts of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions of the other party contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the party
granting such extension or waiver. No waiver of any provision of this Agreement
shall constitute a waiver of any other provision nor shall any waiver of any
provision of this Agreement constitute a continuing waiver unless otherwise
expressly provided.
9.2 Return of Information. If for any reason whatsoever the sale and purchase
of the Shares pursuant to this Agreement is not consummated, Buyer shall
promptly return to BCR or Westel all books, records and documents of BCR or
Westel (including all copies, if any, thereof) furnished by BCR, Westel, or any
of their respective agents, employees, or representatives, and shall not use or
disclose the information contained in such books, records or documents for any
purpose or make such information available to any other Person.
9.3 Expenses. Except as otherwise expressly provided in this Agreement, whether
or not the transactions contemplated by this Agreement are consummated, the
parties shall bear their own respective expenses (including, but not limited
to, all
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compensation and expenses of counsel, consultants, actuaries and independent
accountants) incurred in connection with this Agreement and the transactions
contemplated hereby.
9.4 Public Disclosure. Each of the parties to this Agreement hereby agrees with
the other parties hereto that, except as may be required to comply with the
requirements of applicable law or the rules and regulations of the stock
exchanges upon which the securities of the parties or their Affiliates are
listed, no press release or similar public announcement or communication will
be made or caused to be made concerning the execution or performance of this
Agreement unless specifically approved in advance by all parties hereto;
provided, however, that to the extent that either party to this Agreement is
required by law or the rules and regulations of any stock exchange upon which
the securities of one of the parties or its Affiliates is listed to make such a
public disclosure, such public disclosure shall only be made after prior
consultation, to the extent such consultation is practicable in the
circumstances, with the other party to this Agreement.
9.5 Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party hereto.
9.6 Entire Agreement. This Agreement and the Transaction Documents contain the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings, oral or written,
with respect to such matters, except for the Confidentiality Agreement which
will remain in full force and effect for the term provided for therein.
9.7 Fulfillment of Obligations. Any obligation of any party to any other party
under this Agreement, which obligation is performed, satisfied or fulfilled by
an Affiliate of such party, shall be deemed to have been performed, satisfied
or fulfilled by such party.
9.8 Parties in Interest; No Third Party Beneficiaries. This Agreement shall
enure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Except as expressly provided in
this Agreement nothing in this Agreement is intended to confer upon any Person
other than Buyer, BCR, or their successors or permitted assigns, any rights or
remedies under or by reason of this Agreement.
9.9 Schedules. The inclusion of any matter in any schedule to this Agreement
shall be deemed to be an inclusion in any other schedule where such disclosure
is specifically cross referenced in the other schedule, but inclusion therein
shall expressly not be deemed to constitute all admission by BCR, or otherwise
imply, that any such matter is material or creates a measure for materiality
for the purposes of this Agreement.
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9.10 Counterparts. This Agreement and any amendments hereto may be executed in
one or more counterparts, each of which shall be deemed to be an original by
the parties executing such counterpart, but all of which shall be considered
one and the same instrument. A signed facsimile or telecopied copy of this
Agreement shall be effectual and valid proof of execution and delivery.
9.11 Section Headings. The section and paragraph headings and table of contents
contained in this Agreement are for reference purposes only and shall not in
any way affect the meaning or interpretation of this Agreement.
9.12 Notices. All notices hereunder shall be deemed given if in writing and
delivered personally or sent by facsimile, telex or by registered or certified
mail (return receipt requested) to the parties at the following addresses (or
at such other addresses as shall be specified by like notice):
(a) if to BCR, to:
British Columbia Railway Company
221 West Esplanade
North Vancouver, B.C.
V7M 3J1
Attention: Roger Clarke
Vice President, Finance
and Information Technology
Fax: (604) 984-5033
With a copy to:
Ladner Downs
1200 Waterfront Centre
200 Burrard Street
P.O. Box 48600,
Vancouver, Canada
V7X lT2
Attention: William R. Miles
Fax: (604) 687-1415
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(b) if to Buyer, to:
RSL COM Holdings Canada Inc.
c/o RSL Communications Ltd.
767 Fifth Avenue, Suite 4300
New York, New York
U.S.A. 10153
Attention: Jason Pollack
Associate Legal Counsel
Fax: (212) 317-1940
With a copy to:
Fasken Campbell Godfrey
4200 Toronto Dominion Bank Tower
Box 20, Toronto-Dominion Centre
Toronto, Canada
M5K 1N6
Attention: C. Ian Kyer
Fax: (416) 364-7813
Any notice given by mail shall be effective, if mailed at any other time than
during a general discontinuance of postal service due to strike, lockout or
otherwise, on the fourth Business Day after the post-marked date thereof. Any
notice given by telex or facsimile shall be effective on the Business Day
following the sending. Any notice delivered personally shall be effective at
the time it is delivered to the applicable address noted above either to the
individual designated above or to an individual at such address having apparent
authority to accept deliveries on behalf of the addressee. In the event of a
general discontinuance of postal service due to strike, lock-out or otherwise,
notices or other communications shall be delivered personally or by telex or
facsimile.
9.13 Governing Law, Submission to Jurisdiction; Selection of Forum. This
Agreement shall be governed by, and construed in accordance with, the laws of
the Province of British Columbia without reference to the choice of law
principles thereof. Each party hereto attorns to the non-exclusive jurisdiction
of the Courts of the Province of British Columbia (the "Chosen Courts") and (i)
irrevocably submits to the non-exclusive Jurisdiction of the Chosen Courts,
(ii) waives any objection to venue in any such action or proceeding in the
Chosen Courts, and (iii) waives any objection that the Chosen Courts are an
inconvenient forum or do not have jurisdiction over any party hereto.
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IN WITNESS WHEREOF, this Agreement has been signed on behalf
of each of the parties hereto as of the date first written above.
BRITISH COLUMBIA RAILWAY COMPANY
Per:
---------------------------------------------
Paul J. McElligott
Group President and Chief Executive
Officer
Per:
---------------------------------------------
J. Roger Clarke
Vice-President, Finance & Information
Technology
RSL COM HOLDINGS CANADA INC.
Per:
---------------------------------------------
Jacob Z. Schuster
President
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SCHEDULES
Schedule 1.1(g) Assets
Schedule 1.1(ss) Lenders
Schedule 1.1(eee) Permitted Encumbrances
Schedule 1.1(rrr) Telecommunications Services Agreement
Schedule 1.1(vvv) Value Allocation Schedule
Schedule 3.1(c) BCR's Consents and Approvals
Schedule 3.1(d)(v)(A) Permitted Transfers
Schedule 3.1(d)(v)(D) Permitted Retention Bonuses and Permitted Severance
Arrangements
Schedule 3.1(e) Financial Statements
Schedule 3.1(f) Material Liabilities
Schedule 3.1(i) Litigation
Schedule 3.1(j) Labour and Employment Relations
Schedule 3.1(k) Benefit Plans
Schedule 3.1(r) Contracts
Schedule 3.1(t) Environmental Matters
Schedule 3.1(z) Insurance
Schedule 3.1(aa) Intellectual Property Rights, including Trade Marks
Schedule 3.1(dd) Leases and Expired Leases
Schedule 3.1(ff) Major Suppliers and Customers
Schedule 3.1(gg) Millennium Compliant Programme
Schedule 4.1(b) Buyer's Consents and Approvals
Schedule 5.3(g)(i) Permitted Capital Expenditures
Schedule 6.1(g) Resigning Officers
Schedule 6.1(h) Non-Competition Agreement
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[Draft--11/4/98]
THIS NOTE DEPOSIT AGREEMENT is made as of this 9th day of
November, 1998 by and between RSL Communications PLC, a United Kingdom
corporation (the "Issuer") and The Chase Manhattan Bank, a New York banking
corporation, as book-entry depositary (the "Book-Entry Depositary").
ARTICLE I
DEFINITIONS AND OTHER GENERAL PROVISIONS
SECTION 1.1 Definitions. The following terms, as used herein,
have the following meanings:
"144A Depositary Interest" means the certificateless
book-entry interest representing a 100% beneficial interest in the principal of,
premium, if any, and interest on the underlying 144A Global Note, and issued to
the Depositary by the Book-Entry Depositary.
"144A Global Note" means one or more global bearer bonds
issued by the Issuer to the Book-Entry Depositary and bearing the Restricted
Legend representing the total aggregate principal amount of the Notes sold in
reliance on Rule 144A under the Securities Act.
"Asset Disposition" has the meaning set forth in
the Indenture.
"Board Resolution" means a duly adopted resolution of the
Board of Directors of the Issuer in full force and effect on the date of
certification, certified by any Director, Secretary or Assistant Secretary of
the Issuer.
"Book-Entry Depositary" means The Chase Manhattan Bank or, in
the event that The Chase Manhattan Bank is succeeded as Book-Entry Depositary
hereunder, the Person designated as its successor pursuant to Section 3.8
hereof.
"Book-Entry Notes" means an indirect certificateless
beneficial interest in a Global Note held through a corresponding Depositary
Interest.
"Book-Entry Register" has the meaning set forth in
Section 2.3 hereof.
"Change of Control" has the meaning set forth in
the Indenture.
"Corporate Trust Office" means the office of the Book-Entry
Depositary in the Borough of Manhattan, The City of New York, from which at any
particular time its corporate trust business shall be principally administered,
which at
<PAGE>
the date hereof is located at 450 West 33rd Street, New York, New York
10001-2697, Attention: Global Trust Services.
"Depositary" means DTC, or any successor, as the holder of the
Depositary Interests as recorded on the Book-Entry Register.
"Depositary Interests" means each of the 144A
Depositary Interests and the Regulation S Depositary
Interests.
"DTC" means The Depository Trust Company and its
nominees.
"Event of Default" shall have the meaning set
forth in the Indenture.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
"Global Notes" means each of the 144A Global Note and the
Regulation S Global Note.
"Holdings" means RSL Communications, Ltd., guarantor of the
Notes pursuant to the Indenture until a successor replaces it pursuant to the
applicable provisions of the Indenture and, thereafter, means such successor.
"Indenture" means the indenture dated as of November 9, 1998
among the Issuer, Holdings and the Trustee relating to the Notes, as originally
executed or as it may be supplemented, modified or amended from time to time.
"Issuer" means RSL Communications PLC until a successor
replaces it pursuant to the applicable provisions of the Indenture and,
thereafter, means such successor.
"Issuer Order" or "Issuer Request" means a written order or
request signed in the name of the Issuer by two Officers thereof.
"Letter of Representations" means the Letter of
Representations to DTC dated as of November [ ], 1998 from the Issuer, the
Trustee and the Book-Entry Depositary.
"Notes" means the $100,000,000 aggregate principal amount at
maturity of the Issuer's 12% Senior Notes due 2008 issued under the Indenture.
"Offer to Purchase" has the meaning set forth in
the Indenture.
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"Officer" means, with respect to the Issuer, (i) the Chairman
of the Board, the Chief Executive Officer and other Directors and (ii) the
Treasurer or any Assistant Treasurer, or the Secretary or any Assistant
Secretary.
"Officers' Certificate" means a certificate signed by two
Officers, at least one of which must be an Officer listed in clause (i) of the
definition thereof.
"Opinion of Counsel" means a written opinion from legal
counsel, who may be an employee of or counsel to the Issuer, and who shall be
reasonably acceptable to the Book-Entry Depositary.
"Paying Agent" means The Chase Manhattan Bank and any
successor paying agent hereunder.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Registered Notes" means certificated Notes registered in the
name of the holder thereof issued pursuant to the Indenture in substantially the
form set forth in Section 2.02 of the Indenture.
"Regulation S Depositary Interest" means the certificateless
book-entry interest representing a 100% beneficial interest in the principal of,
premium, if any, and interest on the underlying Regulation S Global Note, and
issued to the Depositary by the Book-Entry Depositary.
"Regulation S Global Note" means one or more global bearer
bonds issued by the Issuer to the Book-Entry Depositary and bearing the
Regulation S Legend representing the total aggregate principal amount of the
Notes sold in reliance on Regulation S under the Securities Act.
"Regulation S Legend" has the meaning set forth in
the Indenture.
"Responsible Officer", with respect to the Book-Entry
Depositary, means any Vice President, Assistant Vice President, the Secretary,
any Assistant Secretary, the Treasurer, any Assistant Treasurer, or any Trust
Officer or any other officer of the Book-Entry Depositary customarily performing
functions similar to those performed by any of the above-designated officers and
also means, with respect to a particular corporate trust or agency matter, any
other officer to whom such matter is referred because of his or her knowledge
and familiarity with the particular subject.
3
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"Restricted Legend" has the meaning set forth in
the Indenture.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Trustee" means The Chase Manhattan Bank acting as trustee
under the Indenture or, in the event The Chase Manhattan Bank is succeeded as
trustee under the Indenture, such Person who shall be appointed to succeed as
trustee pursuant to the applicable provisions of the Indenture.
SECTION 1.2 Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) "or" is not exclusive;
(3) "including" means including without limitation;
(4) words in the singular include the plural and words in the
plural include the singular; and
(5) references herein to holders of Depositary Interests shall
mean references to the Depositary.
ARTICLE II
GLOBAL NOTES, DEPOSITARY INTERESTS
SECTION 2.1 Deposit of the Global Notes. The Book-Entry
Depositary hereby accepts custody of the Global Notes from the Trustee and shall
act as Book-Entry Depositary in accordance with the terms of this Agreement. The
Book-Entry Depositary shall hold each such Global Note at its Corporate Trust
Office or at such place or places as it shall determine with the prior written
consent of the Issuer and shall issue the Depositary Interests in accordance
with the Letter of Representations. In the event that the Issuer shall issue and
execute, and the Trustee, upon the order of the Issuer, shall authenticate
additional Global Notes, the Book-Entry Depositary shall hold each such Global
Note at its Corporate Trust Office or at such place or places as it shall
determine with the prior written consent of the Issuer and shall issue the
Depositary Interests in such Global Notes to the Depositary in accordance with
the Letter of Representations.
4
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SECTION 2.2 Book-Entry System. (a) Upon acceptance by DTC of
the Depositary Interests for entry into its book-entry settlement system in
accordance with the terms of the Letter of Representations, Book-Entry Notes
shall be issued by DTC and traded through DTC's book-entry system, and ownership
of such Book-Entry Notes shall be shown in, and the transfer of such ownership
shall be effected only through, a book-entry system maintained by (i) DTC or its
successors or (ii) Participants. DTC shall treat the holders of Book-Entry Notes
and their successors as the absolute owners of the Depositary Interests for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Issuer, the Trustee, the Book-Entry Depositary or any agent of the Issuer,
the Trustee or the Book-Entry Depositary from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or
impair, as between the Book-Entry Depositary and the Depositary and its
Participants, the operation of customary practices of such Depositary governing
the exercise of the rights of an owner of a beneficial interest in any Global
Note or Depositary Interest.
(b) The Depositary Interests shall be issuable only to DTC, or
successors of DTC or their respective nominees. Except as provided in Section
2.4 hereof and Section 3.05(d) of the Indenture, no owner of beneficial
interests in such Depositary Interests shall be entitled to receive a Registered
Note on account of such beneficial interest, and such beneficial owner's
interest therein shall be shown only in accordance with the procedures of DTC as
set forth in the Letter of Representations.
SECTION 2.3 Registration of Transfer of Depositary Interests. (a) The
Issuer appoints the Book-Entry Depositary as its agent to maintain at the
Book-Entry Depositary's Corporate Trust Office a register (the "Book-Entry
Register") in which the Book-Entry Depositary shall (i) record the right of the
Depositary to receive payment of principal of, premium, if any, and interest on
the Global Notes and (ii) record the registration and transfer of the Depositary
Interests. No Depositary Interest can be transferred unless such transfer is
recorded on the Book-Entry Register.
(b) With respect to any Global Note, clause (a) of this
Section 2.3 shall not (i) impose an obligation on the Book-Entry Depositary to
record the interests in or transfers of Book-Entry Notes held by institutions
that have accounts with DTC or its successors or Persons that may hold
Book-Entry Notes through such institutions and (ii) restrict transfers of such
Book-Entry Notes held by such institutions or Persons. The Book-Entry Depositary
shall treat the
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Depositary or its nominee as the absolute owner of the Depositary Interests for
all purposes whatsoever and shall not be bound or affected by any notice to the
contrary, other than an order of a court having jurisdiction over the Book-Entry
Depositary.
SECTION 2.4 Transfer of Global Notes and Depositary Interests;
Termination. The Book-Entry Depositary shall hold the Global Notes in custody
for the benefit of the Depositary. The Book-Entry Depositary shall not transfer
or lend any Global Note or any interest therein except that (i) the Book-Entry
Depositary shall deliver Global Notes to the Trustee if required in accordance
with Section 3.05(e) of the Indenture so that the Trustee may make such
notations on the Global Notes as may be required to evidence transfers and
exchanges of Book-Entry Notes, (ii) a Global Note may be exchanged in whole or
in part pursuant to Section 3.05(d) of the Indenture, (iii) a Global Note may be
exchanged or replaced pursuant to Sections 3.04 and 3.06 of the Indenture, (iv)
any Global Note may be delivered to the Trustee for cancellation pursuant to
Section 3.09 of the Indenture and (v) the Global Notes may be transferred to a
successor Book-Entry Depositary with the prior written consent of the Issuer.
Notwithstanding the foregoing, the Depositary may not under any circumstances
request the Book-Entry Depositary to surrender or deliver the Global Notes.
If the Book-Entry Depositary notifies the Issuer and the
Trustee in writing under Section 3.8 hereof that it is unwilling or unable to
continue as Book-Entry Depositary and no successor Book-Entry Depositary has
been appointed by the Issuer within 90 days of such notification, then the
Book-Entry Depositary shall promptly notify the Trustee and request the Trustee
to issue Registered Notes in such names and denominations as the Depositary
shall specify in writing in accordance with Section 3.05 of the Indenture and
the Book-Entry Depositary agrees that in such event it shall promptly surrender
the Global Notes held by it to the Trustee in connection with such exchange and
that such Global Notes shall be canceled upon issuance of such Registered Notes.
If DTC notifies the Issuer or the Book-Entry Depositary in
writing that it or its nominee is unwilling or unable to continue as Depositary
with respect to any or all of the Depositary Interests or if at any time it or
its nominee is unable to or ceases to be a clearing agency under the Exchange
Act and, in either case, a successor Depositary registered as a clearing agency
under the Exchange Act is not appointed by the Issuer within 90 days, then the
Book-Entry Depositary shall promptly notify the Trustee and
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request the Trustee to issue Registered Notes with respect to the Global Notes
in such names and denominations as the Depositary shall specify in writing in
accordance with Section 3.05 of the Indenture and the Book-Entry Depositary
agrees that in such event it shall promptly surrender the applicable Global
Notes held by it to the Trustee in connection with such exchange and that such
Global Notes shall be canceled upon issuance of such Registered Notes.
If at any time the Issuer, subject to and in compliance with
Section 3.05(d) of the Indenture, determines that the Global Notes should be
exchanged, in whole but not in part, for Registered Notes, then the Issuer shall
promptly notify the Trustee and the Book-Entry Depositary and request the
Trustee to issue Registered Notes with respect to the Global Notes in such names
and denominations as the Depositary shall specify in writing in accordance with
Section 3.05 of the Indenture and the Book-Entry Depositary agrees that in such
event it shall promptly surrender the applicable Global Notes held by it to the
Trustee in connection with such exchange and that such Global Notes shall be
canceled upon issuance of such Registered Notes.
Upon the issuance of Registered Notes in exchange for Global
Notes representing the entire principal amount of Notes, this Agreement will
terminate.
SECTION 2.5 Cancellation. If any Global Note is surrendered
for payment, or for redemption or purchase of Notes evidenced thereby or in
exchange for Registered Notes, then such Global Note shall, if surrendered to
any Person other than the Trustee notwithstanding the first paragraph of Section
2.4 hereof, be delivered to the Trustee for cancellation.
SECTION 2.6 Payments in Respect of the Global Notes. (a)
Except for payments made pursuant to an Offer to Purchase with respect to any
Asset Disposition or Change of Control, whenever the Book-Entry Depositary shall
receive from the Trustee (or other paying agent under the Indenture) any payment
of the principal of, premium, if any, and interest on the Global Notes, such
payments shall be distributed promptly to the Depositary on the payment date for
the Global Notes.
(b) Whenever the Book-Entry Depositary shall receive from the
Trustee (or other paying agent under the Indenture) any payment of the principal
of, premium, if any, and interest on the Global Notes pursuant to an Offer to
Purchase by the Issuer with respect to any Asset Disposition or Change of
Control, the Book-Entry Depositary shall
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distribute such payment to the Depositary for the accounts of holders of
Book-Entry Notes who elected to have Book-Entry Notes repurchased pursuant to
such Offer to Purchase.
(c) So long as DTC or its nominee is the Depositary, payments
pursuant to Section 2.6(a) and 2.6(b) hereof with respect to the Global Notes
shall be made in accordance with the Letter of Representations. In the event
that DTC or its nominee shall cease to be the Depositary, such payments shall be
made according to procedures agreed upon between the Book-Entry Depositary and
the successor Depositary, which shall be reasonably satisfactory to the Issuer.
(d) The Book-Entry Depositary shall forward to the Issuer or
its agents at the Issuer's cost and expense such information from its records as
the Issuer may reasonably request to enable the Issuer or its agents to file
necessary reports with governmental agencies, and the Book-Entry Depositary, the
Issuer or its agents may (but shall not be required to) file any such reports
necessary to obtain benefits under any applicable tax treaties for the
Depositary or the holders of Book-Entry Notes.
SECTION 2.7 Changes in Principal Amount of the Global Notes.
(a) In the event that the Issuer exercises any right of redemption in respect of
any Notes constituting a part of the Global Notes or purchases any Notes
constituting a part of the Global Notes pursuant to an Offer to Purchase under
Section 10.13 or 10.17 of the Indenture, the Book-Entry Depositary shall,
promptly upon receipt of the redemption price or purchase price, deliver such
Global Notes to the Trustee (i) and request the Trustee to endorse on such
Global Note to reflect the reduction in the principal amount of such Global Note
as a result of such redemption or purchase or (ii) in exchange for a Global Note
with a principal amount that represents only the portion of such Global Note not
so redeemed or purchased. The redemption price or purchase price in connection
with the redemption of a portion of such Global Note shall be equal to the
amount received by the Book-Entry Depositary in respect of the aggregate
principal amount at maturity of the Notes so redeemed or repurchased.
(b) Pursuant to Section 3.05 of the Indenture, upon written
notice from the Trustee to the Book-Entry Depositary of an increase or decrease
in the aggregate principal amount of any Global Note, the Book-Entry Depositary
shall enter or cause to be entered in the Book-Entry Register a corresponding
increase or decrease in the aggregate principal amount of the Depositary
Interest corresponding to such Global Note.
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SECTION 2.8 Record Date. Whenever any payment is to be made in
respect of the Global Notes or the Book-Entry Depositary shall receive written
notice of any action to be taken by the Depositary, or whenever the Book-Entry
Depositary otherwise deems it appropriate in respect of any other matter, the
Book-Entry Depositary shall fix a record date for the determination of the
holders of the Depositary Interests who shall be entitled to receive payment in
respect of the Depositary Interests or to take any such action or to act in
respect of any such matter and such record date shall be unless otherwise
impracticable the record date as would be set under the Indenture if such
securities were Registered Notes. Subject to the provisions of this Agreement,
only the Depositary which is registered on the Book-Entry Register at the close
of business on such record date shall be entitled to receive any such payment,
to give instructions as to such action or to act in respect of any such matter.
The Depositary shall be entitled to rely on such record date
as the date of determination for purposes of further distribution of the
payments disbursed, and so long as DTC or its nominee is the Depositary, such
record date applicable to the Depositary shall comply with the requirements of
the Letter of Representations.
SECTION 2.9 Action in Respect of the Depositary Interests. (a)
As soon as practicable after receipt by the Book-Entry Depositary of written
notice from the Issuer of any solicitation of consents or request for a waiver
or other action by the Depositary under this Agreement or the Indenture, the
Book-Entry Depositary shall mail to the Depositary a notice containing (i) such
information as is contained in such notice, (ii) a statement that the holders of
Depositary Interests at the close of business on a specified record date
(established in accordance with Section 2.8 hereof) will be entitled, subject to
the provisions of or governing the Depositary Interests, to instruct the
Book-Entry Depositary as to the consent, waiver or other action, if any,
pertaining to the Global Notes and (iii) a statement as to the manner in which
such instructions may be given. Upon the written request of the Depositary
received on or before the date established by the Book-Entry Depositary for such
purpose, the Book-Entry Depositary shall endeavor insofar as practicable and
permitted under the provisions of or governing the Depositary Interests to take
such action regarding the requested consent, waiver or other action in respect
of the Global Notes in accordance with any instructions set forth in such
request. The Book-Entry Depositary shall not itself exercise any discretion in
the granting of consents or waivers or the taking of any other action in respect
of the
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Global Notes and, as holder of the Global Notes, the Book-Entry Depositary
promptly shall cause such consents or waivers to be granted and such action to
be taken with respect to the Global Notes as the Depositary had given or had
taken.
(b) As soon as practicable after receipt by the Book-Entry
Depositary of an Offer to Purchase with respect to the Global Notes, the
Book-Entry Depositary shall mail to the Depositary a notice containing (i) such
information as is contained in such notice, (ii) a statement that the holders of
Depositary Interests at the close of business on a specified record date
(established in accordance with Section 2.8 hereof) will be entitled, subject to
the provisions of or governing the Depositary Interests, to elect to have all or
any portion of their interest in the Global Notes repurchased in accordance with
such Offer to Purchase and (iii) such documentation provided by the Issuer as is
necessary for the Depositary to elect to have all or any portion of the
Depositary Interests repurchased pursuant to such Offer to Purchase. So long as
DTC or its nominee is acting as Depositary, such notice shall also comply with
the Letter of Representations. Upon receipt of elections relating to such Offer
to Purchase from the Depositary received on or before the date established by
the Issuer for such purpose, the Book-Entry Depositary shall endeavor insofar as
practicable and permitted under the provisions of or governing the Depositary
Interests and the Global Notes to tender the Global Notes or portions thereof
requested to be tendered by the Depositary for repurchase in accordance with
such Offer to Purchase. The Book-Entry Depositary shall not itself exercise any
discretion in the tender of any Global Notes pursuant to an Offer to Purchase.
(c) As soon as practicable after receipt by the Book-Entry
Depositary of any notice of redemption with respect to the Global Notes pursuant
to Section 11.01 of the Indenture, the Book-Entry Depositary shall mail to the
Depositary a notice containing (i) such information as is contained in such
notice and (ii) a statement that Notes called for redemption must be surrendered
to the Paying Agent in order to collect the Redemption Price. So long as DTC or
its nominee is acting as Depositary, such notice shall also comply with the
Letter of Representations.
(d) The Depositary may direct in writing the time, method and
place of conducting any proceeding for any remedy available to the Book-Entry
Depositary with respect to the Global Notes or exercising any power conferred on
the Book-Entry Depositary. However, the Book-Entry Depositary may refuse to
follow any direction that conflicts with law, the Indenture or this Agreement,
that may involve the Book-
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Entry Depositary in personal liability, or that the Book-Entry Depositary
determines in good faith may be unduly prejudicial to the rights of the holders
of Book-Entry Notes not joining in the giving of such direction and may take any
other action it deems proper that is not inconsistent with any directions
received from the Depositary pursuant to this Section 2.9(d).
SECTION 2.10 Changes Affecting the Global Notes. Upon any
reclassification of the Global Notes, or upon any recapitalization,
reorganization, merger or consolidation or sale of assets affecting the Issuer
or to which the Issuer is a party, any securities that shall be received by the
Book-Entry Depositary in exchange for or in respect of a Global Note shall be
treated as a new Global Note under this Agreement and any corresponding
Depositary Interests shall thenceforth represent such new securities so
received; provided, however, that any security issued in exchange for or in
respect of a Global Note under such circumstances shall not be deemed to be a
new security if the Issuer delivers to the Book-Entry Depositary an Opinion of
Counsel, to the effect that the recapitalization, reorganization, merger or
consolidation or sale of assets, as appropriate, did not result in the creation
of a security materially different from that represented by such Global Note.
SECTION 2.11 Surrender of the Global Notes. In
the event of the redemption, payment or purchase in full of all the Notes
represented by any of the Global Notes, then the applicable Depositary Interest
and the applicable Global Note shall become void and the Book-Entry Depositary
shall surrender such Global Note to the Trustee for cancellation. In the event
of a partial redemption of the Notes represented by a Global Note, the
Book-Entry Depositary shall comply with the requirements of Section 2.7 hereof.
SECTION 2.12 Reports. The Book-Entry Depositary shall promptly
send to the Depositary any notices, reports and other communications received
from the Issuer that are received by the Book-Entry Depositary as holder of the
Global Notes.
ARTICLE III
THE BOOK-ENTRY DEPOSITARY
SECTION 3.1 Certain Duties and Responsibilities. (a) The
Book-Entry Depositary undertakes to perform such duties and only such duties as
are specifically set forth in this Agreement.
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(b) No provision of this Agreement shall be construed to
relieve the Book-Entry Depositary from liability for its own negligent action,
its own negligent failure to act, or its own bad faith or willful misconduct,
except that:
(1) the duties and obligations of the Book-Entry Depositary
with respect to the Global Notes and the Depositary Interests shall be
determined solely by the express provisions of this Agreement and
neither the Book-Entry Depositary, nor its officers, directors,
employees and agents shall be liable except for the performance of such
duties and obligations as are specifically set forth in this Agreement,
and no implied covenants or obligations shall be read into this
Agreement against the Book-Entry Depositary; and
(2) in the absence of bad faith on its part, the Book-Entry
Depositary may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Book-Entry Depositary and
conforming to the requirements of this Agreement, but in the case of
any such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Book-Entry Depositary, the
Book-Entry Depositary shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Agreement.
(c) The Book-Entry Depositary shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the Book-Entry
Depositary, unless it shall be proved that the Book-Entry Depositary was grossly
negligent in ascertaining the pertinent facts.
(d) The Book-Entry Depositary shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in accordance
with the written direction of the Depositary pursuant to Section 2.9 hereof
relating to the time, method and place of conducting any proceeding for any
remedy available to the Book-Entry Depositary, or exercising any power conferred
upon the Book-Entry Depositary, under this Agreement.
(e) No provision of this Agreement will require the Book-Entry
Depositary to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate
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indemnity against such risk or liability is not reasonably assured to it.
(f) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting the liability
of or affording protection to the Book-Entry Depositary shall be subject to the
provisions of this Section.
(g) The Book-Entry Depositary owes no fiduciary duties to any
person by virtue of this Agreement except as expressly set forth herein.
SECTION 3.2 Notice of Default. The Book-Entry Depositary shall
(x) within 90 days after the occurrence of any Event of Default in respect of
the Global Notes of which a Responsible Officer of the Book-Entry Depositary
assigned to its Global Trust Services department has actual knowledge or (y)
promptly after being notified of an Event of Default by the Trustee, transmit by
mail to the Depositary in the manner provided in Section 4.2, notice of such
Event of Default, unless such Event of Default shall have been cured or waived.
SECTION 3.3 Certain Rights of Book-Entry Depositary. Subject
to the provisions of Section 3.1 hereof:
(a) the Book-Entry Depositary may conclusively rely and shall
be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, coupon, security, or other paper or
document delivered to it in accordance with the terms of this Agreement and
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) any request, direction, order or demand of the Issuer
mentioned herein shall be sufficiently evidenced by an Officers' Certificate,
Issuer Order or Issuer Request, and any resolution of the Board of Directors of
the Issuer may be sufficiently evidenced by a Board Resolution;
(c) the Book-Entry Depositary may consult with counsel and the
advice of such counsel confirmed in writing or any Opinion of Counsel shall be
full and complete authorization and protection with respect to any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon in
accordance with such advice or Opinion of Counsel;
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(d) the Book-Entry Depositary shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval, appraisal, bond, debenture, note, coupon, security or other paper or
document, but the Book-Entry Depositary, may (but shall have no obligation to)
make reasonable further inquiry or investigation into such facts or matters
related to the issuance of the Global Notes and, if the Book-Entry Depositary
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Issuer, at the
Issuer's expense, at reasonable times during normal business hours, personally
or by agent or attorney;
(e) the Book-Entry Depositary may execute any of the powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Book-Entry Depositary shall not be responsible for
any misconduct or negligence on the part of any such agent or attorney appointed
with due care;
(f) the Book-Entry Depositary shall be under no obligation to
exercise any of the rights or powers vested in it by this Agreement at the
request, order or direction of the Depositary pursuant to this Agreement, unless
the Depositary shall have offered or caused to be offered to the Book-Entry
Depositary security or indemnity reasonably satisfactory to it against the
costs, expenses and liabilities that might be incurred by it in compliance with
such request or direction, provided that such request, order or direction shall
not expose the Book-Entry Depositary to personal liability;
(g) the Book-Entry Depositary shall not be liable for any
action taken or omitted by it in good faith and reasonably believed by it to be
authorized or within the discretion, rights or powers conferred upon it by this
Agreement; and
(h) whenever in the administration of its duties under this
Agreement the Book-Entry Depositary shall deem it necessary or desirable that a
matter be proved or established prior to taking or suffering or omitting any
action hereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may, in the absence of negligence or bad faith
on the part of the Book-Entry Depositary, be deemed to be conclusively proved
and established by an Officers' Certificate delivered to the Book-Entry
Depositary, and such certificate, in the absence of negligence or bad faith on
the part of the Book-Entry Depositary, shall be full warrant to the Book-Entry
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Depositary for any action taken, suffered or omitted by it under the provisions
of the Agreement, upon the faith thereof.
SECTION 3.4 Not Responsible for Recitals or Issuance of Notes.
The recitals contained in the Indenture and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the Issuer,
and the Book-Entry Depositary assumes no responsibility for their correctness.
The Book-Entry Depositary makes no representation as to (i) the validity or
sufficiency of the Indenture or of the Notes, (ii) the sufficiency of this
Agreement or (iii) the validity, with respect to the Issuer, of this Agreement.
The Book-Entry Depositary shall not be accountable for the use or application by
the Issuer of the proceeds with respect to the Notes.
SECTION 3.5 Money Held in Trust. Money held by the Book-Entry
Depositary in trust hereunder need not be segregated from other funds held by
the Book-Entry Depositary, except to the extent required by law. The Book-Entry
Depositary shall be under no obligation to invest or pay interest on any money
received by it hereunder, except as otherwise agreed in writing with the Issuer.
Any interest accrued on funds deposited with the Book-Entry Depositary under
this Agreement shall be paid to the Issuer from time to time and the Depositary
shall have no claim to any such interest.
SECTION 3.6 Compensation and Reimbursement. The Issuer and
Holdings, jointly and severally agree:
(a) to pay to the Book-Entry Depositary from time to time
reasonable compensation agreed in writing for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law with
regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to
reimburse the Book-Entry Depositary upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Book-Entry
Depositary in accordance with any provision of this Agreement (including the
reasonable compensation, expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to its
negligence, bad faith or willful misconduct; and
(c) to indemnify the Book-Entry Depositary and its directors,
officers, agents and employees for, and to hold it harmless against, any loss,
liability or expense
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incurred without negligence, bad faith on its part, arising out of or in
connection with the acceptance or administration of this Agreement and its
duties hereunder, including the costs and expenses of defending itself against
or investigating any claim of liability in connection with the exercise or
performance of any of its powers or duties hereunder.
The obligations of the Issuer under this Section to compensate
and indemnify the Book-Entry Depositary and to pay or reimburse the Book-Entry
Depositary for reasonable expenses, disbursements and advances shall survive the
satisfaction and discharge of this Agreement or the earlier of the resignation
or the removal of the Book-Entry Depositary. Such obligations shall be a senior
claim to that of the Notes upon all property and funds held or collected by the
Book-Entry Depositary as such, except funds held in trust for the benefit of the
holders of the Notes.
SECTION 3.7 Book-Entry Depositary Required: Eligibility. At
all times when there is a Book-Entry Depositary hereunder, such Book-Entry
Depositary shall be a corporation organized and doing business under the laws of
the United States of America, any State thereof or the District of Columbia,
having, together with its parent, a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by federal, state or District
of Columbia authority, willing to act on reasonable terms. Such corporation
shall have its principal place of business in the Borough of Manhattan, The City
of New York, if there be such a corporation in such location willing to act upon
reasonable and customary terms and conditions. If such corporation, or its
parent, publishes reports of condition at least annually, pursuant to law or to
the requirements of the aforesaid supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. The Book-Entry Depositary
shall have executed a letter of representations to DTC acceptable in form and
substance to DTC and the Issuer with respect to the Depositary Interests. The
Book-Entry Depositary hereunder shall at all times be the Trustee under the
Indenture, subject to receipt by the Issuer of an Opinion of Counsel that the
same Person is precluded by law from acting in such capacities. If at any time
the Book-Entry Depositary shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
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SECTION 3.8 Resignation and Removal, Appointment of Successor.
(a) No resignation or removal of the Book-Entry Depositary and no appointment
of a successor Book-Entry Depositary pursuant to this Article shall become
effective until (i) the approval in writing of a successor Book-Entry Depositary
by the Issuer and the acceptance of the appointment by such successor Book-Entry
Depositary in accordance with the applicable requirements of Section 3.9 hereof
or (ii) the issuance of Registered Notes in accordance with Section 2.4 hereof
and the Indenture.
(b) The Book-Entry Depositary may resign all of its rights and
duties with respect to the Global Notes and the Depositary Interests by giving
written notice thereof to the Issuer and the Depositary in accordance with
Sections 4.1 and 4.2 hereof. The Book-Entry Depositary may be removed at any
time upon 30 days' notice by the filing with it of an instrument in writing
signed on behalf of the Issuer and specifying such removal and the date when it
is intended to become effective. If the instrument of acceptance by a successor
Book-Entry Depositary or the approval by the Issuer required by Section 3.9
hereof shall not have been delivered to the Book-Entry Depositary within 30 days
after the giving of such notice of resignation, the resigning Book-Entry
Depositary may petition any court of competent jurisdiction for the appointment
of a successor Book-Entry Depositary.
(c) If at any time:
(1) the Book-Entry Depositary shall cease to be eligible under
Section 3.7 hereof or shall cease to be eligible as Trustee under the
Indenture, and shall fail to resign after written request therefor by
the Issuer or the Depositary, or
(2) the Book-Entry Depositary shall become incapable of acting
with respect to the Global Notes and the Depositary Interests, or shall
be adjudged bankrupt or insolvent, or a receiver or liquidator of the
Book-Entry Depositary or its property shall be appointed or any public
officer shall take charge or control of the Book-Entry Depositary or
its property or affairs for the purpose of rehabilitation, conservation
or liquidation,
then, in any such case, (i) the Issuer, by Board Resolution, may remove the
Book-Entry Depositary and appoint a successor Book-Entry Depositary and (ii) if
the Issuer does not remove the Book-Entry Depositary and appoint a successor
pursuant to clause (i), the Depositary, upon the direction of holders of at
least a majority of the total aggregate principal
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amount of the Book-Entry Notes outstanding, may petition any court of competent
jurisdiction for the removal of the Book-Entry Depositary with respect to the
Global Notes and the Depositary Interests and the appointment of a successor
Book-Entry Depositary or Book-Entry Depositaries unless Registered Notes have
been issued in accordance with the Indenture. Such court may thereupon, after
such notice, if any, as it may deem proper and prescribe, remove the Book-Entry
Depositary with respect to the Global Notes and the Depositary Interests and
appoint a successor Book-Entry Depositary for the Global Notes and the
Depositary Interests.
(d) If the Book-Entry Depositary shall resign, be removed or
become incapable of acting, or if a vacancy shall occur in the office of
Book-Entry Depositary for any cause, the Issuer, by Board Resolution, shall
promptly appoint a successor Book-Entry Depositary (other than the Issuer) and
shall comply with the applicable requirements of Section 3.9 hereof. If no
successor Book-Entry Depositary with respect to the Notes shall have been so
appointed by the Issuer and accepted appointment in the manner required by
Section 3.9, the Depositary, upon direction of holders of at least a majority of
the total aggregate principal amount of Book-Entry Notes outstanding, may
petition any court of competent jurisdiction for the appointment of a successor
Book-Entry Depositary unless Registered Notes have been issued in accordance
with the Indenture and Section 2.4 hereof.
(e) The Issuer shall give, or shall cause such successor
Book-Entry Depositary to give, notice of each resignation and each removal of a
Book-Entry Depositary and each appointment of a successor Book-Entry Depositary
to the Depositary in accordance with Section 4.2 hereof. Each notice shall
include the name of the successor Book-Entry Depositary and the address of its
Corporate Trust Office.
(f) If a Book-Entry Depositary hereunder shall resign, it
shall not be relieved of any responsibility for its actions or omissions
hereunder solely by virtue of such resignation.
SECTION 3.9 Acceptance of Appointment by Successor. (a) In
case of the appointment hereunder of a successor Book-Entry Depositary, every
such successor Book-Entry Depositary so appointed shall execute, acknowledge
and deliver to the Issuer and to the retiring Book-Entry Depositary an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Book-Entry Depositary shall become effective and such successor
Book-Entry Depositary, without any further act, deed or conveyance, shall become
vested with all the rights, powers,
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agencies and duties of the retiring Book-Entry Depositary, with like effect as
if originally named as Book-Entry Depositary hereunder; but, on the request of
the Issuer or the successor Book-Entry Depositary, such retiring Book-Entry
Depositary shall, upon payment of all amounts due and payable to it pursuant to
Section 3.6 hereof, execute and deliver an instrument transferring to such
successor Book-Entry Depositary all the rights and powers of the retiring
Book-Entry Depositary and shall duly assign, transfer and deliver to such
successor Book-Entry Depositary all property and money held by such retiring
Book-Entry Depositary hereunder. Any retiring Book-Entry Depositary shall,
nonetheless, retain a prior claim upon all property or funds held or collected
by such Book-Entry Depositary to secure any amounts then due it pursuant to
Section 3.6 hereof. The Book-Entry Depositary will not be liable for any acts or
omissions of any successor Book-Entry Depositary appointed pursuant to Section
3.8 hereof.
(b) Upon request of any such successor Book-Entry Depositary,
the Issuer shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Book-Entry Depositary all such
rights, powers and agencies referred to in paragraph (a) of this Section.
(c) No successor Book-Entry Depositary shall accept its
appointment unless at the time of such acceptance such successor Book-Entry
Depositary shall be eligible to serve as such under this Article.
(d) Upon acceptance of appointment by any successor Book-Entry
Depositary as provided in this Section, the Issuer shall give notice thereof to
the Depositary in accordance with Section 4.02 hereof. If the acceptance of
appointment is substantially contemporaneous with the resignation of the
Book-Entry Depositary, then the notice called for by the preceding sentence may
be combined with the notice called for by Section 3.8 hereof. If the Issuer
fails to give such notice within ten days after acceptance of appointment by the
successor Book-Entry Depositary, the successor Book-Entry Depositary shall cause
such notice to be given at the expense of the Issuer.
SECTION 3.10 Merger, Conversion, Consolidation or Succession
to Business. Any corporation into which the Book-Entry Depositary may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Book-Entry Depositary
shall be a party, or any corporation succeeding to all or substantially all the
agency business of the Book-Entry Depositary, shall be the successor of the
Book-Entry Depositary hereunder, without the execution or
19
<PAGE>
filing of any paper or any further act on the part of any of the parties hereto;
provided that such corporation shall be otherwise eligible to serve as
Book-Entry Depositary under this Article.
SECTION 3.11 Compliance with Letter of Representations. As
long as DTC or its nominee is the Depositary, the Book-Entry Depositary shall
comply with all of its representations made to DTC in the Letter of
Representations, and any successor Book-Entry Depositary shall comply with all
representations made to DTC in a similar letter of representations in form and
substance acceptable to DTC and the Issuer.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.1 Notices to Book-Entry Depositary or Issuer. Any
request, demand, authorization, direction, notice, consent, or waiver or other
document provided or permitted by this Agreement to be made upon, given or
furnished to, or filed with:
(a) the Book-Entry Depositary by the Depositary, by the
Trustee or by the Issuer shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if made, given, furnished or filed in
writing and personally delivered or mailed, by overnight delivery or certified
mail, postage prepaid, to the Book-Entry Depositary at the following address:
The Chase Manhattan Bank
450 West 33rd Street
New York, NY 10001
Attention: Global Trust Services
Facsimile: 1-212-946-7799
or at any other address furnished in writing by the Book-Entry Depositary to the
Depositary, the Trustee and the
Issuer; or
(b) the Issuer by the Book-Entry Depositary or by the
Depositary shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if made, given, furnished or filed in writing and
personally delivered or mailed, by overnight delivery or first-class postage
prepaid, to the following address:
RSL Communications PLC
767 Fifth Avenue
Suite 4300
20
<PAGE>
New York, New York 10153
with a copy to:
George E.B. Maguire
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Facsimile: (212) 909-6836
or at any other addresses furnished in writing to the Book-Entry Depositary by
the Issuer. Any communication sent pursuant to this Section 4.1 shall be deemed
given when delivered, if personally delivered or sent by overnight delivery and
three days after deposit in the U.S. mail, if sent by certified mail.
SECTION 4.2 Notice to the Depositary; Waiver. Where this
Agreement provides for notice to the Depositary of any event, such notice shall
be sufficiently given (unless otherwise herein expressly provided or as provided
in the Letter of Representations) if in writing and mailed, first-class postage
prepaid, to the Depositary at the address that the Depositary has notified in
writing to the Book-Entry Depositary, in each case not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of such
notice. Where this Agreement provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by the Depositary shall be filed with the Book-Entry
Depositary, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Book-
Entry Depositary shall constitute a sufficient notification for every purpose
hereunder.
SECTION 4.3 Effect of Headings and Table of Contents. The
Article and Section headings herein are for convenience only and shall not
affect the construction hereof.
SECTION 4.4 Successors and Assigns. All covenants and
agreements in this Agreement and the Notes by the Issuer shall bind its
successors and assigns, whether so expressed or not.
21
<PAGE>
SECTION 4.5 Separability Clause. In case any provision in this
Agreement or in the Notes shall be invalid, illegal or unenforceable, the
validity. legality and enforceability of the remaining provisions hereof and
thereof shall not in any way be affected or impaired thereby.
SECTION 4.6 Benefits of Agreement. Nothing in this Agreement,
the Notes, or the Indenture, express or implied, shall give to any Person, other
than the parties hereto and their successors hereunder, any benefits or any
legal or equitable right, remedy or claim under this Agreement. By the
acceptance of the Depositary Interests representing the Notes, the Depositary
shall be party to this Agreement and shall be bound by all of the terms and
conditions hereof and of the Indenture and the Notes.
SECTION 4.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE
EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 4.8 Jurisdiction. The Issuer agrees that any legal
suit, action or proceeding against the Issuer brought by the Depositary or the
Book-Entry Depositary arising out of or based upon this Agreement may be
instituted in any state or federal court in the Borough of Manhattan, The City
of New York, and waives any objection which it may now or hereafter have to the
laying of venue of any such proceeding and irrevocably submits to the
non-exclusive jurisdiction of such courts in any suit, action or proceeding. The
Issuer has appointed RSL Communications N. America, Inc., 767 Fifth Avenue,
Suite 4300, New York, New York 10153, as its authorized agent (together with any
successor, the "Authorized Agent") upon whom process may be served in any legal
suit, action or proceeding arising out of or based upon this Agreement which may
be instituted in any state or federal court in the Borough of Manhattan, The
City of New York, by the Depositary or the Book-Entry Depositary and expressly
accepts the nonexclusive jurisdiction of any such court in respect of any such
action. The Issuer represents and warrants that the Authorized Agent has agreed
to act as said agent for service of process, and the Issuer 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. Service of process upon the Authorized Agent shall be deemed, in
every respect, effective service of process upon the Issuer. Notwithstanding the
foregoing, any action based on this
22
<PAGE>
Agreement may be instituted by the Book-Entry Depositary in any competent court
in England.
SECTION 4.9 Counterparts. This Agreement may be executed in
any number of counterparts by the parties hereto on separate counterparts, each
of which, when so executed and delivered, shall be deemed an original, but all
of which shall together constitute one and the same instrument.
SECTION 4.10 Inspection of Agreement. A copy of this Agreement
shall be available at all reasonable times during normal business hours at the
Corporate Trust Office of the Book-Entry Depositary for inspection by the
Depositary.
SECTION 4.11 Satisfaction and Discharge. Upon Issuer Request
to terminate this Agreement, this Agreement shall cease to be of further effect
and the Book-Entry Depositary shall execute proper instruments acknowledging
satisfaction and discharge of this Agreement, when (i) the Indenture has been
satisfied and discharged pursuant to the provisions thereof or Registered Notes
have been issued and all Global Notes have been canceled in accordance with the
provisions of the Indenture and Sections 3.05 and 3.09 thereof, (ii) the Issuer
has paid or caused to be paid all sums payable hereunder by the Issuer and (iii)
the Issuer has delivered to the Book-Entry Depositary an Officers' Certificate,
stating that all conditions precedent provided herein relating to the
satisfaction and discharge of this Agreement have been complied with.
SECTION 4.12 Amendments. The Issuer and the Book-Entry
Depositary may amend this Agreement without the consent of the Depositary:
(a) to cure any ambiguity, defect or inconsistency, provided
that such amendment or supplement does not adversely affect the rights of the
Depositary or any holder of Book-Entry Notes;
(b) to evidence the succession of another person to the Issuer
(when a similar amendment with respect to the Indenture is being executed) and
the assumption by any such successor of the covenants of the Issuer herein;
(c) to evidence or provide for a successor Book-Entry
Depositary,
(d) to make any amendment, change or supplement that does not
adversely affect the Depositary or holders of Book-Entry Notes;
23
<PAGE>
(e) to add to the covenants of the Issuer or the
Book-Entry Depositary; or
(f) to comply with the United States federal and United
Kingdom. securities laws.
No amendment may be made to this Agreement that adversely
affects the Depositary without the consent of the Depositary and no amendment
may be made to this Agreement that adversely affects the holders of Book-Entry
Notes without the consent of a majority of the aggregate principal amount of
Book-Entry Notes outstanding.
SECTION 4.13 Book-Entry Depositary To Sign Amendments. The
Book-Entry Depositary shall sign any amendment authorized pursuant to Section
4.12 hereof if the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Book-Entry Depositary. If it does, the
Book-Entry Depositary may but need not sign it. In signing such amendment the
Book-Entry Depositary shall be entitled to receive indemnity satisfactory to it
and to receive, and shall be fully protected in reasonably relying upon. an
Officers' Certificate (which need only cover the matters set forth in clause (a)
below) and an Opinion of Counsel to the effect that:
(a) such amendment is authorized or permitted by
this Agreement;
(b) the Issuer has all necessary corporate power and authority
to execute and deliver the amendment and that the execution, delivery and
performance of such amendment has been duly authorized by all necessary
corporate action;
(c) the execution, delivery and performance of the amendment
do not conflict with, or result in the breach of or constitute a default under
any of the terms, conditions or provisions of (i) this Agreement, (ii) the
Memorandum and Articles of Association of the Issuer, (iii) any law or
regulation applicable to the Issuer, (iv) any material order, writ, injunction
or decree of any court or governmental instrumentality applicable to the Issuer
or (v) any material agreement or instrument to which the Issuer is subject; and
(d) such amendment has been duly and validly executed and
delivered by the Issuer, and this Agreement together with such amendment
constitutes a legal, valid and binding obligation of the Issuer enforceable
against the Issuer in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of
24
<PAGE>
creditors' rights generally and general equitable principles.
[signature page follows]
25
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first written above.
RSL COMMUNICATIONS PLC
By: /s/ Jacob Schuster
---------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK
as Book-Entry Depositary
By: /s/ Robert S. Peschler
---------------------------------
Name:
Title:
With respect to the provisions of Section 3.6 only
RSL COMMUNICATIONS, LTD.
By: /s/ Jacob Schuster
----------------------------------------------
Name:
Title:
26
<PAGE>
================================================================================
RSL COMMUNICATIONS PLC
as Issuer, with RSL Communications, Ltd. of
$100,000,000, 12% Senior Discount Notes Due 2008
of RSL Communications PLC
and
THE CHASE MANHATTAN BANK
as Book-Entry Depositary
NOTE DEPOSIT AGREEMENT
Dated as of November 9, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND OTHER GENERAL PROVISIONS......................................1
SECTION 1.1 Definitions.............................................1
SECTION 1.2 Rules of Construction...................................4
ARTICLE II
GLOBAL NOTES, DEPOSITARY INTERESTS............................................4
SECTION 2.1 Deposit of the Global Notes.............................4
SECTION 2.2 Book-Entry System.......................................5
SECTION 2.3 Registration of Transfer of Depositary
Interests............................................................5
SECTION 2.4 Transfer of Global Notes and Depositary
Interests; Termination...............................................6
SECTION 2.5 Cancellation............................................7
SECTION 2.6 Payments in Respect of the Global Notes.................7
SECTION 2.7 Changes in Principal Amount of the Global
Notes................................................................8
SECTION 2.8 Record Date.............................................9
SECTION 2.9 Action in Respect of the Depositary
Interests............................................................9
SECTION 2.10 Changes Affecting the Global Notes....................11
SECTION 2.11 Surrender of the Global Notes.........................11
SECTION 2.12 Reports...............................................11
ARTICLE III
THE BOOK-ENTRY DEPOSITARY....................................................11
SECTION 3.1 Certain Duties and Responsibilities....................11
SECTION 3.2 Notice of Default......................................13
SECTION 3.3 Certain Rights of Book-Entry Depositary................13
SECTION 3.4 Not Responsible for Recitals or Issuance
of Notes............................................................15
SECTION 3.5 Money Held in Trust....................................15
SECTION 3.6 Compensation and Reimbursement.........................15
SECTION 3.7 Book-Entry Depositary Required:
Eligibility.........................................................16
SECTION 3.8 Resignation and Removal, Appointment of
Successor...........................................................17
SECTION 3.9 Acceptance of Appointment by Successor.................18
SECTION 3.10 Merger, Conversion, Consolidation or
Succession to Business..............................................19
SECTION 3.11 Compliance with Letter of Representations..............20
ARTICLE IV
MISCELLANEOUS PROVISIONS.....................................................20
<PAGE>
SECTION 4.1 Notices to Book-Entry Depositary or Issuer.............20
SECTION 4.2 Notice to the Depositary; Waiver.......................21
SECTION 4.3 Effect of Headings and Table of Contents...............21
SECTION 4.4 Successors and Assigns.................................21
SECTION 4.5 Separability Clause....................................22
SECTION 4.6 Benefits of Agreement..................................22
SECTION 4.7 GOVERNING LAW..........................................22
SECTION 4.8 Jurisdiction...........................................22
SECTION 4.9 Counterparts...........................................23
SECTION 4.10 Inspection of Agreement...............................23
SECTION 4.11 Satisfaction and Discharge............................23
SECTION 4.12 Amendments............................................23
SECTION 4.13 Book-Entry Depositary To Sign
Amendments..........................................................24
<PAGE>
CONFORMED COPY
============================================================================
RSL COMMUNICATIONS PLC
As Issuer
RSL COMMUNICATIONS, LTD.
As Guarantor
TO
THE CHASE MANHATTAN BANK
As Trustee
---------
Indenture
Dated as of November 9, 1998
---------
12% SENIOR NOTES DUE 2008
============================================================================
<PAGE>
Certain Sections of this Indenture relating to
Sections 3.10 through 3.18 of the
Trust Indenture Act of 1939:
Trust Indenture Indenture
Act Section Section
----------- -------
ss. 3.10 (a)(1) ................................. 609
(a)(2) ................................ 609
(a)(3) ................................ Not
Applicable
(a)(4) ................................ Not
Applicable
(b) ................................ 6.08
................................. 6.10
ss. 3.11 (a) ................................ 6.13
(b) ................................ 6.13
ss. 3.12 (a) ................................ 7.01
................................ 7.02(a)
(b) ................................ 7.02(b)
(c) ................................ 7.02(c)
ss. 3.13 (a) ................................ 7.03(a)
(a)(4) ................................ 7.03(a)
(b) ................................ 7.03(a)
(c) ................................ 7.03(a)
(d) ................................ 7.03(b)
ss. 3.14 (a) ................................ 7.04
10.18
(b) ................................ Not
................................ Applicable
(c)(1) ................................ 1.02
(c)(2) ................................ 1.02
(c)(3) ................................ Not
................................ Applicable
(d) ................................ Not
................................ Applicable
(e) ................................ 1.02
ss. 3.15 (a) ................................ 6.01
(b) ................................ 6.02
(c) ................................ 6.01
(d) ................................ 6.01
(e) ................................ 5.14
- ---------------
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
-i-
<PAGE>
Trust Indenture Indenture
Act Section Section
----------- -------
ss. 3.16 (a)(1)(A) ................................ 5.02
................................ 5.12
(a)(1)(B) ................................ 5.13
(a)(2) ................................ Not
................................ Applicable
(b) ................................ 5.08
(c) ................................ 1.04
ss. 3.17 (a)(1) ................................ 5.03
(a)(2) ................................ 5.04
(b) ................................ 10.03
ss. 3.18 (a) ................................ 1.07
- ---------------
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Parties...................................................................1
Recitals of the Issuer ...................................................1
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.01. Definitions ............................................2
Accreted Value...................................................2
Acquired Debt....................................................4
Act .............................................................4
Additional Amounts...............................................4
Affiliate........................................................4
Agent Member.....................................................4
Applicable Procedures............................................4
Asset Disposition................................................4
Average Life.....................................................5
beneficial interest..............................................5
Board of Directors...............................................5
Board Resolution.................................................5
Book-Entry Depositary............................................5
Business Day.....................................................5
Capital Lease Obligation.........................................6
Capital Stock....................................................6
Cedel............................................................6
Change of Control................................................6
Commission.......................................................6
Common Stock.....................................................6
Consolidated Cash Flow Available for Fixed Charges...............6
Consolidated Income Tax Expense..................................7
Consolidated Interest Expense....................................7
Consolidated Net Income..........................................8
Consolidated Net Worth...........................................8
Consolidated Tangible Assets.....................................8
Corporate Trust Office...........................................8
corporation......................................................9
Credit Facility..................................................9
</TABLE>
- ---------------
Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Debt.............................................................9
Defaulted Interest..............................................10
Definitive Security.............................................10
Deposit Agreement...............................................10
Depositary......................................................10
Depositary Interest.............................................10
Disqualified Stock..............................................10
Eligible Institution............................................11
Euroclear.......................................................11
Event of Default................................................11
Exchange Act....................................................11
Exchange and Registration Rights Agreement......................11
Exchange Offer..................................................11
Exchange Offer Registration Statement...........................11
Exchange Security...............................................11
Existing Stockholders...........................................12
Expiration Date.................................................12
Global Security.................................................12
Government Securities...........................................12
Guarantee.......................................................12
Guarantor.......................................................12
Holder..........................................................13
Incremental Paid-in Capital.....................................13
Incur...........................................................13
Indenture.......................................................13
Indirect Participant............................................13
Initial Purchaser...............................................13
Interest Payment Date...........................................14
Interest Rate or Currency Protection Agreement..................14
Investment......................................................14
Issuer..........................................................15
"Issuer Request" or "Issuer Order"..............................15
Lien............................................................15
Listing Failure.................................................15
Marketable Securities...........................................15
Maturity........................................................16
Net Available Proceeds..........................................16
Offer to Purchase...............................................16
Officers' Certificate...........................................19
Opinion of Counsel..............................................19
Original Securities.............................................19
</TABLE>
- ---------------
Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Outstanding.....................................................20
Participant.....................................................21
Paying Agent....................................................21
Permitted Interest Rate or Currency Protection
Agreement...................................................21
Permitted Investment............................................21
Permitted Liens.................................................21
Person..........................................................22
Predecessor Security............................................22
Purchase Agreement..............................................23
Purchase Money Debt.............................................23
readily marketable cash equivalents.............................23
Receivables.....................................................23
Receivables Sale................................................23
Redemption Date.................................................24
Redemption Price................................................24
Registered Securities...........................................24
Regular Record Date.............................................24
Regulation S....................................................24
Regulation S Certificate........................................24
Regulation S Global Security....................................24
Regulation S Legend.............................................24
Regulation S Securities.........................................24
Related Person..................................................24
Resale Registration Statement...................................25
Responsible Officer.............................................25
Restricted Global Security......................................25
Restricted Period...............................................25
Restricted Securities...........................................25
Restricted Securities Certificate...............................25
Restricted Securities Legend....................................25
Restricted Subsidiary...........................................26
RSLNA...........................................................26
Rule 144A.......................................................26
Rule 144A Securities............................................26
Securities......................................................26
Securities Act..................................................26
Securities Act Legend...........................................26
Securities Guarantee............................................26
"Security Register" and "Security Registrar"....................26
Significant Subsidiary..........................................26
</TABLE>
- ---------------
Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
-v-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Special Interest................................................26
Special Record Date.............................................26
Stated Maturity.................................................27
Step-Down Date..................................................27
Step-Up.........................................................27
Strategic Investor..............................................27
Subordinated Debt...............................................27
Subsidiary......................................................28
Subsidiary Guarantor............................................28
Substitute Securities...........................................29
Successor Security..............................................29
Tax ............................................................29
Taxing Authority................................................29
Telecommunications Assets.......................................29
Telecommunications Business.....................................29
Trustee.........................................................29
Trust Indenture Act.............................................30
Unrestricted Securities Certificate.............................30
Unrestricted Subsidiary.........................................30
Vice President..................................................30
Voting Stock....................................................31
Wholly Owned Subsidiary.........................................31
SECTION 1.02. Compliance Certificates and Opinions......................31
SECTION 1.03. Form of Documents Delivered to Trustee....................32
SECTION 1.04. Acts of Holders; Record Dates.............................32
SECTION 1.05. Notices, Etc., to Trustee, Issuer and
Guarantor..................................35
SECTION 1.06. Notice to Holders; Waiver.................................36
SECTION 1.07. Application of Trust Indenture Act........................36
SECTION 1.08. Effect of Headings and Table of
Contents....................................37
SECTION 1.09. Successors and Assigns....................................37
SECTION 1.10. Separability Clause.......................................37
SECTION 1.11. Benefits of Indenture.....................................37
SECTION 1.12. Governing Law ...........................................37
SECTION 1.13. Legal Holidays ...........................................37
SECTION 1.14. Agent for Service; Submission to
Jurisdiction; Waiver of Immunities.........37
</TABLE>
- ---------------
Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
-vi-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally...........................................38
SECTION 2.02. Form of Face of Security..................................40
SECTION 2.03. Form of Reverse of Security...............................46
SECTION 2.04. Form of Trustee's Certificate of
Authentication.............................51
ARTICLE III
The Securities
SECTION 3.01. Title and Terms...........................................51
SECTION 3.02. Denominations ...........................................53
SECTION 3.03. Execution, Authentication, Delivery and
Dating.....................................53
SECTION 3.04. Temporary Securities......................................54
SECTION 3.05. Registration, Registration of Transfer
and Exchange...............................55
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen
Securities.................................62
SECTION 3.07. Payment of Interest; Interest
Rights Preserved...........................63
SECTION 3.08. Persons Deemed Owners.....................................64
SECTION 3.09. Cancelation ...........................................65
SECTION 3.10. Computation of Interest...................................65
SECTION 3.11. CUSIP and ISIN Numbers....................................65
ARTICLE IV
Guarantee Of Securities
SECTION 4.01. Guarantee ...........................................66
SECTION 4.02. Obligations Unconditional.................................68
SECTION 4.03. Notice to Trustee.........................................68
</TABLE>
- ---------------
Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
-vii-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE V
Remedies
SECTION 5.01. Events of Default.........................................68
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment..................................71
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee.....................72
SECTION 5.04. Trustee May File Proofs of Claim..........................73
SECTION 5.05. Trustee May Enforce Claims Without
Possession of Securities...................73
SECTION 5.06. Application of Money Collected............................74
SECTION 5.07. Limitation on Suits.......................................74
SECTION 5.08. Unconditional Right of Holders To
Receive Principal, Premium and
Interest...................................75
SECTION 5.09. Restoration of Rights and Remedies........................75
SECTION 5.10. Rights and Remedies Cumulative............................75
SECTION 5.11. Delay or Omission Not Waiver..............................76
SECTION 5.12. Control by Holders........................................76
SECTION 5.13. Waiver of Past Defaults...................................76
SECTION 5.14. Undertaking for Costs.....................................77
SECTION 5.15. Waiver of Stay or Extension Laws..........................77
ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities.......................78
SECTION 6.02. Notice of Defaults........................................79
SECTION 6.03. Certain Rights of Trustee.................................79
SECTION 6.04. Not Responsible for Recitals
or Issuance of Securities..................81
SECTION 6.05. May Hold Securities.......................................81
SECTION 6.06. Money Held in Trust.......................................81
SECTION 6.07. Compensation and Reimbursement............................81
SECTION 6.08. Disqualification; Conflicting Interests...................82
SECTION 6.09. Corporate Trustee Required; Eligibility...................83
</TABLE>
- ---------------
Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
-viii-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 6.10. Resignation and Removal; Appointment of
Successor..................................83
SECTION 6.11. Acceptance of Appointment by Successor....................85
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business.....................85
SECTION 6.13. Preferential Collection of Claims
Against Issuer or Guarantor................85
SECTION 6.14. Appointment of Authenticating Agent.......................86
SECTION 6.15. Withholding Taxes.........................................88
ARTICLE VII
Holders' Lists and Reports by Trustee and Issuer
SECTION 7.01. Issuer to Furnish Trustee Names and
Addresses of Holder........................88
SECTION 7.02. Preservation of Information;
Communications to Holders..................89
SECTION 7.03. Reports by Trustee........................................89
SECTION 7.04. Reports by Issuer and Guarantor...........................90
SECTION 7.05. Officers' Certificate with Respect to
Change in Interest Rates...................90
ARTICLE VIII
Merger, Consolidation, Etc.
SECTION 8.01. Mergers, Consolidations and Certain
Sales of Assets............................90
SECTION 8.02. Successor Substituted.....................................92
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent
of Holders.................................92
</TABLE>
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Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
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SECTION 9.02. Supplemental Indentures with Consent of
Holders....................................93
SECTION 9.03. Execution of Supplemental Indentures......................94
SECTION 9.04. Effect of Supplemental Indentures.........................94
SECTION 9.05. Conformity with Trust Indenture Act.......................94
SECTION 9.06. Reference in Securities to Supplemental
Indentures.................................95
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and
Interest...................................95
SECTION 10.02. Maintenance of Office or Agency..........................95
SECTION 10.03. Money for Security Payments To Be Held
in Trust...................................96
SECTION 10.04. Existence................................................97
SECTION 10.05. Maintenance of Properties................................98
SECTION 10.06. Payment of Taxes and Other Claims........................98
SECTION 10.07. Maintenance of Insurance.................................98
SECTION 10.08. Limitation on Consolidated Debt..........................98
SECTION 10.09. Additional Amounts......................................101
SECTION 10.10. Limitation on Restricted Payments.......................104
SECTION 10.11. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted
Subsidiaries..............................107
SECTION 10.12. Limitation on Transactions with
Affiliates and Related Persons............108
SECTION 10.13. Limitation on Asset Dispositions........................109
SECTION 10.14. Limitation on Issuances and Sales of Capital
Stock of Restricted Subsidiaries..........110
SECTION 10.15. Limitation on Liens.....................................111
SECTION 10.16. Limitation on Issuance of Guarantees of
Debt by Restricted Subsidiaries...........112
SECTION 10.17. Change of Control.......................................112
SECTION 10.18. Provision of Financial Information......................114
SECTION 10.19. Statement by Officers as to Default.....................114
SECTION 10.20. Waiver of Certain Covenants.............................115
</TABLE>
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Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
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<S> <C>
SECTION 10.21. Paying Agent ..........................................115
SECTION 10.22. Internal Revenue Service Filing.........................115
ARTICLE XI
Redemption of Securities
SECTION 11.01. Right of Redemption.....................................115
SECTION 11.02. Applicability of Article................................117
SECTION 11.03. Election To Redeem; Notice to Trustee...................117
SECTION 11.04. Securities To Be Redeemed Pro Rata......................117
SECTION 11.05. Notice of Redemption....................................118
SECTION 11.06. Deposit of Redemption Price.............................119
SECTION 11.07. Securities Payable on Redemption Date...................119
SECTION 11.08. Securities Redeemed in Part.............................119
ARTICLE XII
Discharge of Indenture
SECTION 12.01. Termination of Issuer's Obligations.....................120
SECTION 12.02. Defeasance and Discharge of Indenture...................121
SECTION 12.03. Defeasance of Certain Obligations.......................124
SECTION 12.04. Application of Trust Money..............................126
SECTION 12.05. Repayment to Issuer.....................................126
SECTION 12.06. Reinstatement ..........................................127
SECTION 12.07. Insiders ..........................................127
TESTIMONIUM.............................................................128
SIGNATURES AND SEALS....................................................128
</TABLE>
ANNEX A -- Form of Regulation S Certificate
ANNEX B -- Form of Restricted Securities Certificate
ANNEX C -- Form of Unrestricted Securities Certificate
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Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
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<PAGE>
INDENTURE, dated as of November 9, 1998, between RSL
COMMUNICATIONS PLC, a United Kingdom corporation, as issuer (the "Issuer"),
having its principal office at Victoria House, London Square, Guilford,
Surrey, England GU1 1UJ, RSL COMMUNICATIONS, LTD., a Bermuda corporation, as
guarantor (the "Guarantor"), having its principal office at Clarendon House,
Church Street, Hamilton HM CX, Bermuda, and THE CHASE MANHATTAN BANK, a
corporation duly organized and existing under the laws of the State of New
York, as Trustee (herein called the "Trustee").
RECITALS OF THE ISSUER
The Issuer has duly authorized the creation of $100,000,000
aggregate principal amount at maturity of the Issuer's 12% Senior Notes due
2008 (the "Securities") of substantially the tenor and amount hereinafter set
forth, and to provide therefor the Issuer has duly authorized the execution
and delivery of this Indenture. The Securities may consist of Original
Securities and/or Exchange Securities, each as defined herein. The Original
Securities and the Exchange Securities shall rank pari passu with one another
and shall together constitute a single class of securities.
All things necessary (i) to make the Securities, when
executed by the Issuer and authenticated and delivered hereunder and duly
issued by the Issuer, the valid obligations of the Issuer, (ii) to make the
Securities Guarantee, when executed and delivered by the Guarantor hereunder,
the valid obligation of the Guarantor, and (iii) to make this Indenture a
valid agreement of the Issuer and the Guarantor, in accordance with its terms,
have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed,
for the equal and
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proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
Definitions and Other Provisions
of General Application
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<PAGE>
SECTION 1.01. Definitions. For all purposes of this
Indenture, except as otherwise expressly provided or unless the context
otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as
the singular;
(b) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have
the meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted
accounting principles (whether or not such is indicated herein) and,
except as otherwise herein expressly provided, the term "generally
accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles
as are generally accepted as consistently applied by the Issuer or
the Guarantor, as applicable, at the date hereof; and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined
in that Article.
"Accreted Value" is defined to mean, for any "Specified
Date", the amount calculated pursuant to clauses (i), (ii), (iii) or (iv)
below for each $1,000 principal amount at maturity of Securities:
(i) if the Specified Date occurs on one or more of the
following dates (each a "Semiannual Accrual Date"), the Accreted
Value will equal the amount set forth below for such Semiannual
Accrual Date:
Semiannual Accreted
Accrual Date Value
- ------------ --------
May 1, 1999 $ 946.33
November 1, 1999 947.84
May 1, 2000 949.45
November 1, 2000 951.16
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<PAGE>
Semiannual Accreted
Accrual Date Value
- ------------ --------
May 1, 2001........................................ 952.99
November 1, 2001................................... 954.93
May 1, 2002........................................ 957.00
November 1, 2002................................... 959.21
May 1, 2003........................................ 961.55
November 1, 2003................................... 964.06
May 1, 2004........................................ 966.72
November 1, 2004................................... 969.56
May 1, 2005........................................ 972.58
November 1, 2005................................... 975.79
May 1, 2006........................................ 979.22
November 1, 2006................................... 982.87
May 1, 2007........................................ 986.76
November 1, 2007................................... 990.90
May 1, 2008........................................ 995.31
November 1, 2008................................... $ 1,000.00
(i) if the Specified Date occurs before the first Semiannual
Accrual Date, the Accreted Value will equal the sum of (a) $944.89;
and (b) an amount equal to the product of (x) the Accreted Value for
the first Semiannual Accrual Date less $944.89 multiplied by (y) a
fraction, the numerator of which is the number of days from the issue
date of the Securities to the Specified Date, using a 360-day year of
twelve 30-day months, and the denominator of which is the number of
days elapsed from the issue date of the Securities to the first
Semiannual Accrual Date, using a 360-day year of twelve 30-day
months;
(ii) if the Specified Date occurs between two Semiannual
Accrual Dates, the Accreted Value will equal the sum of (a) the
Accreted Value for the Semiannual Accrual Date immediately preceding
such Specified Date and (b) an amount equal to the product of (x) the
Accreted Value for the immediately following Semiannual Accrual Date
less the Accreted Value for the immediately preceding Semiannual
Accrual Date multiplied by (y) a fraction, the numerator of which is
the number of days from the immediately preceding Semiannual Accrual
Date to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; or
(iii) if the Specified Date occurs after the last Semiannual
Accrual Date, the Accreted Value will equal $1,000.
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<PAGE>
"Acquired Debt" means, with respect to any specified
Person, (i) Debt of any other Person existing at the time such Person merges
with or into or consolidates with or becomes a Subsidiary of such specified
Person and (ii) Debt secured by a Lien encumbering any asset acquired by such
specified Person, which Debt was not Incurred in anticipation of, and was
outstanding prior to, such merger, consolidation or acquisition.
"Act", when used with respect to any Holder, has the
meaning specified in Section 1.04.
"Additional Amounts" has the meaning specified in Section
10.09.
"Affiliate" of any Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" means any member of, or participant in,
the Depositary.
"Applicable Procedures" means, with respect to any transfer
or transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security, Euroclear and Cedel,
in each case to the extent applicable to such transaction and as in effect
from time to time.
"Asset Disposition" by any Person means any transfer,
conveyance, sale, lease or other disposition by such Person or any of its
Subsidiaries (including a consolidation or merger or other sale of any such
Subsidiary with, into or to another Person in a transaction in which such
Subsidiary ceases to be a Subsidiary of the specified Person, but excluding a
disposition by a Subsidiary of such Person to such Person or a Wholly Owned
Subsidiary of such Person or by such Person to a Wholly Owned Subsidiary of
such Person or by a Restricted Subsidiary to the Guarantor or a Restricted
Subsidiary or by the Guarantor to a Restricted Subsidiary) of (i) shares of
Capital Stock or other ownership interests of a Subsidiary of such Person;
(ii) substantially all of the assets of such Person or any
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<PAGE>
of its Subsidiaries representing a division or line of business (other than
as part of a Permitted Investment); or (iii) other assets or rights of such
Person or any of its Subsidiaries outside of the ordinary course of
business, provided in the case of each of the preceding clauses (i), (ii)
and (iii) that the aggregate consideration for such transfer, conveyance,
sale, lease or other disposition is equal to $2.0 million or more in any
12-month period.
"Average Life" means, at any date of determination with
respect to any Debt, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such Debt and (b) the
amount of such principal payment by (ii) the sum of all such principal
payments.
"beneficial interest" means an indirect beneficial interest
in a Global Security held through a corresponding Depositary Interest and
shown on, and transferred only through, records maintained in book-entry form
by the Depositary (with respect to the Participants) and their Participants.
"Board of Directors" means either the board of directors of
the Guarantor or the Issuer, as applicable, or any duly authorized committee
of that board duly authorized to act with respect to this Indenture from time
to time.
"Board Resolution" means a copy of a resolution certified
by the Secretary or an Assistant Secretary of the Guarantor or the Issuer, as
applicable, to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Book-Entry Depositary" means The Chase Manhattan Bank in
its capacity as book-entry depositary pursuant to the terms of the Deposit
Agreement, until a successor Book-Entry Depositary shall have become such
pursuant to the terms of the Deposit Agreement, and thereafter "Book-Entry
Depositary" shall mean such successor Book-Entry Depositary.
"Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in the
Borough of Manhattan, the City of New York, New York are authorized or
obligated by law or executive order to close.
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<PAGE>
"Capital Lease Obligation" of any Person means the
obligation to pay rent or other payment amounts under a lease of (or other
Debt arrangements conveying the right to use) real or personal property of
such Person which is required to be classified and accounted for as a capital
lease or a liability on the face of a balance sheet of such Person in
accordance with generally accepted accounting principles (a "Capital Lease").
The stated maturity of such obligation shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.
The principal amount of such obligation shall be the capitalized amount
thereof that would appear on the face of a balance sheet of such Person in
accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock or other equity participations, including partnership
interests, whether general or limited, of such Person.
"Cedel" means Cedel Bank, S.A. (or any successor
securities clearing agency).
"Change of Control" has the meaning specified in Section
10.17.
"Commission" means the Securities and Exchange Commission,
as from time to time constituted, created under the Exchange Act, or, if at
any time after the execution of this instrument such Commission is not
existing or not performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Consolidated Cash Flow Available for Fixed Charges" for
any period means the Consolidated Net Income of the Guarantor and its
Restricted Subsidiaries for such period increased by the sum of (i)
Consolidated Interest Expense of the Guarantor and its Restricted Subsidiaries
for such
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<PAGE>
period, plus (ii) Consolidated Income Tax Expense of the Guarantor and its
Restricted Subsidiaries for such period, plus (iii) the consolidated
depreciation and amortization expense included in the income statement of
the Guarantor and its Restricted Subsidiaries for such period, plus (iv) any
noncash expense related to the issuance to employees of the Guarantor or any
Restricted Subsidiary of the Guarantor of options to purchase Capital Stock
of the Guarantor or such Restricted Subsidiary, plus (v) any charge related
to any premium or penalty paid in connection with redeeming or retiring any
Debt prior to its stated maturity; provided, however, that there shall be
excluded therefrom the Consolidated Cash Flow Available for Fixed Charges
(if positive) of any Restricted Subsidiary of the Guarantor (calculated
separately for such Restricted Subsidiary in the same manner as provided
above for the Guarantor) that is subject to a restriction which prevents the
payment of dividends or the making of distributions to the Guarantor or
another Restricted Subsidiary of the Guarantor to the extent of such
restriction.
"Consolidated Income Tax Expense" for any period means the
aggregate amounts of the provisions for income taxes of the Guarantor and its
Restricted Subsidiaries for such period calculated on a consolidated basis in
accordance with generally accepted accounting principles.
"Consolidated Interest Expense" means for any period the
interest expense included in a consolidated income statement (excluding
interest income) of the Guarantor and its Restricted Subsidiaries for such
period in accordance with generally accepted accounting principles, including
without limitation or duplication (or, to the extent not so included, with the
addition of), (i) the amortization of Debt discounts; (ii) any payments or
fees with respect to letters of credit, bankers' acceptances or similar
facilities; (iii) fees with respect to interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements; (iv)
Preferred Stock dividends of the Guarantor and its Restricted Subsidiaries
(other than dividends paid in shares of Preferred Stock that is not
Disqualified Stock) declared and paid or payable; (v) accrued Disqualified
Stock dividends of the Guarantor and its Restricted Subsidiaries, whether or
not declared or paid; (vi) interest on Debt guaranteed by the Guarantor and
its Restricted Subsidiaries (but only to the extent such interest is actually
paid by the Guarantor or a Restricted Subsidiary); and (vii) the portion of
any Capital Lease Obligation paid during such period that is allocable to
interest expense; excluding, however, any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offerings of the
Securities; all of the
-8-
<PAGE>
foregoing as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with generally accepted accounting
principles.
"Consolidated Net Income" for any period means the net
income (or loss) of the Guarantor and its Restricted Subsidiaries for such
period determined on a consolidated basis in accordance with generally
accepted accounting principles; provided that there shall be excluded
therefrom (a) the net income (or loss) of any Person acquired by the Guarantor
or a Restricted Subsidiary of the Guarantor in a pooling-of-interests
transaction for any period prior to the date of such transaction, (b) the net
income (or loss) of any Person that is not a Restricted Subsidiary of the
Guarantor except to the extent of the amount of dividends or other
distributions actually paid to the Guarantor or a Restricted Subsidiary of the
Guarantor by such Person during such period, (c) gains or losses on Asset
Dispositions by the Guarantor or its Restricted Subsidiaries, (d) all
extraordinary gains and extraordinary losses, determined in accordance with
generally accepted accounting principles, (e) the cumulative effect of changes
in accounting principles, (f) noncash gains or losses resulting from
fluctuations in currency exchange rates and (g) the tax effect of any of the
items described in clauses (a) through (f) above.
"Consolidated Net Worth" of any Person means the
stockholders' equity of such Person, determined on a consolidated basis in
accordance with generally accepted accounting principles, less amounts
attributable to Disqualified Stock of such Person.
"Consolidated Tangible Assets" of any Person means the
total amount of assets (less applicable reserves and other properly deductible
items) which under generally accepted accounting principles would be included
on a consolidated balance sheet of such Person and its Subsidiaries after
deducting therefrom all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, which in
each case under generally accepted accounting principles would be included on
such consolidated balance sheet.
"Corporate Trust Office" means the principal office of the
Trustee in the Borough of Manhattan, The City of New York, New York, at which
at any particular time its corporate trust business shall be administered,
which at the date hereof is located at 450 West 33rd Street, New York, NY
10001-2697.
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<PAGE>
"corporation" means a corporation, association, company,
limited liability company, joint-stock company or business trust.
"Credit Facility" means credit agreements, vendor
financings or other facilities or arrangements made available from time to
time to the Guarantor and its Restricted Subsidiaries by banks, other
financial institutions and/or equipment manufacturers for the Incurrence of
Debt, including the private or public issuance of debt securities or the
provision of letters of credit and any related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, as the
same may be amended, supplemented, modified or restated from time to time.
"Debt" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person
and whether or not contingent, the amount of (i) every obligation of such
Person for money borrowed, (ii) every obligation of such Person evidenced by
bonds, debentures, notes or other similar instruments, including obligations
Incurred in connection with the acquisition of property, assets or businesses,
(iii) every reimbursement obligation of such Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
such Person, (iv) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (including securities
repurchase agreements but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business which are not overdue
or which are being contested in good faith), (v) every Capital Lease
Obligation of such Person, (vi) all Receivables Sales of such Person, together
with any obligation of such Person to pay any discount, interest, fees,
indemnities, penalties, recourse, expenses or other amounts in connection
therewith, (vii) all obligations to redeem Disqualified Stock issued by such
Person, (viii) every obligation under Interest Rate and Currency Protection
Agreements of such Person and (ix) every obligation of the type referred to in
clauses (i) through (viii) of another Person and all dividends of another
Person the payment of which, in either case, such Person has Guaranteed to the
extent the same is Guaranteed by such Person. The "amount" or "principal
amount" of Debt at any time of determination as used herein represented by (a)
any Debt issued at a price that is less than the principal amount at maturity
thereof, shall be the amount of the liability in respect thereof determined in
accordance with generally accepted accounting principles, (b) any
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<PAGE>
Receivables Sale shall be the amount of the unrecovered capital or principal
investment of the purchaser (other than the Guarantor or a Wholly Owned
Restricted Subsidiary of the Guarantor) thereof to the extent such Person is
liable therefor, excluding amounts representative of yield or interest
earned on such investment or (c) any Disqualified Stock shall be the maximum
fixed redemption or repurchase price in respect thereof.
"Defaulted Interest" has the meaning specified in Section
3.07.
"Definitive Security" means a certificated Security
registered in the name of the Holder thereof and issued in accordance with
Section 3.05(d) hereof.
"Deposit Agreement" means the Note Deposit Agreement, dated
as of the date hereof, between the Issuer and The Chase Manhattan Bank, as
Book-Entry Depositary with respect to the Global Securities, as amended from
time to time in accordance with the terms thereof.
"Depositary" means, with respect to the Securities issuable
or issued in whole or in part in the form of one or more Global Securities,
The Depository Trust Company for so long as it shall be a clearing agency
registered under the Exchange Act, or such successor as the Issuer shall
designate from time to time in an Officers' Certificate delivered to the
Trustee.
"Depositary Interest" means a certificateless depositary
interest representing a 100% beneficial interest in a Global Security.
"Disqualified Stock" of any Person means any Capital Stock
of such Person which, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of such Person, any
Subsidiary of such Person or the holder thereof, in whole or in part, on or
prior to the final Stated Maturity of the Securities; provided, however, that
any Preferred Stock which would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Preferred Stock upon the occurrence of a Change of
Control occurring prior to the final maturity of the Securities shall not
constitute Disqualified Stock if the change of control provisions applicable
to such Preferred
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<PAGE>
Stock are no more favorable to the holders of such Preferred Stock than the
provisions applicable to the Securities contained in Section 10.17 and such
Preferred Stock specifically provides that such Person will not repurchase
or redeem any such stock pursuant to such provisions prior to such Person's
repurchase of such Securities as are required to be repurchased pursuant to
Section 10.17.
"Eligible Institution" means a commercial banking
institution that has combined capital and surplus of not less than $500
million or its equivalent in foreign currency, whose debt is rated "A" (or
higher) according to Standard & Poor's Ratings Service or Moody's Investors
Service, Inc. at the time as of which any investment or rollover therein is
made.
"Euroclear" means the Euroclear Clearance System (or any
successor securities clearing agency).
"Event of Default" has the meaning set forth in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended (or any successor act), and the rules and regulations thereunder.
"Exchange and Registration Rights Agreement" means the
Exchange and Registration Rights Agreement, dated as of November 9, 1998 among
the Issuer, the Guarantor and the Initial Purchaser and the Holders from time
to time as provided therein, as such agreement may be amended from time to
time.
"Exchange Offer" has the meaning set forth in the form of
the Securities contained in Section 2.02.
"Exchange Offer Registration Statement" has the meaning set
forth in the form of the Securities contained in Section 2.02.
"Exchange Security" means any Security issued in exchange
for an Original Security or Original Securities pursuant to the Exchange Offer
or otherwise registered under the Securities Act and any Security with respect
to which the next preceding Predecessor Security of such Security was an
Exchange Security.
"Existing Stockholders" means (A) R.S. Lauder, Gaspar &
Co., L.P., ("LGC"), (B) partners in LGC and Lauder Gaspar Ventures LLC and
their Affiliates, in each case as of
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<PAGE>
the Closing Date, (C) Itzhak Fisher, Ronald S. Lauder, Leonard Lauder, Jacob
Z. Schuster, Nir Tarlovsky, Nesim N. Bildirici, Andrew Gaspar and Eugene
Sekulow, (D) family members of any of the foregoing, (E) trusts, the only
beneficiaries of which are persons or entities described in clauses (A)
through (D) above and (F) partnerships which are controlled by the persons
or entities described in clauses (A) through (D) above.
"Expiration Date" has the meaning specified in the
definition of "Offer to Purchase".
"Global Security" means the security or securities issued
initially in bearer form that evidences all or part of the Securities and
bears the legend set forth in Section 2.02.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States
is pledged and which have a remaining weighted average life to maturity of not
less than one year from the date of Investment therein.
"Guarantee" by any Person means any obligation, contingent
or otherwise, of such Person guaranteeing, or having the economic effect of
guaranteeing, any Debt of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person, (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt,
(ii) to purchase property, securities or services for the purpose of assuring
the holder of such Debt of the payment of such Debt, or (iii) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay
such Debt (and "Guaranteed" and "Guaranteeing" shall have meanings correlative
to the foregoing); provided, however, that the Guarantee by any Person shall
not include endorsements by such Person for collection or deposit, in either
case, in the ordinary course of business.
"Guarantor" means the Person named as the "Guarantor" in
the first paragraph of this instrument until a successor Person shall have
become such Person pursuant to the applicable provisions of this Indenture and
thereafter "Guarantor" shall mean such successor Person.
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"Holder" means a Person (i) who is the bearer of a Global
Security (which shall initially be the Book-Entry Depositary) or (ii) in
whose name a Definitive Security is registered in the Security Register.
"Incremental Paid-in Capital" means as of any date the
cumulative aggregate amount of the increase in paid-in capital (determined
in accordance with generally accepted accounting principles applied on a
consistent basis) since September 30, 1997, as determined based on the most
recent unaudited quarterly or audited annual financial statements of the
Guarantor and its consolidated subsidiaries filed with the Commission, as
compared with the Guarantor's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997.
"Incur" means, with respect to any Debt or other
obligation of any Person, to create, issue, incur (by conversion, exchange
or otherwise), assume, enter into a Guarantee in respect of or otherwise
become liable in respect of such Debt or other obligation including by
acquisition of Subsidiaries or the recording, as required pursuant to
generally accepted accounting principles or otherwise, of any such Debt or
other obligation on the balance sheet of such Person (and "Incurrence",
"Incurred", "Incurrable" and "Incurring" shall have meanings correlative to
the foregoing); provided, however, that a change in generally accepted
accounting principles that results in an obligation of such Person that
exists at such time becoming Debt shall not be deemed an Incurrence of such
Debt and that neither the accrual of interest nor the accretion of original
issue discount shall be deemed an Incurrence of Debt.
"Indenture" means this instrument as originally executed
or as it may from time to time be supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof.
"Indirect Participant" means a Person who holds an interest
through a Participant in a Depositary Interest issued by the Book-Entry
Depositary to the Depositary.
"Initial Purchaser" means Goldman, Sachs & Co.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Interest Rate or Currency Protection Agreement" of any
Person means any forward contract, futures contract,
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swap, option or other financial agreement or arrangement (including, without
limitation, caps, floors, collars and similar agreements) relating to, or
the value of which is dependent upon, interest rates or currency exchange
rates or indices.
"Investment" by any Person means any direct or indirect
loan, advance or other extension of credit or capital contribution (by means
of transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), to, or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Debt issued by, any other Person, including any payment on a
Guarantee of any obligation of such other Person, but excluding any loan,
advance or extension of credit to an employee of the Guarantor or any of its
Subsidiaries in the ordinary course of business and commercially reasonable
extensions of trade credit. Without limiting the foregoing, the term
"Investment" shall include (i) the designation of a Restricted Subsidiary as
an Unrestricted Subsidiary and (ii) the fair market value of the Capital Stock
(or any other Investment), held by the Guarantor or any of its Restricted
Subsidiaries, of (or in) any Person that has ceased to be a Restricted
Subsidiary. For purposes of the definition of "Unrestricted Subsidiary" and
Section 10.10, (i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Guarantor or any of
its Restricted Subsidiaries)) of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the
fair market value of the assets (net of liabilities (other than liabilities to
the Guarantor or any of its Restricted Subsidiaries)) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary shall be considered a reduction in outstanding
Investments and (iii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer. Notwithstanding the foregoing, an acquisition of assets (including,
without limitation, Capital Stock or rights to acquire Capital Stock) by the
Guarantor or any of its Restricted Subsidiaries shall be deemed not to be an
Investment to the extent that the consideration therefor consists of Common
Stock of the Guarantor.
"Issuer" means the Person named as the "Issuer" in the
first paragraph of this instrument until a successor Person shall have become
such pursuant to the applicable
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provisions of this Indenture and thereafter "Issuer" shall mean such
successor Person.
"Issuer Request" or "Issuer Order" means a written request
or order signed in the name of the Issuer by the Issuer's Chairman of the
Board, its Vice Chairman of the Board, its President or a Vice President, and
by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary, and delivered to the Trustee.
"Lien" means, with respect to any property or assets, any
mortgage or deed of trust, pledge, hypothecation, assignment, Receivables
Sale, deposit arrangement, security interest, lien, charge, easement (other
than any easement not materially impairing usefulness), encumbrance,
preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever on or with respect to such property or assets
(including, without limitation, any conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Listing Failure" has the meaning specified in Section
10.09.
"Marketable Securities" means: (i) Government Securities;
(ii) any certificate of deposit maturing not more than 270 days after the date
of acquisition issued by, or time deposit of, an Eligible Institution; (iii)
commercial paper maturing not more than 270 days after the date of acquisition
issued by a corporation (other than an Affiliate of the Guarantor) with a
rating, at the time as of which any investment therein is made, of "A-1" (or
higher) according to Standard & Poor's Ratings Service or "P-1" (or higher)
according to Moody's Investor Service, Inc.; (iv) any banker's acceptances or
money market deposit accounts issued or offered by an Eligible Institution;
(v) time deposits, certificates of deposit, bank promissory notes and bankers'
acceptances maturing not more than 180 days after the acquisition thereof and
guaranteed or issued by any of the ten largest banks (based on assets as of
the immediately preceding December 31), organized under the laws of any
jurisdiction in which one of the Restricted Subsidiaries does business or any
foreign country recognized by the United States and which are not under
intervention, bankruptcy or similar proceeding, not to exceed $10 million
outstanding at any one term; and (vi) any fund investing exclusively in
investments of the types described in clauses (i) through (iv) above.
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"Maturity ", when used with respect to any Security, means
the date on which the principal of such Security becomes due and payable as
therein or herein provided, whether at the Stated Maturity or by declaration
of acceleration, call for redemption or otherwise.
"Net Available Proceeds" from any Asset Disposition by any
Person means cash or readily marketable cash equivalents received (including
amounts received by way of sale or discounting of any note, installment
receivable or other receivable, but excluding any other consideration received
in the form of assumption by the acquiror of Debt or other obligations
relating to such properties or assets) therefrom by such Person, net of (i)
all legal, title and recording tax expenses, commissions and other fees and
expenses Incurred and all Federal, state, provincial, foreign and local taxes
required to be accrued as a liability as a consequence of such Asset
Disposition, (ii) all payments made by such Person or its Subsidiaries on any
Debt which is secured by such assets in accordance with the terms of any Lien
upon or with respect to such assets or which must by the terms of such Lien,
or in order to obtain a necessary consent to such Asset Disposition or by
applicable law, be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments made to minority interest holders
in Subsidiaries of such Person as a result of such Asset Disposition and (iv)
appropriate amounts to be provided by such Person or any Subsidiary thereof,
as the case may be, as a reserve in accordance with generally accepted
accounting principles against any liabilities associated with such assets and
retained by such Person or any Subsidiary thereof, as the case may be, after
such Asset Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, in each case as determined by the
board of directors of such Person, in its reasonable good faith judgment;
provided, however, that any reduction in such reserve within 12 months
following the consummation of such Asset Disposition will be treated for all
purposes of the Indenture and the Securities as a new Asset Disposition at the
time of such reduction with Net Available Proceeds equal to the amount of such
reduction.
"Offer to Purchase" means a written offer (the "Offer")
sent by or on behalf of the Issuer by first class mail, postage prepaid, to
each Holder of Securities at his address appearing in the related Security
Register on the date of the Offer offering to purchase
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up to the Accreted Value of Securities specified in such Offer at the
purchase price specified in such Offer (as determined pursuant to this
Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase
which shall be, subject to any contrary requirements of applicable law, not
less than 30 days or more than 60 days after the date of such Offer and a
settlement date (the "Purchase Date") for purchase of Securities within five
Business Days after the Expiration Date. The Issuer shall notify in writing
the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Issuer's
obligation to make an Offer to Purchase, and the Offer shall be mailed by
the Issuer or, at the Issuer's request, by the Trustee in the name and at
the expense of the Issuer. The Offer shall contain information concerning
the business of the Guarantor and its Subsidiaries which the Guarantor and
Issuer in good faith believe will enable such Holders to make an informed
decision with respect to the Offer to Purchase (which at a minimum will
include (i) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the Trustee
pursuant to this Indenture (which requirements may be satisfied by delivery
of such documents together with the Offer), (ii) a description of material
developments in the Guarantor's business subsequent to the date of the
latest of such financial statements referred to in clause (i) (including a
description of the events requiring the Issuer to make the Offer to
Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Issuer to make
the Offer to Purchase and (iv) any other information required by applicable
law to be included therein). The Offer shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(a) the Section of this Indenture pursuant to which the Offer
to Purchase is being made;
(b) the Expiration Date and the Purchase Date;
(c) the aggregate principal amount at maturity of the
Outstanding Securities offered to be purchased by the Issuer
pursuant to the Offer to Purchase (including, if less than 100%,
the manner by which such has been determined pursuant to the
Section hereof
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requiring the Offer to Purchase) (the "Purchase Amount");
(d) the purchase price to be paid by the Issuer for each
$1,000 aggregate principal amount at maturity of Securities
accepted for payment (as specified pursuant to the Indenture) (the
"Purchase Price");
(e) that the Holder may tender all or any portion of the
Securities registered in the name of such Holder and that any
portion of a Security tendered must be tendered in an integral
multiple of $1,000 principal amount at maturity;
(f) the place or places where Securities are to be
surrendered for tender pursuant to the Offer to Purchase;
(g) that interest on any Security not tendered or tendered
but not purchased by the Issuer pursuant to the Offer to Purchase
will continue to accrue;
(h) that on the Purchase Date the Purchase Price will become
due and payable upon each Security being accepted for payment
pursuant to the Offer to Purchase and that interest thereon shall
cease to accrue on and after the Purchase Date;
(i) that each Holder electing to tender a Security pursuant
to the Offer to Purchase will be required to surrender such
Security at the place or places specified in the Offer prior to
the close of business on the Expiration Date (such Security being,
if the Issuer or the Trustee so requires, duly endorsed by, or
accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Trustee duly executed by, the
Holder thereof or his attorney duly authorized in writing);
(j) that Holders will be entitled to withdraw all or any
portion of Securities tendered if the Issuer (or their Paying
Agent) receives, not later than the close of business on the
Expiration Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount
at maturity of the Security the Holder tendered, the certificate
number of the Security the Holder tendered and a statement that
such Holder is withdrawing all or a portion of his tender;
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(k) that (a) if Securities in an aggregate principal amount
at maturity less than or equal to the Purchase Amount are duly
tendered and not withdrawn pursuant to the Offer to Purchase, the
Issuer shall purchase all such Securities and (b) if Securities in
an aggregate principal amount at maturity in excess of the
Purchase Amount are tendered and not withdrawn pursuant to the
Offer to Purchase, the Issuer shall purchase Securities having an
aggregate principal amount at maturity equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Securities in denominations of $1,000 or
integral multiples thereof shall be purchased); and
(l) that in the case of any Holder whose Security is
purchased only in part, the Issuer shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder, in an
aggregate principal amount at maturity equal to and in exchange
for the unpurchased portion of the Security so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Guarantor or the Issuer, as applicable, and
delivered to the Trustee and containing the statements provided for in Section
1.02. One of the officers signing an Officers' Certificate given pursuant to
Section 10.19 shall be the principal executive, financial or accounting
officer of the Guarantor.
"Opinion of Counsel" means a written opinion of legal
counsel, who may be counsel for the Guarantor or the Issuer, and who shall be
acceptable to the Trustee, and containing the statements provided for in
Section 1.02.
"Original Securities" means all Securities that are subject
to an Exchange and Registration Rights Agreement, other than Exchange
Securities issued in exchange therefore.
"Outstanding ", when used with respect to Securities, means,
as of the date of determination, all
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Securities theretofore authenticated and delivered under this
Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancelation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee
or any Paying Agent (other than the Issuer) in trust or set aside
and segregated in trust by the Issuer (if the Issuer shall act as
its own Paying Agent) for the Holders of such Securities; provided
that, if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made;
(iii) Securities which have been paid pursuant to Section
3.06 or in exchange for or in lieu of which other Securities have
been authenticated and delivered pursuant to this Indenture, other
than any such Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Issuer; and
(iv) Securities held by the Issuer, the Guarantor or any of
their respective Affiliates for purposes of determining the amount
of Securities that remain Outstanding after a redemption pursuant
to Section 11.01(a) and the related provision in such Securities;
provided, however, that in determining whether the Holders of the requisite
principal amount at maturity of the Outstanding Securities have given any
request, demand, authorization, direction, notice, consent or waiver
hereunder, Securities owned by the Issuer or any other obligor upon the
Securities or any Affiliate of the Issuer or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Securities
which the Trustee knows to be so owned shall be so disregarded. Securities
so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee
the pledgee's right so to act with respect to such Securities and that the
pledgee is not the Issuer or any other obligor
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upon the Securities or any Affiliate of the Issuer or of such other obligor.
"Participant" means, with respect to the Depositary,
Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear
or Cedel, respectively (and, with respect to the Depositary, shall include
Euroclear and Cedel).
"Paying Agent" means any Person authorized by the Issuer to
pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Issuer.
"Permitted Interest Rate or Currency Protection Agreement "
of any Person means any Interest Rate or Currency Protection Agreement entered
into with one or more financial institutions in the ordinary course of
business that is designed to protect such Person against fluctuations in
interest rates or currency exchange rates with respect to Debt Incurred and
which shall have a notional amount no greater than the payments due with
respect to the Debt being hedged thereby and not for purposes of speculation.
"Permitted Investment" means (i) any Investment in the
Guarantor or a Restricted Subsidiary, (ii) any Investment in any Person as a
result of which such Person becomes a Restricted Subsidiary of the Guarantor
or upon the making of which such Person will be merged or consolidated with or
into or transfer all or substantially all of its assets to the Guarantor or a
Restricted Subsidiary, (iii) any Investment in Marketable Securities, (iv)
securities or other Investments received in settlement of debts created in the
ordinary course of business and owing to the Guarantor or any Restricted
Subsidiary, or as a result of foreclosure, perfection or enforcement of any
Lien, or in satisfaction of judgments, including in connection with any
bankruptcy proceeding or other reorganization of another Person, (v)
securities or other Investments received as consideration in sales or other
dispositions of property or assets, including Asset Dispositions made in
compliance with Section 10.13 and (vi) other Investments not in excess of $50
million in the aggregate at any time outstanding.
"Permitted Liens" means (a) Liens for taxes, assessments,
governmental charges or claims which are not yet delinquent or which are being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with
generally accepted accounting principles shall have been
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made therefor; (b) other Liens incidental to the conduct of the Guarantor's
and its Restricted Subsidiaries' business or the ownership of its property
and assets not securing any Debt, and which do not in the aggregate
materially detract from the value of the Guarantor's and its Restricted
Subsidiaries' property or assets when taken as a whole, or materially impair
the use of such assets and property in the operation of its business; (c)
Liens with respect to assets of a Subsidiary granted by such Subsidiary to
the Guarantor to secure Debt owing to the Guarantor; (d) pledges and
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of statutory
obligations; (e) deposits made to secure the performance of tenders, bids,
leases, and other obligations of like nature incurred in the ordinary course
of business (exclusive of obligations for the payment of borrowed money);
(f) zoning restrictions, servitudes, easements, rights-of-way, restrictions
and other similar charges or encumbrances incurred in the ordinary course of
business which, in the aggregate, do not materially detract from the value
of the property subject thereto or interfere with the ordinary conduct of
the business of the Guarantor or its Restricted Subsidiaries; (g) Liens on
Capital Stock of Restricted Subsidiaries securing obligations not exceeding
$75 million at any time outstanding of the Guarantor or any Restricted
Subsidiary to repurchase or redeem shares of Capital Stock of such
Restricted Subsidiary held by Persons who are not Affiliates or Related
Persons of the Guarantor; (h) Liens arising out of judgments or awards
against the Guarantor or any Restricted Subsidiary with respect to which the
Guarantor or such Restricted Subsidiary is prosecuting an appeal or
proceeding for review and the Guarantor or such Restricted Subsidiary is
maintaining adequate reserves in accordance with generally accepted
accounting principles; and (i) any interest or title of a lessor in the
property subject to any lease other than a Capital Lease.
"Person" means any individual, corporation, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof or any
other entity.
"Predecessor Security" of any particular Security means
every previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 3.06 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen
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Security shall be deemed to evidence the same debt as the mutilated,
destroyed, lost or stolen Security.
"Purchase Agreement" means the Purchase Agreement, dated as
of November 2, 1998, between the Issuer, the Guarantor and the Initial
Purchaser, as such agreement may be amended from time to time.
"Purchase Money Debt" means Debt of the Guarantor
(including Acquired Debt and Debt represented by Capital Lease Obligations,
mortgage financings and purchase money obligations) Incurred for the purpose
of financing all or any part of the cost of construction, acquisition or
improvement by the Guarantor or any Restricted Subsidiary of the Guarantor of
any Telecommunications Assets of the Guarantor or any Restricted Subsidiary of
the Guarantor, and including any related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, as the
same may be amended, supplemented, modified or restated from time to time.
"readily marketable cash equivalents" means (i) marketable
securities issued or directly and unconditionally guaranteed by the United
States Government or issued by any agency thereof and backed by the full faith
and credit of the United States; (ii) marketable direct obligations issued by
any state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof and, at the time of
acquisition, having the highest rating obtainable from either Standard &
Poor's Rating Service or Moody's Investors Service, Inc.; (iii) commercial
paper maturing no more than 180 days from the date of acquisition thereof and,
at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Ratings Service or at least P-1 from Moody's Investors Service, Inc.;
and (iv) certificates of deposit or bankers' acceptance maturing within one
year from the date of acquisition thereof issued by any commercial bank
organized under the laws of the United States of America or any state thereof
or the District of Columbia having unimpaired capital and surplus of not less
than $100,000,000.
"Receivables" means receivables, chattel paper,
instruments, documents or intangibles evidencing or relating to the right to
payment of money.
"Receivables Sale" of any Person means any sale of
Receivables of such Person (pursuant to a purchase facility or otherwise),
other than in connection with a disposition
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of the business operations of such Person relating thereto or a disposition
of defaulted Receivables for purpose of collection and not as a financing
arrangement.
"Redemption Date ", when used with respect to any Security
to be redeemed, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price ", when used with respect to any Security
to be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registered Securities" means Exchange Securities and all
other Securities sold or otherwise disposed of pursuant to an effective
registration statement under the Securities Act, together with any respective
Successor Securities.
"Regular Record Date" for the interest payable on any
Interest Payment Date means May 1 or November 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities
Act (or any successor provision), as it may be amended from time to time.
"Regulation S Certificate" means a certificate
substantially in the form set forth in Annex A.
"Regulation S Global Security" has the meaning specified
in Section 2.01.
"Regulation S Legend" means a legend substantially in the
form of the legend required in the form of Security set forth in Section
2.02 to be placed upon each Regulation S Security.
"Regulation S Securities" means all Securities sold
pursuant to Regulation S, which are required pursuant to Section 3.05(c) to
bear a Regulation S Legend. Such term includes the Regulation S Global
Security.
"Related Person" of any Person means any other Person
directly or indirectly owning (a) 5% or more of the outstanding Common Stock
of such Person (or, in the case of a Person that is not a corporation, 5% or
more of the outstanding equity interest in such Person) or (b) 5% or more of
the combined outstanding voting power of the Voting Stock of such Person,
except that, for purposes of
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Section 10.12, Related Person means any other Person directly or indirectly
owning 10% or more of the combined outstanding voting power of the Voting
Stock of such Person (or, in the case of a Person that is not a corporation,
10% or more of the outstanding equity interest in such Person).
"Resale Registration Statement" has the meaning set forth
in the Form of the Securities contained in Section 2.02.
"Responsible Officer ", when used with respect to the
Trustee, means the chairman or any vice-chairman of the board of directors,
the chairman or any vice-chairman of the executive committee of the board of
directors, the chairman of the trust committee, the president, any vice
president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, the cashier, any assistant cashier, any trust officer or
assistant trust officer, the controller or any assistant controller or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter
is referred because of his knowledge of and familiarity with the particular
subject.
"Restricted Global Security" has the meaning specified in
Section 2.01.
"Restricted Period" means the period of 41 consecutive days
beginning on and including the later of (i) the day on which Securities are
first offered to persons other than distributors (as defined in Regulation S)
in reliance on Regulation S and (ii) the original issuance date of the
Securities.
"Restricted Securities" means all Securities required
pursuant to Section 3.05(c) to bear any Restricted Securities Legend. Such
term includes any Restricted Global Security.
"Restricted Securities Certificate" means a certificate
substantially in the form set forth in Annex B.
"Restricted Securities Legend" means, collectively, the
legends substantially in the forms of the legends required in the form of
Security set forth in Section 2.02 to be placed upon each Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the
Guarantor other than an Unrestricted Subsidiary.
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"RSLNA" has the meaning specified in Section 1.14.
"Rule 144A" means Rule 144A under the Securities Act (or
any successor provision), as it may be amended from time to time.
"Rule 144A Securities" means all Securities sold pursuant
to Rule 144A, which are required pursuant to Section 3.05(c) to bear a
Restricted Securities Legend. Such term includes the Restricted Global
Security.
"Securities" has the meaning specified in the first
paragraph of the recitals to this instrument.
"Securities Act" means the Securities Act of 1933 and any
statute successor thereto, in each case as amended from time to time.
"Securities Act Legend" means a Restricted Securities
Legend or a Regulation S Legend.
"Securities Guarantee" means the Securities Guarantee
issued by the Guarantor in accordance with Article IV hereunder.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 3.05.
"Significant Subsidiary" means, at any date of
determination, any Restricted Subsidiary that, together with its Subsidiaries,
(i) for the most recent fiscal year of the Guarantor, accounted for more than
10% of the consolidated revenues of the Guarantor and its Restricted
Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more
than 10% of the consolidated assets of the Guarantor and its Restricted
Subsidiaries, all as set forth on the most recently available consolidated
financial statements of the Guarantor for such fiscal year.
"Special Interest" has the meaning set forth in the form of
Security contained in Section 2.02. Unless the context otherwise requires,
references herein to "interest" on the Securities shall include Special
Interest.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity ", when used with respect to any Security
or any installment of interest thereon, means the
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date specified in such Security as the fixed date on which the principal
of such Security or such installment of interest is due and payable.
"Step-Down Date" has the meaning set forth in the form of
the Security contained in Section 2.02.
"Step-Up" has the meaning set forth in the form of the
Security contained in Section 2.02.
"Strategic Investor" means a corporation, partnership or
other entity engaged in the Telecommunications Business that has, or 80% or
more of the Voting Stock of which is owned by a Person that has, an equity
market capitalization or paid in capital, at the time of any Investment by
such corporation, partnership or other entity in a Restricted Subsidiary
pursuant to clause (iv)(2) of Section 10.14, in excess of $100 million.
"Subordinated Debt" means Debt of the Guarantor or any
Restricted Subsidiary as to which the payment of principal of (and premium, if
any) and interest and other payment obligations in respect of such Debt shall
be subordinate to the prior payment in full of the Securities to at least the
following extent: (i) no payments of principal of (or premium, if any) or
interest on or otherwise due in respect of such Debt may be permitted for so
long as any default in the payment of principal (or premium, if any) or
interest on the Securities exists; (ii) in the event that any other default
that with the passing of time or the giving of notice, or both, would
constitute an event of default exists with respect to the Securities, upon
written notice by 25% or more in principal amount at maturity of the
Securities to the Trustee, the Trustee shall have the right to give notice to
the Guarantor or such Restricted Subsidiary and the holders of such Debt (or
trustees or agents therefor) of a payment blockage, and thereafter no payments
of principal of (or premium, if any) or interest on or otherwise due in
respect of such Debt may be made for a period of 179 days from the date of
such notice; and (iii) such Debt may not (x) provide for payments of principal
of such Debt at the stated maturity thereof or by way of a sinking fund
applicable thereto or by way of any mandatory redemption, defeasance,
retirement or repurchase thereof by the Guarantor or such Restricted
Subsidiary (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement required
by virtue of acceleration of such Debt upon an event of default thereunder),
in each case prior to the final Stated Maturity of the Securities or (y)
permit
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redemption or other retirement (including pursuant to an offer to purchase
made by the Guarantor or such Restricted Subsidiary) of such other Debt at
the option of the holder thereof prior to the final Stated Maturity of the
Securities, other than a redemption or other retirement at the option of the
holder of such Debt (including pursuant to an offer to purchase made by the
Guarantor or such Restricted Subsidiary) which is conditioned upon a change
of control of the Guarantor pursuant to provisions substantially similar to
those described under Section 10.17 (and which shall provide that such Debt
will not be repurchased pursuant to such provisions prior to the Guarantor's
or such Restricted Subsidiary's repurchase of the Securities required to be
repurchased pursuant to the provisions described under Section 10.17).
"Subsidiary" of any Person means (i) a corporation more
than 50% of the combined voting power of the outstanding Voting Stock, of
which is owned, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person or by such Person and one or more Subsidiaries
thereof or (ii) any other Person (other than a corporation) in which such
Person, or one or more other Subsidiaries of such Person or such Person and
one or more other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and power to direct the policies, management and affairs
thereof. An 80% or more owned Subsidiary of the Guarantor is (i) a corporation
80% or more of the combined voting power of the outstanding Voting Stock, and
more than 80% of the Capital Stock or other ownership interests, of which is
owned, directly or indirectly, by the Guarantor or by one or more other
Subsidiaries of the Guarantor or by the Guarantor and one or more Subsidiaries
thereof or (ii) any other Person (other than a corporation) in which the
Guarantor, or one or more other Subsidiaries of the Guarantor or the Guarantor
and one or more other Subsidiaries of the Guarantor, directly or indirectly,
has at least an 80% ownership interest and power to direct the policies,
management and affairs thereof.
"Subsidiary Guarantor" means a Subsidiary of the Guarantor
that has unconditionally guaranteed, by supplemental indenture substantially
similar in form to Article IV hereof and otherwise satisfactory to the
Trustee, the payment in full of the principal of (and premium, if any) and
interest on the Securities.
"Substitute Securities" has the meaning specified in
Section 3.01.
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"Successor Security" of any particular Security means every
Security issued after, and evidencing all or a portion of the same debt as
that evidenced by, such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 3.06 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost or
stolen Security.
"Tax" means any tax, duty, levy, impost, assessment or
other governmental charge (including penalties, interest and any other
liabilities related thereto).
"Taxing Authority" means any government or political
subdivision or territory or possession of any government or any authority or
agency therein or thereof having power to tax.
"Telecommunications Assets" means all assets, rights
(contractual or otherwise) and properties, whether tangible or intangible,
used or intended for use in connection with a Telecommunications Business,
including a majority of the Voting Stock of a Person engaged in the
Telecommunications Business.
"Telecommunications Business" means the business of (i)
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii) creating,
developing or marketing communications related network equipment, software and
other devices for use in a Telecommunications Business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in (i) or (ii) above; provided that the
determination of what constitutes a Telecommunications Business shall be made
in good faith by the Board of Directors of the Guarantor.
"Trustee" means the Person named as the "Trustee" in the
first paragraph of this instrument until a successor Trustee shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939
as in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after
such
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date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
"Unrestricted Securities Certificate" means a certificate
substantially in the form set forth in Annex C.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Guarantor that at the time of determination shall be designated an
Unrestricted Subsidiary of the Guarantor by the Board of Directors in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary (including any
newly acquired or newly formed Subsidiary of the Guarantor) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Guarantor or any Restricted
Subsidiary; provided that (A) any Guarantee by the Guarantor or any Restricted
Subsidiary of any Debt of the Subsidiary being so designated shall be deemed
an "Incurrence" of such Debt and an "Investment" by the Guarantor or such
Restricted Subsidiary (or both, if applicable) at the time of such
designation, in each case, to the extent such Debt is so Guaranteed by the
Guarantor or such Restricted Subsidiary; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if such Subsidiary
has assets greater than $1,000, such designation would be permitted under
Section 10.10 and (C) if applicable, the Incurrence of Debt and the Investment
referred to in clause (A) of this proviso would be permitted under Sections
10.08 and 10.10. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that immediately after
giving effect to such designation (x) the Guarantor could Incur $1.00 of
additional Debt under the first paragraph of Section 10.08 and (y) no Default
or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Vice President ", when used with respect to the Issuer, the
Guarantor or the Trustee, means any vice president, whether or not designated
by a number or a word or words added before or after the title "vice
president".
"Voting Stock" of any Person means Capital Stock of such
Person which ordinarily has voting power for the
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election of directors (or persons performing similar functions) of such
Person, whether at all times or only so long as no senior class of
securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary
of such Person all of the outstanding Voting Stock or other ownership
interests (other than directors' qualifying shares) of which shall at the time
be owned by such Person or by one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
SECTION 1.02. Compliance Certificates and Opinions. Upon
any application or request by the Issuer to the Trustee to take any action
under any provision of this Indenture, the Issuer and Guarantor shall furnish
to the Trustee such certificates and opinions as may be required under the
Trust Indenture Act and under this Indenture. Each such certificate or opinion
shall be given in the form of an Officers' Certificate, if to be given by an
officer of the Issuer or the Guarantor, or an Opinion of Counsel, if to be
given by counsel, and shall comply with the requirements of the Trust
Indenture Act and any other requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with
a condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
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SECTION 1.03. Form of Documents Delivered to Trustee. In
any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.
Any certificate of an officer of the Issuer or Guarantor may
be based, insofar as it relates to legal matters, upon an opinion of counsel
submitted therewith, unless such officer knows, or in the exercise of
reasonable care should know, that the opinion with respect to the matters upon
which his certificate is based is erroneous. Any opinion of counsel may be
based, insofar as it relates to factual matters, upon a certificate of an
officer or officers of the Issuer or Guarantor submitted therewith stating the
information on which counsel is relying, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate with respect to
such matters is erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be
consolidated and form one instrument.
SECTION 1.04. Acts of Holders; Record Dates .
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided by this Indenture to be given or taken by Holders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee
and, where it is hereby expressly required, to the Issuer or the Guarantor.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and (subject to Section 6.01) conclusive in favor of the
Trustee
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and the Issuer and Guarantor, if made in the manner provided in this
Section.
The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the same,
may also be proved in any other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security
Register.
Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued
upon the registration of transfer thereof or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Trustee, the Issuer or the Guarantor in reliance thereon, whether or not
notation of such action is made upon such Security.
The Issuer may set any day as a record date for the purpose
of determining the Holders of Outstanding Securities entitled to give, make or
take any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given, made or
taken by Holders of Securities; provided that the Issuer may not set a record
date for, and the provisions of this paragraph shall not apply with respect
to, the giving or making of any notice, declaration, request or direction
referred to in the next paragraph. If not set by the Issuer prior to the first
solicitation of a Holder made by any Person in respect of any such matter
referred to in the foregoing sentence, the record date for any such matter
shall be the 30th day (or, if later, the date of the most recent list of
Holders required to be provided pursuant to Section 7.01) prior to such first
solicitation. If any record date is set pursuant to this paragraph, the
Holders of Outstanding Securities on such record date, and no other Holders,
shall be entitled to take the relevant action,
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whether or not such Holders remain Holders after such record date; provided
that no such action shall be effective hereunder unless taken on or prior to
the applicable Expiration Date by Holders of the requisite principal amount
at maturity of Outstanding Securities on such record date. Nothing in this
paragraph shall be construed to prevent the Issuer from setting a new record
date for any action for which a record date has previously been set pursuant
to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be canceled and of no
effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount at
maturity of Outstanding Securities on the date such action is taken.
Promptly after any record date is set pursuant to this paragraph, the
Issuer, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to
the Trustee in writing and to each Holder of Securities in the manner set
forth in Section 1.06.
The Trustee may set any day as a record date for the purpose
of determining the Holders of Outstanding Securities entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.02, (iii) any request to institute
proceedings referred to in Section 5.07(2) or (iv) any direction referred to
in Section 5.12. If any record date is set pursuant to this paragraph, the
Holders of Outstanding Securities on such record date, and no other Holders,
shall be entitled to join in such notice, declaration, request or direction,
whether or not such Holders remain Holders after such record date; provided
that no such action shall be effective hereunder unless taken on or prior to
the applicable Expiration Date by Holders of the requisite principal amount at
maturity of Outstanding Securities on such record date. Nothing in this
paragraph shall be construed to prevent the Trustee from setting a new record
date for any action for which a record date has previously been set pursuant
to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be canceled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount at maturity of
Outstanding Securities on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Trustee, at the Issuer's
expense, shall cause notice of such record date, the proposed action by
Holders and the applicable Expiration
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Date to be given to the Issuer in writing and to each Holder of Securities
in the manner set forth in Section 1.06.
With respect to any record date set pursuant to this
Section, the party hereto which sets such record dates may designate any day
as the "Expiration Date" and from time to time may change the Expiration Date
to any earlier or later day; provided that no such change shall be effective
unless notice of the proposed new Expiration Date is given to the other party
hereto in writing, and to each Holder of Securities in the manner set forth in
Section 1.06, on or prior to the existing Expiration Date. If an Expiration
Date is not designated with respect to any record date set pursuant to this
Section, the party hereto which set such record date shall be deemed to have
initially designated the 180th day after such record date as the Expiration
Date with respect thereto, subject to its right to change the Expiration Date
as provided in this paragraph. Notwithstanding the foregoing, no Expiration
Date shall be later than the 180th day after the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder
to take any action hereunder with regard to any particular Security may do so
with regard to all or any part of the principal amount of such Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such principal amount.
SECTION 1.05. Notices, Etc., to Trustee, Issuer and
Guarantor. Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Issuer or the
Guarantor shall be sufficient for every purpose hereunder if
delivered in writing to a Responsible Officer of the Trustee at
its Corporate Trust Office, Attention: Corporate Trust
Administration, or
(2) the Issuer or the Guarantor by the Trustee or by any
Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to the Issuer or the Guarantor as
applicable, addressed to it, if prior to receipt by the Trustee of
written notice pursuant to this Section 1.05 of a change of
address, at the address of its principal office specified in the
first paragraph of this instrument,
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or, if after receipt by the Trustee of written notice pursuant to
this Section 1.05 of a change of address, at such other address as
may be previously furnished in writing to the Trustee by the
Issuer or the Guarantor, as applicable.
SECTION 1.06. Notice to Holders; Waiver. Where this
Indenture provides for notice to Holders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each Holder affected by such
event, at his address as it appears in the Security Register, not later than
the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail such notice, nor any defect in
any notice so mailed, to any particular Holder shall affect the sufficiency of
such notice with respect to other Holders. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service
or by reason of any other cause it shall be impracticable to give such notice
by mail, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose
hereunder.
SECTION 1.07. Application of Trust Indenture Act. The Trust
Indenture Act shall apply as a matter of contract to this Indenture for
purposes of interpretation, construction and defining the rights and
obligations hereunder. If any provision hereof limits, qualifies or conflicts
with a provision of the Trust Indenture Act that is required under such Act to
be a part of and govern this Indenture, the latter provision shall control. If
any provision of this Indenture modifies or excludes any provision of the
Trust Indenture Act that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or to be excluded,
as the case may be.
SECTION 1.08. Effect of Headings and Table of Contents. The
Article and Section headings herein and the
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Table of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 1.09. Successors and Assigns. All covenants and
agreements in this Indenture by the Issuer shall bind its successors and
assigns, whether so expressed or not.
SECTION 1.10. Separability Clause. In case any provision in
this Indenture or in the Securities shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture. Nothing in this
Indenture or in the Securities, express or implied, shall give to any Person,
other than the parties hereto and their successors hereunder and the Holders
of Securities, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 1.12. Governing Law. This Indenture, the Securities
and the Securities Guarantee shall be governed by and construed in accordance
with the laws of the State of New York.
SECTION 1.13. Legal Holidays. In any case where any
Interest Payment Date, Redemption Date, Purchase Date or Stated Maturity of
any Security shall not be a Business Day, then (notwithstanding any other
provision of this Indenture or of the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made
on the Interest Payment Date, Redemption Date, Purchase Date or at the Stated
Maturity, provided that no interest shall accrue for the period from and after
such Interest Payment Date, Redemption Date, Purchase Date or Stated Maturity,
as the case may be.
SECTION 1.14. Agent for Service; Submission to Jurisdiction;
Waiver of Immunities. By the execution and delivery of this Indenture, each
of the Issuer and the Guarantor (i) represents that it has designated and
appointed RSL Communications N. America, Inc. ("RSLNA"), as its authorized
agent upon which process may be served in any suit, action or proceeding
arising out of or relating to the Securities, the Securities Guarantee or this
Indenture that may be instituted in any Federal or state court in the State of
New York, Borough of Manhattan, or brought under Federal or state securities
laws or brought by the Trustee (whether
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in its individual capacity or in its capacity as Trustee hereunder), and
that RSLNA has accepted such designation, (ii) submits to the non-exclusive
jurisdiction of any such court in any such suit, action or proceeding, (iii)
agrees that service of process upon RSLNA and written notice of said service
to the Issuer or the Guarantor, as applicable, (mailed or delivered to its
President at its principal office as specified in Section 1.05) shall be
deemed in every respect effective service of process upon it in any such
suit or proceeding, and (iv) agrees to take any and all action, including
the execution and filing of any and all such documents and instruments as
may be necessary to continue such designation and appointment of RSLNA in
full force and effect so long as any of the Securities shall be Outstanding.
To the extent that the Issuer or the Guarantor has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to
judgment, attachment in aid of execution, execution or otherwise) with respect
to itself or its property, each of the Issuer and the Guarantor hereby
irrevocably waives such immunity in respect of its obligations under this
Indenture, the Securities Guarantee and the Securities, to the extent
permitted by law.
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally. The Securities and the
Trustee's certificates of authentication thereof shall be in substantially the
forms set forth in this Article, with such appropriate legends, insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities.
Upon their original issuance, Rule 144A Securities shall be
issued in the form of a Global Security in bearer form without interest
coupons, which shall be deposited on behalf of the Initial Purchaser with the
Book-Entry Depositary at its New York corporate trust office, duly executed by
the Issuer and authenticated by the Trustee as
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hereinafter provided. Such Global Security, together with its Successor
Securities which are Global Securities other than the Regulation S Global
Security, are collectively herein called the "Restricted Global Security".
Upon their original issuance, Regulation S Securities shall be issued in the
form of a Global Security in bearer form without interest coupons, which
shall be deposited on behalf of the Initial Purchaser with the Book-Entry
Depositary at its New York corporate trust office, duly executed by the
Issuer and authenticated by the Trustee as hereinafter provided. Such Global
Security, together with its Successor Securities which are Global Securities
other than the Restricted Global Security, are collectively herein called
the "Regulation S Global Security".
Upon receipt of the Restricted Global Security and the
Regulation S Global Security authenticated and delivered by the Trustee, the
Book-Entry Depositary shall issue to the Depositary a Depositary Interest in
each such Global Security by recording the Depositary Interest in the register
of the Book Entry Depositary in the name of Cede & Co., as nominee of the
Depositary. Ownership of beneficial interests shall be limited to
Participants, including Euroclear and Cedel, and Indirect Participants. Upon
the issuance of the Depositary Interest in such Global Security to the
Depositary, the Depositary shall credit, on its internal book-entry
registration and transfer system, its Participant's accounts with respective
interests owned by such Participants.
Neither the Depositary nor its Participants shall have any
rights either under this Indenture or under any Global Security with respect
to such Global Security held on their behalf by the Book-Entry Depositary, and
the Book-Entry Depositary may be treated by the Issuer, the Trustee and any
agent of the Issuer or the Trustee as the absolute owner of such Global
Security for the purpose of receiving payment of or on account of the
principal of (premium, if any) and, subject to the provisions of this
Indenture, interest on the Global Security and for all other purposes.
Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the
Trustee or any agent of the Issuer or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the
Book-Entry Depositary or impair, as between the Book-Entry Depositary and the
Depositary and its Participants, the operation of customary practices of such
Depositary governing the exercise of the rights of an owner of a beneficial
interest in any Global Security.
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The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
SECTION 2.02. Form of Face of Security. [If a Global
Security issued in bearer form, then insert -- THIS SECURITY IS A GLOBAL
SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS
HELD BY THE BOOK-ENTRY DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS
SECURITY) IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF. THIS
SECURITY IS NOT EXCHANGEABLE IN WHOLE OR IN PART OR TRANSFERABLE IN WHOLE OR
IN PART EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]
[If Restricted Securities, then insert -- THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHOM THE TRANSFEROR REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT ACQUIRING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTION THAT IS AN ACCREDITED
INVESTOR WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D
UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (IF AVAILABLE), OR (5) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS.]
[If a Regulation S Security, then insert -- THIS SECURITY
HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES
ACT") AND MAY NOT BE OFFERED, SOLD OR DELIVERED IN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS THIS SECURITY IS
REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREOF IS AVAILABLE.]
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, AND THE RULES
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AND REGULATIONS THEREUNDER, AS OF THE ISSUE DATE, THIS SECURITY IS BEING
ISSUED WITH ORIGINAL ISSUE DISCOUNT. FOR INFORMATION REGARDING THE ISSUE
PRICE OF THIS SECURITY, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE
DATE OF THIS SECURITY AND THE YIELD TO MATURITY, PLEASE CONTACT THE GLOBAL
CONTROLLER, CARE OF RSL COMMUNICATIONS N. AMERICA, 767 FIFTH AVENUE, SUITE
4300, NEW YORK, NEW YORK 10153.
12% SENIOR NOTES DUE 2008
[IF RESTRICTED GLOBAL SECURITY - CUSIP NO. 74972E AE 8]
[IF REGULATION S GLOBAL SECURITY - CUSIP NO. G7703A AE 6;
ISIN NO. - USG7703A AA E58]
No. __________ $_______________
RSL Communications PLC, a United Kingdom corporation (herein
called the "Issuer", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to [If this Security is a Global Security issued in bearer form, then insert:
the bearer hereof] [If this Security is not a Global Security issued in bearer
form, then insert: _____________, or registered assigns], the principal sum of
______________ DOLLARS [if this Security is a Global Security, then insert:
(which principal amount may from time to time be increased or decreased to
such other principal amounts by adjustments made on the records of the Trustee
hereinafter referred to in accordance with the Indenture)] on November 1,
2008, and to pay cash interest thereon from November 9, 1998 or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, semi-annually on May 1 and November 1, in each year, at the rate of 12%
per annum on the principal amount at maturity, until the principal hereof is
paid or made available for payment; [If Original Securities, then insert:
provided, however, that if the Issuer has not filed a registration statement
(the "Exchange Offer Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), registering a security substantially
identical to this Security (except that such Security will not contain terms
with respect to the Special Interest payments described below or transfer
restrictions) pursuant to an exchange offer (the "Exchange Offer") (or, in
lieu thereof, a registration statement registering this Security for resale (a
"Resale Registration Statement")), and (i) the Exchange Offer has not been
completed by 270 days after the date of the Indenture (if the Exchange Offer
is then required to be made pursuant to the Exchange and
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Registration Rights Agreement (the "Exchange and Registration Rights
Agreement"), by and between the Issuer, the Guarantor, as defined in the
Indenture, the Purchaser (as defined therein) and the Holders from time to
time of the Securities) or (ii) any Resale Registration Statement required
to be filed by the Exchange and Registration Rights Agreement is filed and
declared effective but shall thereafter cease to be effective (except as
specifically permitted therein) without being succeeded promptly by an
additional registration statement filed and declared effective upon the
terms and conditions set forth in the Exchange and Registration Rights
Agreement (each such event referred to in clauses (i) and (ii), a
"Registration Default"), then interest will accrue (in addition to the
stated interest on the Securities) (the "Step-Up") at a rate of 0.5% per
annum, determined daily, on the principal amount at maturity of the
Securities, from the period from and including the date of occurrence of the
Registration Default to but excluding such date (the "Step-Down Date") as no
Registration Default is in effect (commencing on which date such interest
rate will be restored to its initial rate). Interest accruing as a result of
the Step-Up is referred to herein as "Special Interest." Accrued Special
Interest, if any, shall be paid semi-annually on May 1 and November 1 in
each year; and the amount of accrued Special Interest shall be determined on
the basis of the number of days actually elapsed. Any accrued and unpaid
interest (including Special Interest) on this Security upon the issuance of
an Exchange Security (as defined in the Indenture) in exchange for this
Security shall cease to be payable to the Holder hereof but such accrued and
unpaid interest (including Special Interest) shall be payable on the next
Interest Payment Date for such Exchange Security to the Holder thereof [if
not a Global Security in bearer form, insert: on the related Regular Record
Date].] The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to
[If this Security is a Global Security issued in bearer form, then insert:
the
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bearer hereof on the Interest Payment Date] [If this Security is not a
Global Security issued in bearer form, then insert: the Person in whose name
this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall
be April 15 or October 15 (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date]. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to
the Holder on such Interest Payment Date and may either be paid to [If this
Security is a Global Security issued in bearer form, then insert: the bearer
hereof on the Special Payment Date] [If this Security is not a Global
Security issued in bearer form, then insert: the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close
of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to
Holders of Securities not less than 10 days prior to such Special Record
Date,] or be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities may
be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.
Under certain circumstances described in the Indenture, the
Issuer (or the Guarantor) also shall pay Additional Amounts to the Holders of
Securities equal to an amount that the Issuer or Guarantor, as the case may
be, may be required to withhold or deduct for or on account of Taxes imposed
by a Taxing Authority within the United Kingdom or Bermuda, as the case may
be, from any payment made under or with respect to the Securities or the
Securities Guarantee. In addition, the Issuer or the Guarantor shall, under
certain circumstances described in the Indenture, reimburse such Holder for
the amount of any taxes levied or imposed by the U.K. or Bermuda and paid by
such Holder as a result of any payment made under or with respect to the
Securities or under the Securities Guarantee.
In the case of a default in payment of Accreted Value of and
premium, if any, on this Security upon acceleration or redemption, interest
shall be payable pursuant to the preceding paragraph on such overdue Accreted
Value and premium, if any, such interest shall be payable on demand and, if
not so paid on demand, such interest shall itself bear interest at the rate of
14% per annum (to the extent that the payment of such interest shall be
legally enforceable), and shall accrue from the date of such demand for
payment to the date payment of such interest has been made or duly provided
for, and such interest on unpaid interest shall also be payable on demand.
[If this Security is a Global Security issued in bearer
form, then insert: The Issuer will pay interest, if any, on this Security to
the bearer of this Security. The Holder of this Security must surrender this
Security to the Trustee to collect principal payments.] Payment of the
principal of (and premium, if any) and interest on this Security will be made
at the corporate trust office of the Trustee and at the office or agency of
the Issuer maintained
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for that purpose in the Borough of Manhattan, The City of New York, New
York, and at any other office or agency maintained by the Issuer for such
purpose, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Issuer payment of interest may
be made by check mailed to the address of the Person entitled thereto as
such address [If this Security is a Global Security in bearer form, then
insert: is specified by the bearer hereof] [If this Security is a Definitive
Security, then insert: shall appear in the Security Register].
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
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<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed under its corporate seal.
Dated:
The Common Seal of
RSL COMMUNICATIONS PLC
was hereto affixed in
the presence of:
[SEAL]
RSL COMMUNICATIONS PLC,
by
----------------------
Name:
Title:
by
----------------------
Name:
Title:
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<PAGE>
SECTION 2.03. Form of Reverse of Security. This Security is
one of a duly authorized issue of Securities of the Issuer designated as its
12% Senior Notes due 2008 (the "Securities") issued under an Indenture, dated
as of November 9, 1998 (herein called the "Indenture"), between the Issuer,
RSL Communications, Ltd., as the guarantor (the "Guarantor") and The Chase
Manhattan Bank, as trustee (herein called the "Trustee", which term includes
any successor trustee under the Indenture). Reference is hereby made to the
Indenture and all indentures supplemental thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Issuer, the Guarantor, the Trustee and the Holders of the Securities and
of the terms upon which the Securities are, and are to be, authenticated and
delivered.
The Securities are subject to redemption upon not less than
30 nor more than 60 days' notice by mail to each Holder of Securities to be
redeemed at such Holder's address appearing in the Security Register, in
amounts of $1,000 or an integral multiple of $1,000, at any time on or after
November 1, 2003 and prior to maturity, as a whole or in part, at the election
of the Issuer, at the following Redemption Prices (expressed as percentages of
the Accreted Value) plus accrued interest to but excluding the Redemption Date
(subject to the right of Holders [If this Security is not a Global Security
issued in bearer form, insert: on the relevant Regular Record Date] to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date), if redeemed during the 12-month period beginning November 1, of each of
the years indicated below:
Redemption
Year Price
---- -----
2003 106.000%
2004 104.000%
2005 102.000%
2006 and 100.000%
thereafter
and thereafter at a Redemption Price equal to 100% of the Accreted Value,
together in the case of any such redemption with accrued interest to but
excluding the Redemption Date, but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities [If this Security is not a
Global Security issued in bearer
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<PAGE>
form, insert:, of record at the close of business on the relevant Record
Dates referred to on the face hereof,] all as provided in the Indenture.
In addition, at any time prior to November 1, 2001, in the
event that the Guarantor receives net cash proceeds from the public or private
sale of its Common Stock (other than Disqualified Stock), the Issuer (to the
extent it receives such proceeds and has not used such proceeds, directly or
indirectly, to redeem or repurchase other securities pursuant to optional
redemption provisions) may, at its option, apply an amount equal to any such
net cash proceeds or any portion thereof to redeem, from time to time,
Securities in a principal amount at maturity of up to an aggregate amount
equal to 33 1/3% of the original aggregate principal amount at maturity of the
Securities; provided, however, that Securities in an amount equal to at least
66 2/3% of the aggregate original principal amount at maturity of the
Securities remain Outstanding after each redemption. Each redemption must
occur on a Redemption Date within 180 days of the related sale and upon not
less than 30 nor more than 60 days' notice by mail to each Holder of
Securities to be redeemed at such Holder's address appearing in the Security
Register, in amounts of $1,000 or an integral multiple of $1,000 at a
Redemption Price of 112.000% of the Accreted Value of the Securities plus
accrued interest to but excluding the Redemption Date.
Furthermore, in the event that (i) the Guarantor or the
Issuer has become or would become obligated to pay any Additional Amounts as a
result of (x) changes affecting withholding tax laws or (y) a Listing Failure
provided that the Issuer has used reasonable best efforts to list and maintain
a listing of the Securities on a "recognized stock exchange" (within the
meaning of Section 841 of the U.K. Income and Corporation Taxes Act 1988) (as
provided for in Section 10.09), and (ii) the Guarantor and the Issuer are
unable to avoid the requirement to pay such Additional Amounts by taking
reasonable measures available to them (including, without limitation, the
Guarantor making payments directly to holders under the Securities Guarantee,
unless such payment is likely to result in adverse consequences to the Issuer
or the Guarantor), then the Issuer may redeem all, but not less than all, of
the Securities at any time at 100% of the Accreted Value thereof on the
Redemption Date, together with accrued interest thereon, if any, to but
excluding the Redemption Date. Prior to the publication of the notice of
redemption in accordance with the foregoing, the Issuer shall deliver to the
Trustee an officer's certificate stating that the Issuer
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<PAGE>
is entitled to effect such redemption based on a written opinion of
independent tax counsel or accounting firm reasonably satisfactory to the
Trustee.
The Securities do not have the benefit of any sinking fund
obligations.
The Indenture provides that, subject to certain conditions,
if (i) a Change of Control occurs or (ii) certain Net Available Proceeds are
available to the Issuer as a result of any Asset Disposition, the Issuer shall
be required to make an Offer to Purchase for all or a specified portion of the
Securities.
[If not a Global Security: In the event of redemption or
purchase pursuant to an Offer to Purchase of this Security in part only, a new
Security or Securities of like tenor for the unredeemed or unpurchased portion
hereof will be issued in the name of the Holder hereof upon the cancelation
hereof.]
[If a Global Security insert: In the event of a deposit or
withdrawal of a beneficial interest in this Security (including upon an
exchange, transfer, redemption or repurchase of this Security in part only)
effected in accordance with the Applicable Procedures, the Security Registrar,
upon receipt of notice of such event from the Depositary's custodian for this
Security shall make an adjustment on its records to reflect an increase or
decrease of the Outstanding principal amount at maturity of this Security
resulting from such deposit or withdrawal, as the case may be, and shall
instruct the Book-Entry Depositary to make a similar notation in its
book-entry system to the corresponding Depositary Interest.]
If an Event of Default shall occur and be continuing, the
principal of all the Securities may be declared due and payable in the manner
and with the effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time
of (i) the entire indebtedness of this Security, or (ii) certain restrictive
covenants and Events of Default with respect to this Security, in each case
upon compliance with certain conditions set forth therein.
Unless the context otherwise requires, the Original
Securities and the Exchange Securities shall constitute one series for all
purposes under the Indenture,
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<PAGE>
including without limitation, amendments, waivers, redemptions and Offers to
Purchase.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer, the Guarantor and the rights of the Holders of the
Securities under the Indenture at any time by the Issuer, the Guarantor and
the Trustee with the consent of the Holders of a majority in aggregate
principal amount at maturity of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount at maturity of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Issuer or the Guarantor with certain provisions of the
Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof
or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of
this Security or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Security at the times, place and rate,
and in the coin or currency, herein prescribed.
[If this Security is not a Global Security issued in bearer
form, then insert: As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Issuer in the Borough of Manhattan,
the City of New York, New York, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Issuer and the Security
Registrar duly executed by the Holder hereof or his attorney duly authorized
in writing, and thereupon one or more new Securities, of authorized
denominations and like tenor and for the same aggregate principal amount at
maturity, will be issued to the designated transferee or transferees.]
The Global Securities are issuable only in bearer form
without coupons in denominations of $1,000 and any integral multiple thereof.
Definitive Securities shall be
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<PAGE>
issuable in registered form without interest coupons in denominations of
$1,000 and any integral multiple thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Securities are
exchangeable for a like tenor and aggregate principal amount at maturity of
Securities of a different authorized denomination, as requested by the
Holder surrendering the same.
[If this Security is a Global Security issued in bearer
form, then insert: The bearer of this Security shall be treated as the owner
of this Security for all purposes.]
No service charge shall be made for any such registration of
transfer or exchange, but the Issuer may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
[If this Security is not a Global Security issued in bearer
form, insert: Prior to due presentment of this Security for registration of
transfer, the Issuer, the Guarantor, the Trustee and any agent of the Issuer,
the Guarantor, or the Trustee may treat the Person in whose name this Security
is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Issuer, the Guarantor, the Trustee nor
any such agent shall be affected by notice to the contrary.]
Interest on this Security shall be computed on the basis of
a 360-day year of twelve 30-day months [If Original Securities, then insert: ;
provided, however, that Special Interest shall be computed on the basis of a
365- or 366-day year, as the case may be, and the number of days actually
elapsed].
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Issuer pursuant to Section 10.13 or 10.17 of the Indenture, check the box:
[ ]
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If you want to elect to have only a part of this Security
purchased by the Issuer pursuant to Section 10.13 or 10.17 of the Indenture,
state the amount: $___________
Dated:_____________ Your Signature:_____________________________
(Sign exactly as name appears
on the other side of this
Security)
Signature Guarantee:____________________________________________________________
Notice: Signature(s) must be guaranteed by
an "eligible guarantor institution"
meeting the requirements of the Security
Registrar which requirements will include
membership or participation in STAMP or
such other "signature guarantee program"
as may be determined by the Trustee in
addition to, or in substitution for STAMP,
all in accordance with the Securities
Exchange Act of 1934, as amended.
SECTION 2.04. Form of Trustee's Certificate of
Authentication. This is one of the Securities referred to in the
within-mentioned Indenture.
Dated:
THE CHASE MANHATTAN BANK,
as Trustee
by___________________________
Authorized Signatory
ARTICLE III
The Securities
SECTION 3.01. Title and Terms. The aggregate principal
amount maturity of Securities which may be authenticated and delivered under
this Indenture is limited to $100,000,000 issued on the date hereof, except
for Securities authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Securities pursuant to Section 3.04,
3.05, 3.06, 9.06 or 11.08 or in connection with an Offer to Purchase pursuant
to Section 10.13 or 10.17 (all Securities referred to in this
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exception being deemed "Substitute Securities"). The Issuer may issue
Exchange Securities from time to time pursuant to an Exchange Offer or
otherwise, in each case pursuant to a Board Resolution, subject to Section
3.03, included in an Officers' Certificate delivered to the Trustee, in
authorized denominations in exchange for a like principal amount at maturity
of Original Securities. Upon any such exchange the Original Securities shall
be canceled in accordance with Section 3.09 and shall no longer be deemed
Outstanding for any purpose. In no event shall the aggregate principal
amount at maturity of Original Securities and Exchange Securities
Outstanding exceed $100,000,000.
The Securities shall be known and designated as the "12%
Senior Notes due 2008" of the Issuer. The Stated Maturity of the Securities
shall be November 1, 2008. The Securities shall bear cash interest at the rate
of 12% per annum on the principal amount at maturity of the Notes, from
November 9, 1998 or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, as the case may be, payable
semi-annually on May 1 and November 1, commencing May 1, 1999, until the
principal thereof is paid or made available for payment; provided, however,
with respect to Original Securities, if there has been a Registration Default,
a Step-Up will occur and the Original Securities will from then bear Special
Interest to but excluding the Step-Down Date. Accrued Special Interest, if
any, shall be paid in cash in arrears semi-annually on May 1 and November 1 in
each year, and the amount of accrued Special Interest shall be determined on
the basis of the number of days actually elapsed.
With respect to Global Securities, the Issuer will pay
interest, if any, on such Securities to the bearers of such Securities.
Holders of such Global Securities must surrender such Securities to the
Trustee to collect principal payments. The principal of and premium, if any,
and interest on the Securities shall be payable at the corporate trust office
of the Trustee in the Borough of Manhattan, the City of New York, New York,
maintained for such purpose and at any other office or agency maintained by
the Issuer for such purpose; provided, however, that at the option of the
Issuer payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
The Securities shall be subject to repurchase by the Issuer
pursuant to an Offer to Purchase as provided in Sections 10.13 and 10.17 of
the Indenture.
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The Securities shall be redeemable as provided in Article
Eleven.
The Securities shall not have the benefit of any sinking
fund obligations.
The Securities shall be subject to defeasance at the option
of the Issuer as provided in Article Twelve.
The Securities are guaranteed by the Guarantor as set forth
in Article IV of this Indenture.
A copy of an appropriate record of such action shall be
certified by the Secretary or any Assistant Secretary of the Issuer and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate or the trust indenture supplemental hereto setting forth the terms
of such Securities.
Unless the context otherwise requires, the Original
Securities and the Exchange Securities shall constitute one series for all
purposes under the Indenture, including without limitation, amendments,
waivers, redemptions and Offers to Purchase.
SECTION 3.02. Denominations. The Global Securities shall be
issuable in bearer form without coupons and only in denominations of $1,000
and any integral multiple of $1,000 in excess thereof. Definitive Registered
Securities shall be issuable in registered form without interest coupons in
denominations of $1,000 and any integral multiple thereof.
SECTION 3.03. Execution, Authentication, Delivery and Dating
. The Securities shall be executed on behalf of the Issuer by its Chairman of
the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Issuer shall bind
the Issuer, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.
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At any time and from time to time after the execution and
delivery of this Indenture, the Issuer may deliver Securities executed by the
Issuer to the Trustee for authentication, together with a Issuer Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Issuer Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
At any time and from time to time after the execution and
delivery of this Indenture and after the effectiveness of a Registration
Statement under the Securities Act with respect thereto, the Issuer may
deliver Exchange Securities executed by the Issuer to the Trustee for
authentication, together with an Issuer Order for the authentication and
delivery of such Exchange Securities and a like principal amount at maturity
of Original Securities for cancelation in accordance with Section 3.09 of this
Indenture, and the Trustee in accordance with the Issuer Order shall
authenticate and deliver such Securities. In authenticating such Exchange
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to Section 6.01) shall be fully protected in relying upon, an Opinion
of Counsel stating,
(a) that such Exchange Securities have been duly and validly
issued in accordance with the terms of the Indenture, and are
entitled to all the rights and benefits set forth herein; and
(b) that the issuance of the Exchange Securities in exchange
for the Original Securities has been effected in compliance with the
Securities Act of 1933, as amended.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
such Security a certificate of authentication substantially in the form
provided for herein executed by the Trustee by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
SECTION 3.04. Temporary Securities. Pending the preparation
of definitive Securities, the Issuer may
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<PAGE>
execute, and upon Issuer Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which
they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities
may determine, as evidenced by their execution of such Securities.
If temporary Securities are issued, the Issuer will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Issuer designated pursuant to
Section 10.02, without charge to the Holder. Upon surrender for cancelation of
any one or more temporary Securities, the Issuer shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like tenor and principal
amount at maturity of definitive Securities of authorized denominations. Until
so exchanged, the temporary Securities shall in all respects be entitled to
the same benefits under this Indenture as definitive Securities.
SECTION 3.05. Registration, Registration of Transfer and
Exchange. (a) The Issuer shall cause to be kept at the Corporate Trust Office
of the Trustee a register (the register maintained in such office and in any
other office or agency designated pursuant to Section 10.02 being herein
sometimes collectively referred to as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Issuer shall
provide for the registration of Definitive Securities and of transfers of such
Securities. The Trustee is hereby appointed "Security Registrar" for the
purpose of registering such Securities and transfers of such Securities as
herein provided. Such Security Register shall distinguish between Original
Securities and Exchange Securities.
Subject to the other provisions of this Indenture regarding
restrictions on transfer, upon surrender for registration of transfer of any
Definitive Security at an office or agency of the Issuer designated pursuant
to Section 10.02 for such purpose in accordance with the terms hereof, the
Issuer shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities
of any authorized denominations and of a like tenor and aggregate
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principal amount at maturity and bearing such restrictive legends as may be
required by this Indenture.
At the option of the Holder, and subject to the other
provisions of this Section 3.05, Securities may be exchanged for other
Securities of any authorized denominations and of a like tenor and aggregate
principal amount at maturity, upon surrender of such Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Issuer shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Issuer,
evidencing the same debt, and (subject to the provisions in the Original
Securities regarding the payment of Special Interest) entitled to the same
benefits under this Indenture, as the Securities surrendered upon such
registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Issuer or the Trustee)
be duly endorsed, or be accompanied by a written instrument of transfer in
form satisfactory to the Issuer and the Security Registrar duly executed, by
the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to the Holder for any
registration of transfer or exchange of Securities, but the Issuer may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 3.04, 3.05(d), 9.06 or
11.08 or in accordance with any Offer to Purchase pursuant to Section 10.13 or
10.17 not involving any transfer.
The Issuer shall not be required (i) to issue, register the
transfer of or exchange any Security during a period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption of
Securities selected for redemption under Section 11.04 and ending at the close
of business on the day of such mailing, or (ii) to register the transfer of or
exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of any Security being redeemed in part.
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(b) Certain Transfers and Exchanges. Notwithstanding any
other provision of this Indenture or the Securities, transfers and exchanges
of Securities and beneficial interests in a Global Security of the kinds
specified in this Section 3.05(b) shall be made only in accordance with this
Section 3.05(b) or, if necessary, in accordance with such other procedures as
the Issuer shall develop which shall comply with applicable securities laws.
(i) Restricted Global Security to Regulation S
Global Security. If the owner of a beneficial interest in the
Restricted Global Security wishes at any time to transfer such
interest to a Person who wishes to acquire the same in the form of a
beneficial interest in the Regulation S Global Security, such
transfer may be effected only in accordance with the provisions of
this Clause (b)(i) and Clause (b)(v) below and subject to the
Applicable Procedures. Upon receipt by the Trustee, as Security
Registrar, of (A) an order given by the Depositary or its authorized
representative directing that a beneficial interest in the Regulation
S Global Security in a specified Agent Member's principal amount at
maturity be credited to a specified Agent Member's account and that a
beneficial interest in the Restricted Global Security in an equal
principal amount at maturity be debited from another specified Agent
Member's account and (B) a Regulation S Certificate, satisfactory to
the Trustee and duly executed by the owner of such beneficial
interest in the Restricted Global Security or his attorney duly
authorized in writing, then the Trustee, as Security Registrar but
subject to Clause (b)(v) below, shall reduce or cause to be reduced
the principal amount at maturity of the Restricted Global Security
and increase the principal amount at maturity of the Regulation S
Global Security by such specified principal amount at maturity as
provided in Section 3.05(e).
(ii) Regulation S Global Security to Restricted
Global Security. If the owner of a beneficial interest in the
Regulation S Global Security wishes at any time to transfer such
interest to a Person who wishes to acquire the same in the form of a
beneficial interest in the Restricted Global Security, such transfer
may be effected only in accordance with this Clause (b)(ii) and
subject to the Applicable Procedures. Upon receipt by the Trustee, as
Security Registrar, of (A) an order given by the Depositary or its
authorized representative directing that a beneficial interest in the
Restricted Global Security in a specified principal
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amount at maturity be credited to a specified Agent Member's
account and that a beneficial interest in the Regulation S Global
Security in an equal principal amount at maturity be debited from
another specified Agent Member's account and (B) if such transfer
is to occur during the Restricted Period, a Restricted Securities
Certificate, satisfactory to the Trustee and duly executed by the
owner of such beneficial interest in the Regulation S Global
Security or his attorney duly authorized in writing, then the
Trustee, as Security Registrar, shall reduce or cause to be
reduced the principal amount at maturity of the Regulation S
Global Security and increase the principal amount at maturity of
the Restricted Global Security by such specified principal amount
at maturity as provided in Section 3.05(e).
(iii) Definitive Security to Definitive Security. A
Security that is a Definitive Security may be transferred, in whole
or in part, to a Person who takes delivery in the form of another
Security that is a Definitive Security as provided in Section
3.05(a), provided that, if the Security to be transferred in whole or
in part is a Restricted Security, or is a Regulation S Security and
the transfer is to occur during the Restricted Period, then the
Trustee shall have received (A) a Restricted Securities Certificate,
satisfactory to the Trustee and duly executed by the transferor
Holder or his attorney duly authorized in writing, in which case the
transferee Holder shall take delivery in the form of a Restricted
Security, or (B) a Regulation S Certificate, satisfactory to the
Trustee and duly executed by the transferor Holder or his attorney
duly authorized in writing, in which case the transferee Holder shall
take delivery in the form of a Regulation S Security (subject in
every case to Section 3.05(c)).
(iv) Exchanges between Global Security and
Definitive Security. A beneficial interest in a Global Security may
be exchanged for a Security that is a Definitive Security as provided
in Section 3.05(d), provided that, if such interest is a beneficial
interest in the Restricted Global Security, or if such interest is a
beneficial interest in the Regulation S Global Security and such
exchange is to occur during the Restricted Period, then such interest
shall be exchanged for a Restricted Security or a Regulation S
Security, as the case may be (subject in each case to Section
3.05(c)).
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(v) Regulation S Global Security to be Held Through
Euroclear or Cedel during Restricted Period. The Issuer shall use its
best efforts to cause the Depositary to ensure that, until the
expiration of the Restricted Period, beneficial interests in the
Regulation S Global Security may be held only in or through accounts
maintained at the Depositary by Euroclear or Cedel (or by Agent
Members acting for the account thereof), and no person shall be
entitled to effect any transfer or exchange that would result in any
such interest being held otherwise than in or through such an
account; provided that this Clause (b)(v) shall not prohibit any
transfer or exchange of such an interest in accordance with Clause
(b) above.
(c) Securities Act Legends. Rule 144A Securities and their
Successor Securities shall bear a Restricted Securities Legend, and the
Regulation S Securities and their Successor Securities shall bear a Regulation
S Legend, subject to the following:
(i) subject to the following Clauses of this
Section 3.05(c), a Security or any portion thereof which is
exchanged, upon transfer or otherwise, for a Global Security or any
portion thereof shall bear the Securities Act Legend borne by such
Global Security while represented thereby;
(ii) subject to the following Clauses of this
Section 3.05(c), a new Security which is a Definitive Security and is
issued in exchange for a Global Security or any portion thereof, upon
transfer or otherwise, shall bear the Securities Act Legend borne by
such other Security, provided that, if such new Security is required
pursuant to Section 3.05(b)(iii) or (iv) to be issued in the form of
a Restricted Security, it shall bear a Restricted Securities Legend
and, if such new Security is so required to be issued in the form of
a Regulation S Security, it shall bear a Regulation S Legend;
(iii) Registered Securities shall not bear a
Securities Act Legend;
(iv) at any time after the Securities may be freely
transferred without registration under the Securities Act or without
being subject to transfer restrictions pursuant to the Securities
Act, a new Security which does not bear a Securities Act Legend
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may be issued in exchange for or in lieu of a Security (other than
a Global Security) or any portion thereof which bears such a
legend if the Trustee has received an Unrestricted Securities
Certificate, satisfactory to the Trustee and duly executed by the
Holder of such legended Security or his attorney duly authorized
in writing, and after such date and receipt of such certificate,
the Trustee shall authenticate and deliver such a new Security in
exchange for or in lieu of such other Security as provided in this
Article III;
(v) a new Security which does not bear a Securities
Act Legend may be issued in exchange for or in lieu of a Security
(other than a Global Security) or any portion thereof which bears
such a legend if, in the Issuer's judgment, placing such a legend
upon such new Security is not necessary to ensure compliance with the
registration requirements of the Securities Act, and the Trustee, at
the direction of the Issuer, shall authenticate and deliver such a
new Security as provided in this Article III; and
(vi) notwithstanding the foregoing provisions of
this Section 3.05(c), a Successor Security of a Security that does
not bear a particular form of Securities Act Legend shall not bear
such form of legend unless the Issuer has reasonable cause to believe
that such Successor Security is a "restricted security" within the
meaning of Rule 144, in which case the Trustee, at the direction of
the Issuer, shall authenticate and deliver a new Security bearing a
Restricted Securities Legend in exchange for such Successor Security
as provided in this Article III.
(d) Exchanges of Global Security for Definitive Security.
Transfers of Global Securities shall be by delivery. The Book-Entry Depositary
and the Issuer have agreed that the Global Securities shall only be delivered
in the circumstances described in the Deposit Agreement. Notwithstanding any
other provision in this Indenture, no Global Security may be exchanged in
whole or in part for Definitive Securities unless (i) the Depositary notifies
the Issuer or the Book-Entry Depositary in writing that it (or its nominee) is
unwilling or unable to continue to act as depositary, or ceases to be, a
clearing agency registered under the Exchange Act, and, in either case, a
successor depositary registered as a clearing agency under the Exchange Act is
not appointed by the Issuer within 90 days, (ii) at any time if the Issuer
determines that the Global Securities (in whole but not in part) should be
exchanged
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for Definitive Securities; provided, that (x) such exchange is required by
(A) any applicable law or (B) any event beyond the Issuer's control or (y)
payments of interest on any Global Security, Depositary Interest or
beneficial interest are, or would become, subject to any deduction or
withholding for taxes, (iii) at any time after the consummation of the
Exchange Offer, if the owner of a beneficial interest requests such exchange
in writing delivered to the Depositary and through the Depositary to the
Book-Entry Depositary and the Trustee, or (iv) if the Book-Entry Depositary
is at any time unwilling or unable to continue as Book-Entry Depositary and
a successor Book-Entry Depositary is not appointed by the Issuer within 90
days. Upon the occurrence of any of the preceding events, Definitive
Securities shall be issued in such names as the Book-Entry Depositary shall
instruct the Trustee based on the instructions of the Depositary.
(e) If any Global Security is to be exchanged for other
Securities or canceled in whole, it shall be surrendered by or on behalf of
the Book-Entry Depositary or its nominee to the Trustee, as Security
Registrar, for exchange or cancelation as provided in this Article III. If any
Global Security is to be exchanged for other Securities or canceled in part,
or if another Security is to be exchanged in whole or in part for a beneficial
interest in any Global Security, then either (i) such Global Security shall be
so surrendered for exchange or cancelation as provided in this Article III or
(ii) the principal amount at maturity thereof shall be reduced or increased by
an amount equal to the portion thereof to be so exchanged or canceled, or
equal to the principal amount at maturity of such other Security to be so
exchanged for a beneficial interest therein, as the case may be, by means of
an appropriate adjustment made by the Book-Entry Depositary as directed by the
Trustee in such Book-Entry Depositary's book-entry system to the corresponding
Depositary Interest, whereupon the Trustee, in accordance with the Applicable
Procedures, shall instruct the Depositary or its authorized representative to
make a corresponding adjustment to its records. Upon any such surrender or
adjustment of a Global Security, the Trustee shall, subject to Section 3.05(b)
and as otherwise provided in this Article III, authenticate and deliver any
Securities issuable in exchange for such Global Security (or any portion
thereof) to or upon the order of, and registered (if applicable) in such names
as may be directed by, the Book-Entry Depositary or its authorized
representative. Upon the request of the Trustee in connection with the
occurrence of any of the events specified in the preceding paragraph, the
Issuer shall
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promptly make available to the Trustee a reasonable supply of Securities
that are not in the form of Global Securities. The Trustee shall be entitled
to rely upon any order, direction or request of the Book-Entry Depositary or
the Depositary or any of their authorized representatives which is given or
made pursuant to this Article III if such order, direction or request is
given or made in accordance with the Deposit Agreement with respect to the
Book-Entry Depositary and the Applicable Procedures with respect to the
Depositary.
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen
Securities. If any mutilated Security is surrendered to the Trustee, the
Issuer shall execute and the Trustee shall authenticate and deliver in
exchange therefor a new Security of like tenor and principal amount at
maturity and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Issuer and the Trustee
(i) evidence to their satisfaction of the destruction, loss or theft of any
Security and (ii) such security or indemnity as may be required by them to
save each of them and any agent of either of them harmless, then, in the
absence of written notice to the Issuer or the Trustee that such Security has
been acquired by a bona fide purchaser, the Issuer shall execute and the
Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or
stolen Security, a new Security of like tenor and principal amount at maturity
and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen
Security has become or is about to become due and payable, the Issuer in its
discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section,
the Issuer may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Security issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Issuer, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall
be entitled to all the benefits of this Indenture
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equally and proportionately with any and all other Securities duly issued
hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.07. Payment of Interest; Interest
Rights Preserved. Interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be
paid to the bearer thereof on the Interest Payment Date in the case of a
Global Security in bearer form and, in the case of a Definitive Security, to
the Person in whose name that Security (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date for such
interest.
Any interest (including Special Interest) on any Security
which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date (herein called "Defaulted Interest") shall (a) bear
interest at the rate per annum stated in the form of Security included herein
(to the extent that the payment of such interest shall be legally
enforceable), and (b) forthwith cease to be payable to the bearer thereof on
such Interest Payment Date with respect to a Global Security in bearer form
and, with respect to a Definitive Security, to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and, in each case,
such Defaulted Interest may be paid by the Issuer, at its election in each
case, as provided in Clause (a) or (b) below:
(a) The Issuer may elect to make payment of any Defaulted
Interest to the bearer of such Security on any Special Payment Date
(as defined below) with respect to any Global Security in bearer form
and, with respect to a Definitive Security, to the Persons in whose
names the Securities (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest, which shall be fixed in the
following manner. The Issuer shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security
and the date of the proposed payment, and at the same time the Issuer
shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to
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the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such
Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and
not less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify
the Issuer of such Special Record Date and, in the name and at the
expense of the Issuer, shall cause notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor to
be mailed, first-class postage prepaid, to each Holder, not less
than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record
Date therefor having been so mailed, such Defaulted Interest shall
be paid, with respect to any Definitive Security, to the Persons
in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following Clause (b). As used in this Clause (a), "Special Payment
Date" means the date on which Defaulted Interest is paid to the
Holder.
(b) The Issuer may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice
given by the Issuer to the Trustee of the proposed payment pursuant
to this Clause, such manner of payment shall be deemed practicable by
the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
SECTION 3.08. Persons Deemed Owners. Prior to due
presentment of a Security for registration of transfer, the Issuer, the
Guarantor, the Trustee and any agent of the Issuer, the Guarantor or the
Trustee may treat the Person in whose name a Definitive Security is registered
as the owner of such Security and may treat the bearer of a Global Security as
the owner of such Security, in each case, for
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the purpose of receiving payment of principal of and premium, if any, and
(subject to Section 3.07) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither
the Issuer, the Guarantor, the Trustee nor any agent of the Issuer, the
Guarantor or the Trustee shall be affected by notice to the contrary.
SECTION 3.09. Cancelation. All Securities surrendered for
payment, redemption, registration of transfer, exchange or pursuant to any
Offer to Purchase pursuant to Section 10.13 or 10.17 shall, if surrendered to
any Person other than the Trustee, be delivered to the Trustee and shall be
promptly canceled by it. The Issuer may at any time deliver to the Trustee for
cancelation any Securities previously authenticated and delivered hereunder
which the Issuer may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly canceled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
canceled as provided in this Section, except as expressly permitted by this
Indenture. All canceled Securities held by the Trustee shall be disposed of in
accordance with its standard procedures or as directed by an Issuer Order;
provided, however, that the Trustee shall not be required to destroy such
Securities.
SECTION 3.10. Computation of Interest. Interest on the
Securities shall be computed on the basis of a 360-day year of twelve 30-day
months, provided, however, that Special Interest on Original Securities shall
be computed on the basis of a 365- or 366-day year, as the case may be, and
the number of days actually elapsed.
SECTION 3.11. CUSIP and ISIN Numbers. The Issuer in issuing
Securities may use "CUSIP and "ISIN" numbers (if then generally in use) in
addition to serial numbers; if so, the Trustee shall use such "CUSIP" and
"ISIN" numbers in addition to serial numbers in notices of redemption and
repurchase as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such "CUSIP" and
"ISIN" numbers either as printed on the Securities or as contained in any
notice of a redemption or repurchase and that reliance may be placed only on
the serial or other identification numbers printed on the Securities, and any
such redemption or repurchase shall not be affected by any defect in or
omission of such "CUSIP" and "ISIN" numbers.
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ARTICLE IV
Guarantee Of Securities
SECTION 4.01. Guarantee. Subject to the provisions of this
Article Four, the Guarantor hereby fully, unconditionally and irrevocably
guarantees to each Holder and to the Trustee on behalf of the Holders: (i) the
due and punctual payment of the principal of, premium, if any, on and interest
(including Special Interest) on each Security, when and as the same shall
become due and payable, whether at maturity, by acceleration or otherwise, the
due and punctual payment of interest on the overdue principal of and interest,
if any, on the Securities, to the extent lawful, and the due and punctual
performance of all other obligations of the Issuer to the Holders or the
Trustee, all in accordance with the terms of such Security and this Indenture
and (ii) in the case of any extension of time of payment or renewal of any
Securities or any of such other obligations, that the same will be promptly
paid in full when due or performed in accordance with the terms of the
extension or renewal, at Stated Maturity, by acceleration or otherwise. The
Guarantor hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of merger or bankruptcy of the Issuer, any
right to require a proceeding first against the Issuer, the benefit of
discussion, protest or notice with respect to any such Security or the debt
evidenced thereby and all demands whatsoever, and covenants that this
Securities Guarantee will not be discharged as to any such Security except by
payment in full of the principal thereof and interest thereon and as provided
in Section 12.01 and Section 12.02 (subject to Section 12.06). The maturity of
the obligations guaranteed hereby may be accelerated as provided in Article
Five for the purposes of this Article Four. In the event of any declaration of
acceleration of such obligations as provided in Article Five, such obligations
(whether or not due and payable) shall forthwith become due and payable by the
Guarantor for the purpose of this Article Four. In addition, without limiting
the foregoing provisions, upon the effectiveness of an acceleration under
Article Five, the Trustee shall promptly make a demand for payment on the
Securities under the Guarantee provided for in this Article Four.
If the Trustee or the Holder of any Security is required by
any court or otherwise to return to the Issuer or the Guarantor, or any
custodian, receiver, liquidator, trustee, sequestrator or other similar
official acting in relation to the Issuer or the Guarantor, any amount paid to
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the Trustee or such Holder in respect of a Security, this Securities
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. The Guarantor further agrees, to the fullest extent that
it may lawfully do so, that, as between it, on the one hand, and the Holders
and the Trustee, on the other hand, the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article Five hereof for
the purposes of this Securities Guarantee, notwithstanding any stay,
injunction or other prohibition extant under any applicable bankruptcy law
preventing such acceleration in respect of the obligations guaranteed
hereby.
Until such time as the Securities are fully and finally
paid, including all interest, premium, principal and liquidated damages with
respect thereto, the Guarantor hereby irrevocably waives any claim or other
rights which it may now or hereafter acquire against the Issuer that arise
from the existence, payment, performance or enforcement of its obligations
under this Securities Guarantee and this Indenture, including, without
limitation, any right of subrogation, reimbursement, exoneration,
contribution, indemnification, any right to participate in any claim or remedy
of the Holders against the Issuer or any collateral which any such Holder or
the Trustee on behalf of such Holder hereafter acquires, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Issuer, directly or indirectly, in cash or other property or by setoff or in
any other manner, payment or security on account of such claim or other
rights. If any amount shall be paid to the Guarantor in violation of the
preceding sentence and the principal of, premium, if any, and accrued interest
on the Securities shall not have been paid in full, such amount shall be
deemed to have been paid to the Guarantor for the benefit of, and held in
trust for the benefit of, the Holders, and shall forthwith be paid to the
Trustee for the benefit of the Holders to be credited and applied upon the
principal of, premium, if any, and accrued interest on the Securities. The
Guarantor acknowledges that it will receive direct and indirect benefits from
the issuance of the Securities pursuant to this Indenture and that the waivers
set forth in this Section 4.01 are knowingly made in contemplation of such
benefits.
The Guarantee set forth in this Section 4.01 shall not be
valid or become obligatory for any purpose with respect to a Security until
the certificate of
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authentication on such Security shall have been signed by or on behalf of
the Trustee.
SECTION 4.02. Obligations Unconditional. Subject to Section
4.05, nothing contained in this Article Four or elsewhere in this Indenture or
in the Securities is intended to or shall impair, as among the Guarantor and
the holders of the Securities, the obligation of the Guarantor, which is
absolute and unconditional, upon failure by the Issuer, to pay to the holders
of the Securities the principal of, premium, if any, and interest on the
Securities as and when the same shall become due and payable in accordance
with their terms, or is intended to or shall affect the relative rights of the
holders of the Securities and creditors of the Guarantor, nor shall anything
herein or therein prevent the holder of any Securities or the Trustee on their
behalf from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture.
Without limiting the foregoing, nothing contained in this
Article Four will restrict the right of the Trustee or the holders of the
Securities to take any action to declare the Guarantee to be due and payable
prior to the Stated Maturity of the Securities pursuant to Section 5.02 or to
pursue any rights or remedies hereunder.
SECTION 4.03. Notice to Trustee. The Guarantor shall give
prompt written notice to the Trustee of any fact known to the Guarantor which
would prohibit the making of any payment to or by the Trustee in respect of
the Securities Guarantee pursuant to the provisions of this Article Four.
ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default",
wherever used herein, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of any interest upon any Security
when it becomes due and payable, and continuance of such default for
a period of 30 days; or
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(b) default in the payment of the principal of (or premium,
if any, on) any Security when due; or
(c) default in the payment of principal and interest upon
any Security required to be purchased pursuant to an Offer to
Purchase pursuant to Sections 10.13 or 10.17; or
(d) default in the performance, or breach, of Section 8.01,
10.13 or 10.17; or
(e) default in the performance, or breach, of any covenant
or warranty of the Issuer or Guarantor in this Indenture or in any
Security (other than a covenant or warranty a default in whose
performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period
of 60 days after there has been given, by registered or certified
mail, to the Issuer by the Trustee or to the Issuer and the Trustee
by the Holders of at least 25% in aggregate principal amount at
maturity of the Outstanding Securities a written notice specifying
such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder; or
(f) a default or defaults under any bond(s), debenture(s),
note(s) or other evidence(s) of indebtedness by the Guarantor, the
Issuer or any Subsidiary of the Guarantor or under any mortgage(s),
indenture(s) or instrument(s) under which there may be issued or by
which there may be secured or evidenced any indebtedness of such type
by the Guarantor, the Issuer or any Subsidiary of the Guarantor with
a principal amount then outstanding, individually or in the
aggregate, in excess of $10 million, whether such indebtedness now
exists or shall hereafter be created, which default or defaults shall
constitute a failure to pay in excess of $10 million of the principal
of such indebtedness when due at the final maturity thereof, or shall
have resulted in excess of $10 million of indebtedness becoming or
being declared due and payable prior to the date on which it would
otherwise have become due and payable; or
(g) a final judgment or final judgments for the payment of
money are entered against the Guarantor, the Issuer or any Subsidiary
of the Guarantor in an aggregate amount in excess of $10 million (net
of indemnities and funds actually received or to be
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received within 90 days of such judgment) by a court or courts of
competent jurisdiction, which judgments remain undischarged or
unbonded for a period (during which execution shall not be
effectively stayed) of 60 days after the right to appeal all such
judgments has expired; or
(h) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Guarantor, the
Issuer or any Significant Subsidiaries in an involuntary case or
proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order
adjudging the Guarantor, the Issuer or any Significant Subsidiaries a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or
in respect of the Guarantor, the Issuer or any Significant
Subsidiaries under any applicable law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Guarantor, the Issuer or any Significant
Subsidiaries or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive days; or
(i) the commencement by the Guarantor, the Issuer or any
Significant Subsidiaries of a voluntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar
law or of any other case or proceeding to be adjudicated a bankrupt
or insolvent, or the consent by it to the entry of a decree or order
for relief in respect of the Guarantor, the Issuer or any Significant
Subsidiaries in an involuntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar
law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under any applicable law, or
the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Guarantor, the Issuer or any Significant Subsidiaries or of
any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its
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debts generally as they become due, or the taking of corporate action
by the Guarantor, the Issuer or any Significant Subsidiaries in
furtherance of any such action.
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment. If an Event of Default (other than an Event of Default specified
in Section 5.01(h) or (i)) occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in principal amount at
maturity of the Outstanding Securities may declare the principal amount at
maturity of all the Securities to be due and payable immediately, by a notice
in writing to the Issuer (and to the Trustee if given by Holders), and upon
any such declaration such Accreted Value and any accrued interest shall become
immediately due and payable. If an Event of Default specified in Section
5.01(h) or (i) occurs, the Accreted Value of and any accrued interest on the
Securities then Outstanding shall ipso facto become immediately due and
payable without any declaration or other Act on the part of the Trustee or any
Holder.
At any time after such a declaration of acceleration has
been made and before a judgment or decree for payment of the money due based
on acceleration has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount at maturity of
the Outstanding Securities, by written notice to the Issuer and the Trustee,
may rescind and annul such declaration and its consequences if:
(1) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the Accreted Value of (and premium, if any, on)
any Securities which have become due otherwise than by such
declaration of acceleration (including any Securities
required to have been purchased on the Purchase Date
pursuant to an Offer to Purchase made by the Issuer) and
interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by
the Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation,
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expenses, disbursements and advances of the Trustee, its
agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
Accreted Value of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee. The Issuer covenants that if
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof or, with
respect to any Security required to have been purchased pursuant to
an Offer to Purchase made by the Issuer, at the Purchase Date
thereof,
the Issuer will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the
extent that payment of such interest shall be legally enforceable, interest on
any overdue principal (and premium, if any) and on any overdue interest, at
the rate provided by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Issuer fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Issuer or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner
provided by law out
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of the property of the Issuer or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effective to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 5.04. Trustee May File Proofs of Claim. In case of
any judicial proceeding relative to the Issuer (or any other obligor upon the
Securities), its property or its creditors, the Trustee shall be entitled and
empowered, by intervention in such proceeding or otherwise, to take any and
all actions authorized under the Trust Indenture Act in order to have claims
of the Holders and the Trustee allowed in any such proceeding. In particular,
the Trustee shall be authorized to collect and receive any moneys, securities
or other property payable or deliverable upon the exchange of the Securities
or upon any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 6.07.
No provision of this Indenture shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding; provided, however, that the Trustee may, on behalf of the Holders,
vote for the election of a trustee in bankruptcy or similar official and be a
member of a creditors or other similar committee.
SECTION 5.05. Trustee May Enforce Claims Without
Possession of Securities. All rights of action and claims under this
Indenture or the Securities may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in
any proceeding
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relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, be for the ratable benefit of the Holders of the
Securities in respect of which such judgment has been recovered.
SECTION 5.06. Application of Money Collected. Any money
collected by the Trustee pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal (or premium, if any) or
interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee
under Section 6.07; and
SECOND: To the payment of the amounts then due and
unpaid for principal of (and premium, if any) and interest on
the Securities in respect of which or for the benefit of
which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts
due and payable on such Securities for principal (and
premium, if any) and interest, respectively.
SECTION 5.07. Limitation on Suits. No Holder of any
Security shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate
principal amount at maturity of the Outstanding Securities
shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered and, if
requested, provided to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in
compliance with such request;
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(4) the Trustee for 60 days after its receipt of such
notice, request and offer and, if requested, provision of
indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by
the Holders of a majority in principal amount at maturity of
the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference over any
other Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the
Holders.
SECTION 5.08. Unconditional Right of Holders To Receive
Principal, Premium and Interest. Notwithstanding any other provision in this
Indenture, the Holder of any Security shall have the right, which is absolute
and unconditional, to receive payment of the principal of (and premium, if
any) and (subject to Section 3.07) interest on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption,
on the Redemption Date or, in the case of an Offer to Purchase made by the
Issuer and required to be accepted as to such Security, on the Purchase Date)
and to institute suit for the enforcement of any such payment, and such rights
shall not be impaired without the consent of such Holder.
SECTION 5.09. Restoration of Rights and Remedies. If the
Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Issuer, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as
though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. Except as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no
right or remedy herein conferred upon or reserved to the Trustee
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or to the Holders is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder
or now or hereafter existing at law or in equity or otherwise. The assertion
or employment of any right or remedy hereunder, or otherwise, shall not
prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 5.11. Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder of any Security to exercise any right
or remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the Trustee
or to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 5.12. Control by Holders. The Holders of a majority
in principal amount at maturity of the Outstanding Securities shall have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee; provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture or expose the Trustee to personal
liability (as determined in the sole discretion of the Trustee), and
(2) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
SECTION 5.13. Waiver of Past Defaults. The Holders of not
less than a majority in aggregate principal amount at maturity of the
Outstanding Securities may on behalf of the Holders of all the Securities by
written notice to the Trustee waive any past default hereunder and its
consequences, except a default
(1) in the payment of the principal of (or premium, if any)
or interest on any Security (including any Security which is required
to have been purchased pursuant to an Offer to Purchase which has
been made by the Issuer), or
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(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected or
(3) arising from failure to purchase any Security tendered
pursuant to Sections 10.13 and 10.17 of this Indenture.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken or omitted by it as Trustee, a court
may require any party litigant in such suit to file an undertaking to pay the
costs of such suit, and may assess costs against any such party litigant, in
the manner and to the extent provided in the Trust Indenture Act; provided
that neither this Section nor the Trust Indenture Act shall be deemed to
authorize any court to require such an undertaking or to make such an
assessment in any suit instituted by the Issuer or the Guarantor; further
provided, that the provisions of this Section 5.14 shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder or group of
Holders holding more than 10% in aggregate principal amount at maturity of the
Outstanding Securities, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of, or premium, if any, or
interest on any Security on or after the respective due dates expressed in
such Security.
SECTION 5.15. Waiver of Stay or Extension Laws. Each of the
Issuer and the Guarantor covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension
law wherever enacted, now or at any time hereafter in force, which may affect
the covenants or the performance of this Indenture; and each of the Issuer and
the Guarantor (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
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ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities. (a)
Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants, duties or obligations shall be read into this
Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to
be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture.
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested
in it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own wilful misconduct, except that
(1) this Subsection shall not be construed to limit the
effect of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall
be proved that the Trustee was negligent in ascertaining the
pertinent facts;
(3) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in
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good faith in accordance with the direction of the Holders of a
majority in principal amount at maturity of the Outstanding
Securities relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under
this Indenture; and
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in
the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions
of this Section.
SECTION 6.02. Notice of Defaults. The Trustee shall give
the Holders notice of any default hereunder known to the Trustee as and to the
extent provided by the Trust Indenture Act; provided, however, that in the
case of any default of the character specified in Section 5.01(e), no such
notice to Holders shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default.
SECTION 6.03. Certain Rights of Trustee. Subject to the
provisions of Section 6.01:
(a) the Trustee may conclusively rely and shall be
completely protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed or presented by the proper
party or parties;
(b) any request or direction of the Issuer mentioned herein
shall be sufficiently evidenced by a Issuer Request or Issuer Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
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(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, request
from the Issuer and be completely protected in relying upon an
Officers' Certificate received in response to such request;
(d) the Trustee may consult with counsel of its selection
and the written advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction
reasonably satisfactory to the Trustee;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee may (but shall have no
obligation to) make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Issuer or
the Guarantor, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(h) the Trustee shall not be liable with respect to any
action taken, suffered or omitted to be taken by
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it in accordance with the direction of Holders of Outstanding
Securities as provided in Sections 5.02, 5.12 and 5.13 hereof; and
(i) for all purposes under this Indenture, the Trustee shall
not be deemed to have notice of any Event of Default unless a
Responsible Officer of the Trustee has actual knowledge thereof or
unless written notice of any event which is in fact such a default is
received by the Trustee at the Corporate Trust Office of the Trustee,
and such notice references the Securities and this Indenture.
SECTION 6.04. Not Responsible for Recitals or Issuance of
Securities. The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements
of the Issuer, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities or the Securities
Guarantee. The Trustee shall not be accountable for the use or application
by the Issuer of Securities or the proceeds thereof.
SECTION 6.05. May Hold Securities. The Trustee, any
Paying Agent, any Security Registrar or any other agent of the Issuer, in
its individual or any other capacity, may become the owner or pledgee of
Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with
the Issuer or the Guarantor with the same rights it would have if it were
not Trustee, Paying Agent, Security Registrar or such other agent.
SECTION 6.06. Money Held in Trust. Money held by the
Trustee in trust hereunder need not be segregated from other funds except to
the extent required by law. The Trustee shall be under no liability for
interest on any money received by it hereunder except as otherwise agreed with
the Issuer.
SECTION 6.07. Compensation and Reimbursement. The Issuer
and the Guarantor jointly and severally agree
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust);
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(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence
or bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of enforcing this Indenture against the Issuer or the
Guarantor (including, without limitation, this Section 6.07) and of
defending itself against any claim (whether asserted by any Holder or
the Issuer or the Guarantor) or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The
provisions of this Section 6.07 shall survive any termination of this
Indenture and the resignation or removal of the Trustee.
As security for the performance of the obligations of the
Issuer under this Section 6.07, the Trustee shall have a lien prior to the
Securities upon all property and funds held or collected by the Trustee,
except funds held in trust for the payment of principal of (and premium, if
any) or interest on particular Securities. The Trustee's right to receive
payment of any amounts due under this Section 6.07 shall not be subordinate to
any other liability or indebtedness of the Issuer (even though the Securities
may be so subordinated).
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 5.01(h) or Section
5.01(i), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable Federal or State bankruptcy,
insolvency or other similar law.
The provisions of this Section shall survive the termination
of this Indenture or the earlier resignation or termination of the Trustee.
SECTION 6.08. Disqualification; Conflicting Interests. If
the Trustee has or shall acquire a
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conflicting interest within the meaning of the Trust Indenture Act, the
Trustee shall either eliminate such interest or resign, to the extent and in
the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture.
SECTION 6.09. Corporate Trustee Required; Eligibility .
There shall at all times be a Trustee hereunder which shall be a Person that
is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000 and its Corporate Trust
Office in the Borough of Manhattan, the City of New York, New York. If such
Person publishes reports of condition at least annually, pursuant to law or to
the requirements of a Federal, State, Territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Person shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 6.10. Resignation and Removal; Appointment of
Successor. (a) No resignation or removal of the Trustee and no appointment of
a successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11, at
which time the retiring Trustee shall be fully discharged from its obligations
hereunder.
(b) The Trustee may resign at any time by giving written
notice thereof to the Issuer. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount at maturity of the Outstanding
Securities, delivered to the Trustee and to the Issuer.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.08 after
written request therefor by the
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Issuer or by any Holder who has been a bona fide Holder of a
Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section
6.09 and shall fail to resign after written request therefor by the
Issuer or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Issuer by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee
for any cause, the Issuer, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall
be appointed by Act of the Holders of a majority in principal amount at
maturity of the Outstanding Securities delivered to the Issuer and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon
its acceptance of such appointment, become the successor Trustee and
supersede the successor Trustee appointed by the Issuer. If no successor
Trustee shall have been so appointed by the Issuer or the Holders and
accepted appointment in the manner hereinafter provided, any Holder who has
been a bona fide Holder of a Security for at least six months may, on behalf
of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Issuer shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to
all Holders in the manner provided in Section 1.06. Each notice shall
include the name of the successor Trustee and the address of its Corporate
Trust Office.
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SECTION 6.11. Acceptance of Appointment by Successor .
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Issuer and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Issuer or the successor Trustee, such retiring Trustee shall, upon payment
of all sums owing to the Trustee under Section 6.07, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and deliver
to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Issuer
shall execute any and all instruments for more fully and certainly vesting
in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business. Any corporation into which the Trustee may be merged
or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Trustee
shall be a party, or any corporation succeeding to all or substantially all
the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder, without the execution or filing of any paper or any further
act on the part of any of the parties hereto; provided that such corporation
shall be otherwise qualified and eligible under this Article. In case any
Securities shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the
Securities so authenticated with the same effect as if such successor Trustee
had itself authenticated such Securities.
SECTION 6.13. Preferential Collection of Claims Against
Issuer or Guarantor. If and when the Trustee shall be or become a creditor of
the Issuer or Guarantor (or any other obligor upon the Securities), the
Trustee shall be subject to the provisions of the Trust Indenture Act
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regarding the collection of claims against the Issuer or Guarantor (or any
such other obligor).
SECTION 6.14. Appointment of Authenticating Agent. The
Trustee may appoint an Authenticating Agent or Agents with respect to the
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities issued upon original issue and upon exchange,
registration of transfer or partial redemption thereof or pursuant to Section
3.06, and Securities so authenticated shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or
the Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Issuer and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State
thereof or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at
least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such Authenticating Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating
Agent; provided, such corporation shall be otherwise eligible under this
Section.
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An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Issuer. The Trustee may at
any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent and to the Issuer. Upon receiving
such a notice of resignation or upon such a termination, or in case at any
time such Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Issuer and shall give
notice of such appointment in the manner provided in Section 1.06 to all
Holders of Securities. Any successor Authenticating Agent upon acceptance of
its appointment hereunder shall become vested with all the rights, powers and
duties of its predecessor hereunder, with like effect as if originally named
as an Authenticating Agent. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section, and
the Trustee shall be entitled to be reimbursed for such payments, subject to
the provisions of Section 6.07.
If an appointment is made pursuant to this Section, the
Securities may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities referred to in the
within-mentioned Indenture.
Dated:
THE CHASE MANHATTAN BANK, as Trustee,
by
------------------------,
as Authenticating Agent
by
-------------------------
Authorized Signatory
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SECTION 6.15. Withholding Taxes. Notwithstanding any other
provision of this Agreement, the Trustee, as agent for the Issuer and the
Guarantor, shall exclude and withhold from each payment of principal and
interest and other amounts due hereunder or under the Securities or the
Securities Guarantee any and all withholding taxes applicable thereto as
required by law. The Trustee agrees to act as such withholding agent and, in
connection therewith, whenever any present or future taxes or similar charges
are required to be withheld with respect to any amounts payable in respect of
the Securities or the Securities Guarantee, to withhold such amounts and
timely pay the same to the appropriate authority in the name of and on behalf
of the Holders of the Securities, that it will furnish to the Holders of the
Securities such forms or certificates as are necessary or appropriate to
provide the information described in Section 10.09(c)(i) hereof or make the
declaration or claim described in Section 10.09(c)(ii) hereof, that it will
file any necessary withholding tax returns or statements when due, and that,
as promptly as possible after the payment thereof, it will deliver to each
Holder of a Security appropriate documentation showing the payment thereof,
together with such additional documentary evidence as such Holders may
reasonably request from time to time.
In the event that the Trustee is also acting as Paying
Agent, Authenticating Agent, transfer agent, or Registrar hereunder, the
rights and protections afforded to the Trustee pursuant to this Article Six
shall also be afforded to such Paying Agent, Authenticating Agent, transfer
agent, or Registrar.
ARTICLE VII
Holders' Lists and Reports by Trustee and Issuer
SECTION 7.01. Issuer to Furnish Trustee Names and Addresses
of Holder. The Issuer will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record Date, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Issuer of any such
request, a list of similar form and content as of a date not more
than 15 days prior to the time such list is furnished;
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excluding from any such list names and addresses received by the Trustee in
its capacity as Security Registrar.
SECTION 7.02. Preservation of Information; Communications to
Holders. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the
most recent list furnished to the Trustee as provided in Section 7.01 and the
names and addresses of Holders received by the Trustee in its capacity as
Security Registrar. The Trustee may destroy any list furnished to it as
provided in Section 7.01 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders
with respect to their rights under this Indenture or under the Securities, and
the corresponding rights and duties of the Trustee, shall be as provided by
the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Issuer and the Trustee that neither the Issuer nor the
Trustee nor any agent of either of them shall be held accountable by reason of
any disclosure of information as to names and addresses of Holders made
pursuant to the Trust Indenture Act.
SECTION 7.03. Reports by Trustee. (a) Within 30 days after
October 1 of each year, commencing with the first October 1 following the
first issuance of Securities pursuant to Section 3.01, if required by Section
3.13(a) of the Trust Indenture Act, the Trustee shall transmit, pursuant to
Section 3.13(c) of the Trust Indenture Act, a brief report dated as of such
October 1 with respect to any of the events specified in said Section 3.13(a)
which may have occurred since the later of the immediately preceding October 1
and the date of this Indenture.
(b) The Trustee shall transmit the reports required by
Section 3.13(b) of the Trust Indenture Act and Section 6.02 hereof at the
times specified therein.
(c) Reports pursuant to this Section shall be transmitted in
the manner and to the persons required by Sections 3.13(c) and 3.13(d) of the
Trust Indenture Act.
(d) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Issuer. The
Issuer
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will promptly notify the Trustee when the Securities are listed on any
stock exchange.
SECTION 7.04. Reports by Issuer and Guarantor. Each of the
Guarantor and the Issuer shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at
the times and in the manner provided pursuant to such Act and in the manner
set forth in Section 10.18.
SECTION 7.05. Officers' Certificate with Respect to Change
in Interest Rates. Within five days after any Step-Up or Step-Down Date, the
Issuer shall deliver an Officers' Certificate to the Trustee stating the new
interest rate and the date on which it became effective.
ARTICLE VIII
Merger, Consolidation, Etc.
SECTION 8.01. Mergers, Consolidations and Certain Sales of
Assets. Neither the Guarantor nor the Issuer may, in a single transaction or
a series of related transactions, (i) consolidate with or merge into any other
Person or permit any other Person to consolidate with or merge into the
Guarantor or the Issuer, or (ii) directly or indirectly, transfer, sell, lease
or otherwise dispose of all or substantially all of its assets to any other
Person, unless:
(1) in a transaction in which the Guarantor or the Issuer,
as applicable, does not survive or in which the Guarantor or the
Issuer sells, leases or otherwise disposes of all or substantially
all of its assets to any other Person (other than, in any such case,
the Guarantor or the Issuer), the successor entity to the Guarantor
or the Issuer is organized under the laws of the United States of
America or any State thereof or the District of Columbia, the British
Virgin Islands, Cayman Islands, The Netherlands, Ireland or Jersey
and shall expressly assume, by a supplemental indenture executed and
delivered to the Trustee in form satisfactory to the Trustee, all of
the Guarantor's or the Issuer's obligations under the Indentures;
(2) immediately before and after giving effect to such
transaction and treating any Debt which becomes an obligation of the
Guarantor or a Subsidiary as a result of such transaction as having
been Incurred by the
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Guarantor or such Subsidiary at the time of the transaction, no
Event of Default or event that with the passing of time or the
giving of notice, or both, would constitute an Event of Default
shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Guarantor (or other successor entity to
the Guarantor) is equal to or greater than that of the Guarantor
immediately prior to the transaction;
(4) if, as a result of any such transaction, property or
assets of the Guarantor or any Subsidiary would become subject to a
Lien prohibited by Section 10.15, the Guarantor or the successor
entity to the Guarantor shall have secured the Securities as required
by said covenant; and
(5) in the event that the continuing Person is incorporated
in a jurisdiction other than the United States or the jurisdiction in
which such Person was incorporated immediately prior to such
transaction, (A) the Issuer delivers to the Trustee an Opinion of
Counsel stating that the obligations of the continuing Person under
the Indenture are enforceable under the laws of the new jurisdiction
of its incorporation to the same extent as the obligations of the
Issuer or the Guarantor, as the case may be, under the Indenture
immediately prior to such transaction; (B) the continuing Person
agrees in writing to submit to jurisdiction and appoints an agent for
the service of process, each under terms substantially similar to the
terms contained in the Indenture with respect to the Issuer or the
Guarantor, as the case may be; (C) the continuing Person agrees in
writing to pay Additional Amounts as provided under this Indenture
under Section 10.09 with respect to the Issuer or the Guarantor, as
the case may be, except that such Additional Amount shall relate to
any withholding tax whatsoever regardless of any change of law
(subject to exceptions substantially similar to those contained in
Section 10.09); (D) the Board of Directors of the Guarantor
determines in good faith that such transaction will have no material
adverse effect on any Holder and a Board Resolution to that effect is
delivered to the Trustee; and (E) the principal purpose of the
continuing Person being incorporated in such jurisdiction is to
obtain tax benefits for the
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Guarantor, the Issuer, their direct and indirect stockholders or
the Holders.
SECTION 8.02. Successor Substituted. Upon any consolidation
of the Issuer with, or merger of the Issuer with or into, any other Person or
any conveyance, transfer or lease of the properties and assets of the Issuer
substantially as an entirety in accordance with Section 8.01, the successor
Person formed by such consolidation or into which the Issuer is merged or to
which such conveyance, transfer or lease is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer under
this Indenture with the same effect as if such successor Person had been named
as the Issuer herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under
this Indenture and the Securities.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of
Holders. Without the consent of any Holders, the Issuer and the Guarantor,
each when authorized by a Board Resolution, and the Trustee, at any time and
from time to time, may enter into one or more indentures supplemental hereto,
in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Issuer or the Guarantor and the assumption by any such successor of
the covenants of the Issuer or the Guarantor herein and in the
Securities; or
(2) to add to the covenants of the Issuer or the Guarantor
for the benefit of the Holders, or to surrender any right or power
herein conferred upon the Issuer or the Guarantor; or
(3) to secure the Securities pursuant to the requirements of
Section 10.15 or otherwise; or
(4) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to comply with any
requirement of the Commission in order to effect qualification of
this Indenture under the Trust Indenture Act in connection with the
issuance of Exchange Securities or Registered Securities or
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thereafter to maintain the qualification of this Indenture under the
Trust Indenture Act; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture; provided that
such action pursuant to this Clause (5) shall not adversely affect
the interests of the Holders in any material respect; or
(6) to provide for uncertificated Securities in addition to
or in place of certified Securities.
SECTION 9.02. Supplemental Indentures with Consent of
Holders. With the written consent of the Holders of not less than a majority
in aggregate principal amount at maturity of the Outstanding Securities, by
Act of said Holders delivered to the Issuer and the Trustee, and consistent
with Section 5.13, the Issuer and the Guarantor, each when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
written consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the Accreted
Value thereof or the rate of interest thereon or any premium payable
thereon, or change the coin or currency in which, any Security or any
premium or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after
the Stated Maturity thereof (or, in the case of redemption, on or
after the Redemption Date) or, in the case of an Offer to Purchase
which has been made, on or after the applicable Purchase Date, or
(2) reduce the percentage in principal amount at maturity of
the Outstanding Securities, the consent of whose Holders is required
for any such supplemental indenture, or the consent of whose Holders
is required for any waiver (of compliance with certain provisions
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of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section
5.13 or Section 10.20, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each
Outstanding Security affected thereby, or
(4) following the making of an Offer with respect to an
Offer to Purchase pursuant to Sections 10.13 or 10.17, modify the
provisions of this Indenture with respect to such Offer to Purchase
in a manner materially adverse to such Holder, or
(5) release the Guarantor from its Securities Guarantee.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.03. Execution of Supplemental Indentures. In
executing, or accepting the additional trusts created by, any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 6.01) shall be fully protected in relying upon, an Opinion
of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indentures .
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 9.05. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act.
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SECTION 9.06. Reference in Securities to Supplemental
Indentures. Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Issuer shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and
the Issuer, to any such supplemental indenture may be prepared and executed by
the Issuer and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and
Interest. The Issuer will duly and punctually pay the principal of and
premium, if any, and interest on the Securities in accordance with the terms
of the Securities and this Indenture.
SECTION 10.02. Maintenance of Office or Agency. The Issuer
will maintain in the Borough of Manhattan, the City of New York, New York, an
office or agency where Securities may be presented or surrendered for payment,
where Securities may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Issuer in respect of the
Securities and this Indenture may be served. The Issuer will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Issuer shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be
made or served at the Corporate Trust Office of the Trustee, and the Issuer
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Issuer may also from time to time designate one or more
other offices or agencies (in or outside the Borough of Manhattan, the City of
New York, New York) where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Issuer of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York, New York for such purposes. The
Issuer will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
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SECTION 10.03. Money for Security Payments To Be Held in
Trust. If the Issuer shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee in writing of its action or failure so to act. As provided
in Section 5.04, upon any bankruptcy or reorganization proceeding relative to
the Issuer, the Trustee shall serve as the Paying Agent for the Securities.
Whenever the Issuer shall have one or more Paying Agents, it
will, prior to each due date of the principal of (and premium, if any) or
interest on any Securities, deposit with a Paying Agent a sum sufficient to
pay the principal (and premium, if any) or interest so becoming due, such sum
to be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Issuer
will promptly notify the Trustee in writing of its action or failure so to
act. Upon any bankruptcy or reorganization proceeding relative to the Issuer,
the Trustee shall serve as the Paying Agent for the Securities.
The Issuer will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the
principal of (and premium, if any) or interest on Securities in trust
for the benefit of the Persons entitled thereto until such sums shall
be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee written notice of any default by the
Issuer (or any other obligor upon the Securities) in the making of
any payment of principal (and premium, if any) or interest;
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent; and
(4) acknowledge, accept and agree to comply in all respects
with the provisions of this Indenture relating
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to the duties, rights and obligations of such Paying Agent.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Issuer Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Issuer or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Issuer or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Issuer, in trust for the payment of the principal of (and
premium, if any) or interest on any Security and remaining unclaimed for two
years after such principal (and premium, if any) or interest has become due
and payable shall be paid to the Issuer on Issuer Request, or (if then held by
the Issuer) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Issuer for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Issuer as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at
the expense of the Issuer cause to be published once, in a newspaper published
in the English language, customarily published on each Business Day and of
general circulation in the Borough of Manhattan, the City of New York, New
York, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Issuer.
SECTION 10.04. Existence. Subject to Article Eight, the
Guarantor will do or cause to be done all things necessary to preserve and
keep in full force and effect the existence, rights (charter and statutory)
and franchises of the Guarantor, the Issuer and each of the Restricted
Subsidiaries; provided, however, that the Guarantor shall not be required to
preserve any such right or franchise if the Guarantor shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Guarantor, the Issuer or the Restricted Subsidiaries and that the loss
thereof is not disadvantageous in any material respect to the Holders.
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SECTION 10.05. Maintenance of Properties.
The Guarantor will cause all properties used or useful in the conduct of its
business or the business of the Issuer or any Restricted Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Guarantor may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times; provided, however, that nothing in this Section shall prevent the
Guarantor from discontinuing the operation or maintenance of any of such
properties if such discontinuance is, in the reasonable judgment of the
Guarantor, desirable in the conduct of its business or the business of the
Issuer or any Restricted Subsidiary and not disadvantageous in any material
respect to the Holders.
SECTION 10.06. Payment of Taxes and Other Claims. The
Guarantor will pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon the Guarantor or the Issuer or any
Restricted Subsidiaries or upon the income, profits or property of the
Guarantor or the Issuer or any Restricted Subsidiaries, and (2) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become
a lien upon the property of the Guarantor or the Issuer or any Restricted
Subsidiaries; provided, however, that the Guarantor shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings.
SECTION 10.07. Maintenance of Insurance. The Guarantor
shall, and shall cause the Issuer and the Restricted Subsidiaries to, keep at
all times all of their properties which are of an insurable nature insured
against loss or damage with insurers believed by the Guarantor to be
responsible to the extent that property of similar character is usually so
insured by corporations similarly situated and owning like properties in
accordance with good business practice.
SECTION 10.08. Limitation on Consolidated Debt. The
Guarantor may not, and may not permit any Restricted Subsidiary of the
Guarantor to, Incur any Debt (other than the Securities and the Securities
Guarantee) unless the ratio of (i) the aggregate consolidated principal amount
of Debt (which is defined to include the accreted value of any Debt issued at
a discount) of the Guarantor outstanding as of the most recent available
quarterly or annual balance sheet, after giving pro forma effect to the
Incurrence of
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such Debt and any other Debt Incurred since such balance sheet date and the
receipt and application of the proceeds thereof, to (ii) four (4) times the
Consolidated Cash Flow Available for Fixed Charges for the most recent
fiscal quarter next preceding the Incurrence of such Debt for which
consolidated financial statements are available, determined on a pro forma
basis as if any such Debt had been Incurred and the proceeds thereof had
been applied at the beginning of such recent fiscal quarter, would be less
than 7.0 to 1.0 for such period.
Notwithstanding the foregoing limitation, the Guarantor and
any Restricted Subsidiary may Incur the following:
(i) Debt under Credit Facilities in an aggregate principal
amount at any one time not to exceed $200 million, and any renewal,
extension, refinancing or refunding thereof in an amount which,
together with any principal amount remaining outstanding under all
Credit Facilities, does not exceed the aggregate principal amount
outstanding under all Credit Facilities immediately prior to such
renewal, extension, refinancing or refunding;
(ii) Debt owed by the Guarantor to any Restricted Subsidiary
of the Guarantor or Debt owed by a Restricted Subsidiary of the
Guarantor to the Guarantor or a Restricted Subsidiary of the
Guarantor; provided, however, that upon either (x) the transfer or
other disposition by such Restricted Subsidiary or the Guarantor of
any Debt so permitted to a Person other than the Guarantor or another
Restricted Subsidiary of the Guarantor or (y) such Restricted
Subsidiary ceasing to be a Restricted Subsidiary, the provisions of
this clause (ii) shall no longer be applicable to such Debt and such
Debt shall be deemed to have been Incurred at the time of such
transfer or other disposition;
(iii) Debt Incurred to renew, extend, refinance or refund
(each, a "refinancing") (x) Debt outstanding at the date hereof
(after giving effect to the Equity Clawback) or (y) Incurred pursuant
to the first paragraph of this Section, or clause (vi) or (vii) of
this paragraph or (z) the Securities issued on the date hereof or
Securities exchanged therefore, in each case, in an aggregate
principal amount not to exceed the aggregate principal amount of and
accrued interest on the Debt so refinanced plus the amount of any
premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt so refinanced or the amount of any
premium reasonably determined by the Guarantor as necessary to
accomplish such refinancing
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by means of a tender offer or privately negotiated repurchase,
plus the expenses of the Guarantor or the Restricted Subsidiary
effecting such refinancing incurred in connection with such
refinancing; provided, however, that Debt the proceeds of which
are used to refinance the Securities or Debt which is pari passu
to the Securities and the Security Guarantee or Debt which is
subordinate in right of payment to the Securities and the Security
Guarantee shall only be permitted if (A) in the case of any
refinancing of the Securities or Debt which is pari passu to the
Securities and the Security Guarantee, the refinancing Debt is
made pari passu or subordinated to the Securities and the Security
Guarantee, and, in the case of any refinancing of Subordinated
Debt, the refinancing Debt constitutes Subordinated Debt and (B)
in any case, the refinancing Debt by its terms, or by the terms of
any agreement or instrument pursuant to which such Debt is issued,
does not have a final stated maturity prior to the final stated
maturity of the Debt being refinanced, and the Average Life of
such new Debt is at least equal to the remaining Average Life of
the Debt being refinanced (assuming that such Debt being
refinanced had a final stated maturity three months later than its
actual final stated maturity);
(iv) Debt in an aggregate principal amount not in excess of
(A) two (2) times the aggregate amount of the Guarantor's Incremental
Paid-in Capital minus (B) $165 million;
(v) Debt in an aggregate principal amount not in excess of
80% of the aggregate amount of accounts receivable set forth on the
most recent unaudited quarterly or audited annual financial
statements of the Guarantor and its consolidated subsidiaries filed
with the Commission;
(vi) Purchase Money Debt, which is incurred for the
construction, acquisition and improvement of Telecommunications
Assets, provided that the amount of such Purchase Money Debt does not
exceed the cost of the construction, acquisition or improvement of
the applicable Telecommunications Assets;
(vii) Debt consisting of Permitted Interest Rate and Currency
Protection Agreements; and
(viii) Debt not otherwise permitted to be Incurred pursuant
to clauses (i) through (vii) above, which, together with any other
outstanding Debt Incurred pursuant to this clause (viii), has an
aggregate
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principal amount not in excess of $50 million at any time
outstanding.
For purposes of determining compliance with this Section,
with respect to any item of Debt, (x) in the event that such item of Debt
meets the criteria of more than one of the types of Debt the Guarantor or a
Restricted Subsidiary is permitted to Incur pursuant to the foregoing clauses
(i) through (viii), the Guarantor shall have the right, in its sole
discretion, to classify such item of Debt and shall only be required to
include the amount and type of such Debt under the clause permitting the Debt
as so classified and (y) any other obligation of the obligor on such Debt (or
of any other Person who could have Incurred such Debt under this Section)
arising under any Guarantee, Lien or letter of credit supporting such Debt
shall be disregarded to the extent that such Guarantee, Lien or letter of
credit secures the principal amount of such Debt.
For purposes of determining compliance with any
Dollar-denominated restriction on the Incurrence of Debt denominated in a
foreign currency, the Dollar-equivalent principal amount of such
foreign-currency-denominated Debt Incurred pursuant thereto shall be
calculated based on the relevant currency exchange rate in effect on the date
that such foreign-currency-denominated Debt was Incurred, in the case of term
debt, or first committed, in the case of revolving credit debt; provided that
(x) the Dollar-equivalent principal amount of any such Debt outstanding on the
date hereof shall be calculated based on the relevant currency exchange rate
in effect on the date hereof and (y) if such Debt is Incurred to refinance
other Debt denominated in a foreign currency, and such refinancing would cause
the applicable Dollar-denominated restriction to be exceeded if calculated at
the relevant currency exchange rate in effect on the date of such refinancing,
such Dollar denominated restriction shall be deemed not to have been exceeded
so long as the principal amount of such refinancing Debt does not exceed the
principal amount of such Debt being refinanced. The principal amount of any
Debt Incurred to refinance other Debt, if Incurred in a different currency
from the Debt being refinanced, shall be calculated based on the currency
exchange rate applicable to the currency in which such respective Debt is
denominated that is in effect on the date of such refinancing.
SECTION 10.09. Additional Amounts. (a) Payments made by the
Issuer or the Guarantor pursuant to the Securities or the Securities Guarantee
will be made without withholding or deduction for taxes unless required by
law. In the event of (x) any change that becomes effective after the date
hereof in the laws of the U.K. or Bermuda or of any political subdivision or
taxing authority thereof or therein
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or any change in the interpretation or administration thereof or (y) a
failure by the Issuer to list and maintain a listing of the Securities on a
"recognized stock exchange" (within the meaning of Section 841 of the U.K.
Income and Corporation Taxes Act 1988) prior to the first date upon which
interest is required to be paid hereunder (a "Listing Failure"), the effect
of which is to require the withholding or deduction by the Issuer or the
Guarantor pursuant to the Securities or the Securities Guarantee,
respectively, of any amount for taxes that would not have been required to
be withheld or deducted absent such change or Listing Failure, as the case
may be, the Issuer or the Guarantor will pay, to the extent it may then
lawfully do so, such additional amounts ("Additional Amounts") as may be
necessary in order that every net payment of the principal of and interest
on the Securities, after deduction for withholding for or on account of any
future tax, assessment or other governmental charge will not be less than
the amount provided for in the Securities to be then due and payable;
provided, however, that the foregoing obligation to pay Additional Amounts
shall not apply in respect of:
(i) any tax, withholding, assessment or other governmental
charge which would not have been imposed but for (x) the existence of
any present or former connection between such holder (or between a
fiduciary, settlor, beneficiary, member or shareholder of, or
possessor of a power over, such holder, if such holder is an estate,
trust, partnership or corporation) and the U.K. or Bermuda or any
political subdivision or taxing authority thereof including, without
limitation, such holder (or such fiduciary, settlor, beneficiary,
member, shareholder or possessor) being or having been a citizen or
resident thereof or being or having been present or engaged in trade
or business therein or having or having had a permanent establishment
therein or (y) the presentation of a Security or a Securities
Guarantee (where presentation is required) for payment on a date more
than 30 days after the date on which such payment became due and
payable or the date on which payment thereof is duly provided for,
whichever occurs later, except for Additional Amounts with respect to
Taxes that would have been imposed had the holder presented the
Security for payment within such 30-day period;
(ii) any estate, inheritance, gift, sale, transfer or
personal property tax;
(iii) any tax, assessment or other governmental charge that
is withheld by reason of the failure to timely comply by the holder
or the beneficial owner of the Security with a request in writing of
the Issuer or
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the Guarantor (which request shall be furnished to the Trustee)
(x) to provide information concerning the nationality, residence
or identity of the holder or such beneficial owner or (y) to make
any declaration or other similar claim or satisfy any information
or reporting requirement, which, in the case of (x) or (y), is
required or imposed by a statute, treaty, regulation or
administrative practice of the taxing or domicile jurisdiction as
a precondition to exemption from or reduction of all or part of
such tax, assessment or other governmental charge; provided,
however, that this clause (iii) shall not apply to limit the
Issuer's or Guarantor's obligation to pay Additional Amounts if
the completing and filing of the information described in
subclause (x) or the declaration or other claim described in
subclause (y) would be materially more onerous in form, in
procedure or in substance of information disclosed, in comparison
to the information reporting requirements imposed under U.S. tax
law with respect to Forms 1001, W-8 and W-9; or
(iv) any tax, withholding, assessment or other governmental
charge resulting from a Listing Failure with respect to any Security
issued in the form of a Definitive Security pursuant to the terms of
the Deposit Agreement and this Indenture; or
(v) any combination of items (i), (ii), (iii) and (iv)
above; nor shall Additional Amounts be paid with respect to any
payment of the principal of, or any interest on, any Security or
Securities Guarantee to any holder who is not the sole beneficial
owner of such Security or Securities Guarantee or is a fiduciary or
partnership, but only to the extent that a beneficial owner, a
beneficiary or a settlor with respect to a fiduciary or a member of
the partnership would not have been entitled to the payment of the
Additional Amount had the beneficial owner, beneficiary, settlor or
member of such partnership received directly its beneficial or
distributive share of the payment.
At least 30 days prior to each date on which any payment
under or with respect to the Securities is due and payable, if the Issuer or
the Guarantor will be obligated to pay Additional Amounts with respect to such
payment, the Issuer or the Guarantor will deliver to the Trustee an Officer's
Certificate stating the fact that such Additional Amounts will be payable and
the amounts so payable and will set forth such other information necessary to
enable the Trustee to pay such Additional Amounts to Holders on the payment
date. Whenever in this Indenture there is mentioned, in any context, the
payment of principal (and
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premium, if any), Redemption Price, interest or any other amount payable
under or with respect to any Security, such mention shall be deemed to
include mention of the payment of Additional Amounts to the extent that, in
such context, Additional Amounts are, were or would be payable in respect
thereof.
(b) The Issuer or the Guarantor shall, upon written request
of a Holder and provided that reasonable supporting documentation is provided,
reimburse such Holder for the amount of any taxes levied or imposed by the
U.K. or Bermuda and paid by such Holder as a result of any payment made under
or with respect to the Securities or under the Securities Guarantee, but only
to the extent that the Issuer or the Guarantor would have been obligated to
pay Additional Amounts in respect of such taxes if such taxes had been imposed
by withholding or deduction from payments made under or with respect to the
Securities or the Securities Guarantee.
(c) The Issuer shall pay any stamp, issue, registration,
documentary, value added or other similar taxes and other duties (including
interest and penalties) payable in the U.K. or Bermuda and in the United
States in respect of the creation, issue, offering, execution or enforcement
of the Securities, the Securities Guarantee or any documentation with respect
thereto.
SECTION 10.10. Limitation on Restricted Payments. The
Guarantor (i) may not, and will not permit any Restricted Subsidiary, directly
or indirectly, to declare or pay any dividend, or make any distribution, in
respect of its Capital Stock or to the holders thereof, excluding (x) any
dividends or distributions payable solely in shares of its Capital Stock
(other than Disqualified Stock) or in options, warrants or other rights to
acquire its Capital Stock (other than Disqualified Stock), (y) any dividends
paid to the Guarantor or a Restricted Subsidiary, or (z) pro rata dividends
paid on shares of Common Stock of Restricted Subsidiaries, (ii) may not, and
may not permit any Restricted Subsidiary to, purchase, redeem, or otherwise
retire or acquire for value (a) any Capital Stock of the Guarantor or any
Related Person of the Guarantor (other than a permitted refinancing) or (b)
any options, warrants or rights to purchase or acquire shares of Capital Stock
of the Guarantor or any Related Person of the Guarantor or any securities
convertible or exchangeable into shares of Capital Stock of the Guarantor or
any Related Person of the Guarantor (other than a permitted refinancing),
(iii) may not make, or permit any Restricted Subsidiary to make, any
Investment, except for Permitted Investments, and (iv) may not, and may not
permit any Restricted Subsidiary to, redeem, defease, repurchase, retire or
otherwise acquire or
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retire for value, prior to any scheduled maturity, repayment or sinking fund
payment, Debt of the Guarantor or the Issuer which is subordinate in right
of payment to the Securities or the Securities Guarantee (each of clauses
(i) through (iv) being a "Restricted Payment") if: (1) an Event of Default,
or an event that with the passing of time or the giving of notice, or both,
would constitute an Event of Default, shall have occurred and be continuing,
or (2) except with respect to Investments, upon giving effect to such
Restricted Payment, the Guarantor could not Incur at least $1.00 of
additional Debt pursuant to the first paragraph of Section 10.08, or (3)
upon giving effect to such Restricted Payment, the aggregate of all
Restricted Payments from the date hereof exceeds the sum of: (a)(x)
Consolidated Cash Flow Available for Fixed Charges since the end of the last
full fiscal quarter prior to the date hereof through the last day of the
last full fiscal quarter ending immediately preceding the date of such
Restricted Payment (the "Calculation Period") minus (y) 1.5 times
Consolidated Interest Expense for the Calculation Period plus (b) an amount
equal to the net reduction in Investments (other than reductions in
Permitted Investments) in any Person resulting from payments of interest on
Debt, dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Guarantor or any Restricted Subsidiary or from
the Net Cash Proceeds from the sale of any such Investment (except, in each
case, to the extent any such payment or proceeds are included in the
calculation of Consolidated Cash Flow Available for Fixed Charges for the
Calculation Period), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition
of Investment), not to exceed, in each case, the amount of Investments
previously made by the Guarantor or any Restricted Subsidiary in such Person
or Unrestricted Subsidiary plus (c) an amount equal to the aggregate net
proceeds received after the date hereof, including the fair market value of
property other than cash (determined in good faith by the Board of Directors
as evidenced by a resolution of the Board of Directors filed with the
Trustee), as capital contributions to the Guarantor or from the issuance
(other than to a Subsidiary) of Capital Stock (other than Disqualified
Stock) of the Guarantor and warrants, rights or options on Capital Stock
(other than Disqualified Stock) of the Guarantor and the principal amount at
maturity of Debt of the Guarantor or any Restricted Subsidiary that has been
converted into Capital Stock (other than Disqualified Stock and other than
by a Subsidiary) of the Guarantor after the date hereof plus (d) $30
million.
Notwithstanding the foregoing, (i) the Guarantor may pay any
dividend on Capital Stock of any class of the Guarantor within 60 days after
the declaration thereof if,
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on the date when the dividend was declared, the Guarantor could have paid
such dividend in accordance with the foregoing provisions, (ii) the
Guarantor may make acquisitions of a minority equity interest in entities
engaged in the Telecommunications Business; provided that (A) the
acquisition of a majority equity interest in such entities is not then
permitted or practicable under applicable law without regulatory consent or
change of law, (B) the Board of Directors of the Guarantor determines in
good faith that there is a substantial probability that such approval or
change of law will be obtained, (C) the Guarantor or one of its Restricted
Subsidiaries has the right to acquire Capital Stock representing a majority
of the voting power of the Voting Stock of such entity upon receipt of
regulatory consent or change of law and does acquire such Voting Stock
reasonably promptly upon receipt of such consent or change of law and (D) in
the event that such consent or change of law has not been obtained within 18
months of funding such Investment, the Guarantor or one of its Restricted
Subsidiaries has the right to sell such minority equity interest to the
Person from whom it acquired such interest, for consideration consisting of
the consideration originally paid by the Guarantor and its Restricted
Subsidiaries for such minority equity interest; (iii) the Guarantor may
repurchase any shares of its Common Stock or options to acquire its Common
Stock from Persons who were formerly directors, officers or employees of the
Guarantor or any of its Subsidiaries, provided that the aggregate amount of
all such repurchases made pursuant to this clause (iii) shall not exceed $6
million, plus the aggregate cash proceeds received by the Guarantor since
the date hereof from issuances of its Common Stock or options to acquire its
Common Stock to directors, officers and employees of the Guarantor or any of
its Subsidiaries, (v) the Guarantor or a Restricted Subsidiary may redeem,
defease, repurchase, retire or otherwise acquire or retire for value Debt of
the Guarantor or the Issuer which is subordinated in right of payment to the
Securities or the Security Guarantees, as the case may be, in exchange for,
or out of the proceeds of a substantially concurrent sale (other than to a
Subsidiary) of, Capital Stock (other than Disqualified Stock of the
Guarantor) or in a refinancing that satisfies the requirements of clause
(iii) of the second paragraph of Section 10.08 and (vi) the Guarantor and
its Subsidiaries may retire or repurchase any Capital Stock of the Guarantor
or of any Subsidiary of the Guarantor in exchange for, or out of the
proceeds of the substantially concurrent sale (other than to a Subsidiary of
the Guarantor) of, Capital Stock (other than Disqualified Stock) of the
Guarantor or any Subsidiary.
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SECTION 10.11. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries. The Guarantor may not, and
may not permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary of the
Guarantor (i) to pay dividends (in cash or otherwise) or make any other
distributions in respect of its Capital Stock owned by the Guarantor or any
other Restricted Subsidiary of the Guarantor or pay any Debt or other
obligation owed to the Guarantor or any other Restricted Subsidiary; (ii) to
make loans or advances to the Guarantor or any other Restricted Subsidiary; or
(iii) to transfer any of its property or assets to the Guarantor or any other
Restricted Subsidiary.
Notwithstanding the foregoing, the Guarantor may, and may
permit any Restricted Subsidiary to, suffer to exist any such encumbrance or
restriction (a) pursuant to any agreement in effect on the date hereof; (b)
pursuant to an agreement relating to any Acquired Debt, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person so acquired and was not Incurred in
anticipation of such Person being acquired; (c) pursuant to an agreement
effecting a renewal, refunding or extension of Debt Incurred pursuant to an
agreement referred to in clause (a) or (b) above; provided, however, that the
provisions contained in such renewal, refunding or extension agreement
relating to such encumbrance or restriction are no more restrictive in any
material respect than the provisions contained in the agreement the subject
thereof; (d) in the case of clause (iii) in the above paragraph, contained in
any security agreement (including a Capital Lease Obligation) securing Debt of
the Guarantor or a Restricted Subsidiary otherwise permitted hereunder, but
only to the extent such restrictions restrict the transfer of the property
subject to such security agreement; (e) in the case of clause (iii) in the
above paragraph, with respect to customary nonassignment provisions entered
into in the ordinary course of business in leases and other agreements; (f)
with respect to a Restricted Subsidiary of the Guarantor imposed pursuant to
an agreement which has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted
Subsidiary, provided that (x) the consummation of such transaction would not
result in an Event of Default or an event that, with the passing of time or
the giving of notice or both, would constitute an Event of Default, (y) such
restriction terminates if such transaction is not consummated and (z) the
consummation or abandonment of such transaction occurs within one year of the
date such agreement was entered into; (g) pursuant to applicable law or
required by any regulatory authority
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having jurisdiction over the Guarantor or any Subsidiary; (h) pursuant to
this Indenture and the Securities; (i) constituting a Lien otherwise
permitted pursuant to Section 10.15; and (j) other encumbrances or
restrictions that are not materially more restrictive than customary
provisions in comparable financings provided that each of the Issuer and the
Guarantor provides an Officer's Certificate to the Trustee to the effect
that in the opinion of the signers of such certificate such encumbrances or
restrictions will not materially impact the Issuers' and the Guarantors'
ability to make scheduled payments of interest and principal under the
Securities.
SECTION 10.12. Limitation on Transactions with Affiliates
and Related Persons. The Guarantor will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, enter into, renew or extend
any transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any
Related Person or with any Affiliate of the Guarantor or any Restricted
Subsidiary, except upon fair and reasonable terms no less favorable to the
Guarantor or such Restricted Subsidiary than could be obtained, at the time of
such transaction or, if such transaction is pursuant to a written agreement,
at the time of the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a Person that is not a Related Person
or an Affiliate.
The foregoing limitation does not limit, and shall not apply
to (i) transactions (A) approved by a majority of the disinterested members of
the Board of Directors or (B) for which the Guarantor or a Restricted
Subsidiary delivers to the Trustee a written opinion of a nationally
recognized investment banking firm (or a subsidiary or affiliate thereof) in
the United States stating that the transaction is fair to the Guarantor or
such Restricted Subsidiary from a financial point of view; (ii) any
transaction solely between the Guarantor and any of its Wholly Owned
Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries; and (iii) any payments or other transactions pursuant to any
tax-sharing agreement between the Guarantor and any other Person with which
the Guarantor files a consolidated tax return or with which the Guarantor is
part of a consolidated group for tax purposes. Notwithstanding the foregoing,
any transaction covered by the first paragraph of this Section and not covered
by clauses (ii) through (iii) of this paragraph must be approved or determined
to be fair in the manner provided for in clause (i)(A) or (B) above unless the
aggregate amount of such transaction is less than $5 million in value.
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SECTION 10.13. Limitation on Asset Dispositions. (a) The
Guarantor may not, and may not permit any Restricted Subsidiary of the
Guarantor to, make any Asset Disposition in one or more related transactions
unless: (i) the Guarantor or the Restricted Subsidiary, as the case may be,
receives consideration for such disposition at least equal to the fair market
value for the assets sold or disposed of as determined by the Board of
Directors in good faith and, in the case of an Asset Disposition in an amount
greater than $5 million, evidenced by a resolution of the Board of Directors
filed with the Trustee; and (ii) at least 75% of the consideration for such
disposition consists of (1) cash or readily marketable cash equivalents or the
assumption of Debt of the Guarantor (other than Debt that is subordinated to
the Securities) or of a Restricted Subsidiary and release from all liability
on the Debt assumed, or (2) Telecommunications Assets. In the event and to the
extent that the Net Available Proceeds received by the Guarantor or any of its
Restricted Subsidiaries from one or more Asset Dispositions occurring on or
after the date hereof in any period of 12 consecutive months exceed 10% of
Consolidated Tangible Assets (determined as of the date closest to the
commencement of such 12-month period for which a consolidated balance sheet of
the Guarantor and its subsidiaries have been filed with the Commission), then
the Guarantor or the Issuer shall or shall cause the relevant Restricted
Subsidiary to (i) within 12 months after the date Net Available Proceeds so
received exceed 10% of Consolidated Tangible Assets (A) apply an amount equal
to such excess Net Available Proceeds to permanently repay unsubordinated Debt
of the Guarantor or any Restricted Subsidiary providing a Subsidiary Guarantee
pursuant to Section 10.14 or Debt of any other Restricted Subsidiary, in each
case owing to a Person other than the Guarantor or any of its Restricted
Subsidiaries or (B) invest an equal amount, or the amount not so applied
pursuant to clause (A) (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in
Telecommunications Assets and (ii) apply (no later than the end of the
12-month period referred to in clause (i)) such excess Net Available Proceeds
(to the extent not applied pursuant to clause (i)) as provided in the
paragraph (b) below. The amount of such excess Net Available Proceeds required
to be applied (or to be committed to be applied) during such 12-month period
as set forth in clause (i) of the preceding sentence and not applied as so
required by the end of such period shall constitute "Excess Proceeds".
(b) If, as of the first day of any calendar month, the
aggregate amount of Excess Proceeds not theretofore subject to an Offer to
Purchase pursuant to this Section totals at least $10 million, the Issuer
shall repay
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any Debt of the Guarantor or any Restricted Subsidiary to the extent the
terms of such Debt require repayment prior to an Offer to Purchase being
made hereunder (including by way of an offer to purchase to the holders of
such Debt, if so required). To the extent there are Excess Proceeds after
such repayment (or offer to purchase), the Issuer must commence, not later
than the fifteenth Business Day of such month (or if later, the fifteenth
Business Day after the expiration of any such required offer to purchase),
and consummate an Offer to Purchase from the holders of the Securities on a
pro rata basis an aggregate Accreted Value of Securities on the relevant
Payment Date equal to the Excess Proceeds on such date not applied or to be
applied pursuant to the first sentence of this paragraph (b), at a purchase
price equal to 100% of the Accreted Value of the Securities, plus, in each
case, accrued interest (if any) to but excluding the Payment Date and, to
the extent required by the terms thereof, any other Debt of the Guarantor
that is pari passu with the Securities at a price no greater than 100% of
the principal amount thereof plus accrued interest to but excluding the date
of purchase (or 100% of the accreted value in the case of original issue
discount Debt). To the extent there are any remaining Excess Proceeds
following the completion of the Offer to Purchase, the Issuer must repay
such other Debt of the Guarantor or Debt of a Restricted Subsidiary of the
Guarantor, to the extent permitted under the terms thereof and, to the
extent there are any remaining Excess Proceeds after such repayment, the
Issuer shall apply such amount to any other use as determined by the Issuer
which is not otherwise prohibited by this Indenture.
SECTION 10.14. Limitation on Issuances and Sales of Capital
Stock of Restricted Subsidiaries. The Guarantor may not, and may not permit
any Restricted Subsidiary of the Guarantor to, issue, transfer, convey, sell
or otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary
of the Guarantor or securities convertible or exchangeable into, or options,
warrants, rights or any other interest with respect to, Capital Stock of a
Restricted Subsidiary of the Guarantor to any Person other than the Guarantor
or a Wholly Owned Restricted Subsidiary of the Guarantor except (i) a sale of
all of the Capital Stock of such Restricted Subsidiary owned by the Guarantor
and any Restricted Subsidiary of the Guarantor that complies with Section
10.13 above to the extent such Section applies, (ii) if required, the
issuance, transfer, conveyance, sale or other disposition of directors'
qualifying shares, (iii) Disqualified Stock issued in exchange for, or upon
conversion of, or the proceeds of the issuance of which are used to redeem,
refinance, replace or refund shares of Disqualified Stock of such Restricted
Subsidiary; provided that the amounts of the redemption obligations of such
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Disqualified Stock shall not exceed the amounts of the redemption obligations
of, and such Disqualified Stock shall have redemption obligations no earlier
than those required by, the Disqualified Stock being exchanged, converted,
redeemed, refinanced, replaced or refunded and (iv) issuances of not more than
49% of the voting stock and equity interest in a Restricted Subsidiary engaged
in the Telecommunications Business (1) in connection with the acquisition of
such Restricted Subsidiary or of Telecommunications Assets acquired or to be
acquired by the Guarantor or a Restricted Subsidiary or (2) to a Strategic
Investor; provided, that the Guarantor complies with Section 10.13 above to
the extent such Section applies.
SECTION 10.15. Limitation on Liens. The Guarantor may not,
and may not permit any Restricted Subsidiary of the Guarantor to, Incur or
suffer to exist any Lien on or with respect to any property or assets now
owned or hereafter acquired to secure any Debt without making, or causing such
Restricted Subsidiary to make, effective provision for securing the Securities
(x) equally and ratably with such Debt as to such property for so long as such
Debt will be so secured or (y) in the event such Debt is Debt of the Guarantor
which is subordinate in right of payment to the Securities, prior to such Debt
as to such property for so long as such Debt will be so secured.
The foregoing restrictions shall not apply to: (i) Liens
existing on the date hereof and securing Debt outstanding on the date hereof;
(ii) Liens securing Debt outstanding or available under all Credit Facilities
to the extent such Debt is permitted under clause (i) of the second paragraph
of Section 10.08; (iii) Liens in favor of the Guarantor or any Restricted
Subsidiary of the Guarantor; (iv) Liens on real or personal property of the
Guarantor or a Restricted Subsidiary of the Guarantor acquired, constructed or
constituting improvements made after the date of original issuance of the
Securities to secure Purchase Money Debt which is Incurred for the
construction, acquisition and improvement of Telecommunications Assets and is
otherwise permitted under this Indenture; provided, however, that (a) the
principal amount of any Debt secured by such a Lien does not exceed 100% of
such purchase price or cost of construction or improvement of the property
subject to such Liens, (b) such Lien attaches to such property prior to, at
the time of or within 180 days after the acquisition, completion of
construction or commencement of operation of such property and (c) such Lien
does not extend to or cover any property other than the specific item of
property (or portion thereof) acquired, constructed or constituting the
improvements made with the proceeds of such Purchase Money Debt; (v) Liens to
secure Acquired Debt; provided, however, that (a) such Lien attaches to the
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acquired asset prior to the time of the acquisition of such asset and (b) such
Lien does not extend to or cover any other asset; (vi) Liens to secure Debt
Incurred to extend, renew, refinance or refund (or successive extensions,
renewals, refinancings or refundings), in whole or in part, Debt secured by
any Lien referred to in the foregoing clauses (i), (ii), (iv) and (v) so long
as the principal amount of Debt so secured is not increased except as
otherwise permitted under clause (iii) of the second paragraph of Section
10.08 and, in the case of Liens to secure Debt incurred to extend, renew,
refinance or refund Debt secured by a Lien referred to in the foregoing clause
(i), (iv) or (v), such Liens do not extend to any other property; and (vii)
Permitted Liens.
SECTION 10.16. Limitation on Issuance of Guarantees of Debt
by Restricted Subsidiaries. The Guarantor will not permit any Restricted
Subsidiary, directly or indirectly, to incur any Guarantee of any Debt of the
Guarantor or the Issuer unless such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture providing for a Guarantee by
such Subsidiary of the Securities; any Subsidiary Guarantee by such Subsidiary
of the Securities (x) will be senior in right of payment to any Guarantee of
Subordinated Debt of the Guarantor or the Issuer and (y) will be pari passu
with or senior to any Guarantee of any other Debt of the Guarantor or the
Issuer.
Notwithstanding the foregoing, any Subsidiary Guarantee may
provide by its terms that it shall be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any Person
not an Affiliate of the Guarantor, of all of the Guarantor's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by this Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except
a discharge or release by or as a result of payment under such Guarantee.
SECTION 10.17. Change of Control. (a) Unless the Issuer has
heretofore exercised its right to redeem all of the Securities in accordance
with the terms of this Indenture and the Securities, upon the occurrence of a
Change of Control (as defined below), each Holder of a Security shall have the
right to have such Security repurchased by the Issuer on the terms and
conditions precedent set forth in this Section 10.17 and otherwise in this
Indenture. The Issuer shall, within 30 days following the date of the
consummation of a transaction resulting in a Change of Control, mail an Offer
with respect to an Offer to
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Purchase all Outstanding Securities at a purchase price equal to 101% of
their Accreted Value plus accrued interest to but excluding the date of
purchase. Installments of interest (including Special Interest) whose Stated
Maturity is on or prior to the Purchase Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to
their terms and the provisions of Section 3.07. Each Holder shall be
entitled to tender all or any portion of the Securities owned by such Holder
pursuant to the Offer to Purchase, subject to the requirement that any
portion of a Security tendered must be tendered in an integral multiple of
$1,000 principal amount at maturity.
(b) The Issuer and Trustee shall perform their respective
obligations specified in the Offer for the Offer to Purchase. Prior to the
Purchase Date, the Issuer shall (i) accept for payment Securities or portions
thereof tendered pursuant to the Offer, (ii) deposit with the Paying Agent
(or, if the Issuer is acting as its own Paying Agent, segregate and hold in
trust as provided in Section 10.03) money sufficient to pay the purchase price
of all Securities or portions thereof so accepted and (iii) deliver or cause
to be delivered to the Trustee all Securities so accepted together with an
Officers' Certificate stating the Securities or portions thereof accepted for
payment by the Issuer. The Paying Agent shall promptly mail or deliver to
Holders of Securities so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail or deliver to such
Holders a new Security or Securities equal in principal amount to any
unpurchased portion of the Security surrendered as requested by the Holder.
Any Security not accepted for payment shall be promptly mailed or delivered by
the Issuer to the Holder thereof.
(c) A "Change of Control" shall be deemed to have occurred
in the event that, after the date of this Indenture, either (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange
Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of more than 35% of the total voting power of the Voting
Stock of the Guarantor, on a fully diluted basis, and such ownership is
greater than the amount of voting power of the Voting Stock of the Guarantor,
on a fully diluted basis, held by the Existing Stockholders and their
Affiliates on such date; (ii) individuals who on the date of this Indenture
constitute the Board of Directors (together with any new directors whose
election by the Board of Directors or whose nomination for election by the
Guarantor's stockholders was approved by a vote of at least two-thirds of the
members of the Board of
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Directors then in office who either were members of the Board of Directors
on the date of this Indenture or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority of
the members of the Board of Directors then in office; or (iii) all of the
Common Stock of the Issuer is not beneficially owned by the Guarantor (other
than directors' qualifying shares).
(d) In the event that the Issuer makes an Offer to Purchase
the Securities, the Issuer and the Guarantor shall comply with any applicable
securities laws and regulations, including any applicable requirements of
Section 14(e) of, and Rule 14e-1 under, the Securities Exchange Act.
SECTION 10.18. Provision of Financial Information. The
Guarantor and the Issuer have agreed that, for so long as any Securities
remain Outstanding, each will furnish to the holders of the Securities and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act. In addition, the Guarantor and the Issuer will file with the
Trustee within 15 days after it files them with the Commission copies of the
annual and quarterly reports and the information, documents, and other reports
that the Guarantor or the Issuer is required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC Reports"). In the
event the Guarantor or the Issuer shall cease to be required to file SEC
Reports pursuant to the Exchange Act, the Guarantor and the Issuer will
nevertheless continue to file such reports with the Commission (unless the
Commission will not accept such a filing) and the Trustee. The Guarantor and
the Issuer will furnish copies of the SEC Reports to the holders of Securities
at the time the Guarantor or the Issuer is required to file the same with the
Trustee and will make such information available to investors who request it
in writing.
SECTION 10.19. Statement by Officers as to Default. (a) The
Issuer and the Guarantor will deliver to the Trustee, within 120 days after
the end of each fiscal year of the Guarantor ending after the date hereof, an
Officers' Certificate, stating whether or not to the best knowledge of the
signers thereof the Guarantor or the Issuer is in default in the performance
and observance of any of the terms, provisions and conditions of Sections
10.04 to 10.18, inclusive, and if the Guarantor or the Issuer shall be in
default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
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(b) The Issuer and the Guarantor shall deliver to the
Trustee, as soon as possible and in any event within 10 days after the Issuer
or the Guarantor becomes aware of the occurrence of an Event of Default or an
event which, with notice or the lapse of time or both, would constitute an
Event of Default, an Officers' Certificate setting forth the details of such
Event of Default or default and the action which the Issuer or the Guarantor
proposes to take with respect thereto.
SECTION 10.20. Waiver of Certain Covenants. The Issuer or
the Guarantor, as applicable, may omit in any particular instance to comply
with any covenant or condition set forth in Sections 10.04 to 10.17,
inclusive, if before or after the time for such compliance the Holders of at
least a majority in aggregate principal amount at maturity of the Outstanding
Securities shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such covenant or condition, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Issuer and the Guarantor and the duties of the Trustee in
respect of any such covenant or condition shall remain in full force and
effect.
SECTION 10.21. Paying Agent. The Issuer shall not authorize
or designate any Person (including the Trustee) as a Paying Agent hereunder
unless such Person is located outside of the United Kingdom.
SECTION 10.22. Internal Revenue Service Filing. The Issuer
shall file Internal Revenue Service Form 8281, Information Return for Publicly
Offered Original Issue Discount Instruments, with the Internal Revenue Service
within 30 days of the date of this Indenture and shall mail a copy of such
filing to the Trustee within 15 days after such filing with the Internal
Revenue Service.
ARTICLE XI
Redemption of Securities
SECTION 11.01. Right of Redemption. (a) At any time prior
to November 1, 2001, in the event that the Guarantor receives net cash
proceeds from the public or private sale of its Common Stock (other than
Disqualified Stock), the Issuer (to the extent it receives such proceeds and
has not used such proceeds, directly or indirectly, to redeem or repurchase
other securities pursuant to optional redemption provisions) may, at its
option, apply an amount equal to any such net cash proceeds to redeem, from
time to
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time, Securities in a principal amount at maturity of up to an aggregate
amount equal to 33 1/3% of the original aggregate principal amount at
maturity of the Securities; provided, however, that Securities in an amount
equal to at least 66 2/3% of the original aggregate principal amount at
maturity of the Securities remain Outstanding after each redemption. Each
redemption must occur on a Redemption Date within 180 days of the related
sale and upon not less than 30 nor more than 60 days' notice by mail to each
Holder of Securities to be redeemed at such Holder's address appearing in
the Security Register, in amounts of $1,000 or an integral multiple of
$1,000 at a Redemption Price of 112.000% of the Accreted Value of the
Securities plus accrued interest to but excluding the Redemption Date
(subject to, in the case of a Global Security in bearer form, the right of
the Holder thereof and, in the case of Definitive Securities, the right of
Holders of record on the relevant Regular Record Date, to receive Interest
due on an Interest Payment Date that is on or prior to the Redemption Date).
(b) In the event that (i) the Guarantor or the Issuer has
become or would become obligated to pay any Additional Amounts as a result of
(x) changes affecting withholding tax laws or (y) a Listing Failure (as
defined herein) provided that the Issuer has used reasonable best efforts to
list and maintain the listing of the Securities on a "recognized stock
exchange" (within the meaning of Section 841 of the U.K. Income and
Corporation Taxes Act 1988) (as provided for in Section 10.09), and (ii) the
Guarantor and the Issuer are unable to avoid the requirement to pay such
Additional Amounts by taking reasonable measures available to them (including,
without limitation, the Guarantor making payments directly to holders under
the Securities Guarantee, unless such payment is likely to result in adverse
consequences to the Issuer or the Guarantor), then the Issuer may redeem all,
but not less than all, of the Securities at any time at 100% of the Accreted
Value thereof on the Redemption Date, together with accrued interest thereon,
if any, to but excluding the Redemption Date (subject to, in the case of a
Global Security in bearer form, the right of the Holder thereof and, in the
case of Definitive Securities, the right of Holders of record on the relevant
Regular Record Date, to receive Interest due on an Interest Payment Date that
is on or prior to the Redemption Date). Prior to the publication of the notice
of redemption in accordance with the foregoing, the Issuer shall deliver to
the Trustee an officer's certificate stating that the Issuer is entitled to
effect such redemption based on a written opinion of independent tax counsel
or accounting firm reasonably satisfactory to the Trustee.
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(c) The Securities further may be redeemed, as a whole or in
part, at the election of the Issuer, at any time on or after November 1, 2003
and prior to maturity, upon not less than 30 nor more than 60 days' notice by
mail to each Holder of Securities to be redeemed at such Holder's address
appearing in the Security Register, in amounts of $1,000 or an integral
multiple of $1,000, at the Redemption Prices specified in the form of Security
hereinbefore set forth, together with accrued interest to but excluding the
Redemption Date (subject to, in the case of a Global Security in bearer form,
the right of the Holder thereof and, in the case of Definitive Securities, the
right of Holders of record on the relevant Regular Record Date, to receive
Interest due on an Interest Payment Date that is on or prior to the Redemption
Date).
SECTION 11.02. Applicability of Article. Redemption of
Securities at the election of the Issuer, as permitted or required by any
provision of this Indenture, shall be made in accordance with such provision
and this Article.
SECTION 11.03. Election To Redeem; Notice to Trustee. The
election of the Issuer to redeem any Securities pursuant to Section 11.01
shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Issuer of less than all the Securities, the Issuer shall, at
least 5 days prior to giving notice of such redemption pursuant to Section
11.05 (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee in writing of such Redemption Date and of the principal amount of
Securities to be redeemed. In the case of any redemption of Securities prior
to the expiration of any restriction on such redemption provided in the terms
of such Securities or elsewhere in this Indenture, the Issuer shall furnish
the Trustee with an Officers' Certificate evidencing compliance with such
restriction.
SECTION 11.04. Securities To Be Redeemed Pro Rata. If less
than all the Securities are to be redeemed in any redemption, the Securities
to be redeemed shall be selected by the Trustee by prorating, as nearly as may
be practicable, the principal amount at maturity of Securities to be redeemed.
In any proration pursuant to this Section, the Trustee shall make such
adjustments, reallocations and eliminations as it shall deem proper to the end
that the principal amount at maturity of Securities so prorated shall be
$1,000 or a multiple thereof, by increasing or decreasing or eliminating the
amount which would be allocable to any Holder on the basis of exact proportion
by an amount not exceeding $1,000. The Trustee in its discretion may determine
the particular Securities (if there are more than one) registered in the name
of any Holder which are to be
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redeemed, in whole or in part. The Trustee shall incur no liabilities for
any selection made pursuant to this Section 11.04.
The Trustee shall promptly notify the Issuer and each
Security Registrar in writing of the Securities selected for redemption and,
in the case of any Securities selected for partial redemption, the principal
amount at maturity thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount at maturity of such Securities
which has been or is to be redeemed.
SECTION 11.05. Notice of Redemption. Notice of redemption
shall be given by first-class mail, postage prepaid, mailed not less than 30
nor more than 60 days prior to the Redemption Date, to each Holder of
Securities to be redeemed, at such Holder's address appearing in the Security
Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) whether the redemption is being made pursuant to Section
11.01(a), (b) or (c) and, if being made pursuant to Section 11.01(a)
or (b), a brief statement setting forth the Issuer's right to effect
such redemption and the Issuer's basis therefor,
(4) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial redemption
of any Securities, the principal amounts at maturity) of the
particular Securities to be redeemed,
(5) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and
that interest thereon will cease to accrue on and after said date,
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price, and
(7) that in the case that a Security is only redeemed in
part, the Issuer shall execute and the
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Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Security or Securities in
an aggregate amount equal to the unredeemed portion of the Security.
Notice of redemption of Securities to be redeemed at the
election of the Issuer shall be given by the Issuer or, at the Issuer's
request, by the Trustee in the name and at the expense of the Issuer. If so
requested by the Issuer, the Trustee shall mail any such notice not later than
the date specified for mailing by the Issuer, which shall not be sooner than 5
days after receipt by the Trustee of such request (unless a shorter period
shall be satisfactory to the Trustee).
SECTION 11.06. Deposit of Redemption Price. Prior to any
Redemption Date, the Issuer shall deposit with the Trustee or with a Paying
Agent (or, if the Issuer is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 10.03) an amount of money sufficient to pay
the Redemption Price of, and (except if the Redemption Date shall be an
Interest Payment Date) accrued interest on, all the Securities which are to be
redeemed on that date.
SECTION 11.07. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to be
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Issuer shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security
shall be paid by the Issuer at the Redemption Price, together with accrued
interest to but excluding the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the bearer of such Security, in the case
of a Global Security in bearer form, and, in the case of a Definitive
Security, to Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 3.07.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate provided
by the Security.
SECTION 11.08. Securities Redeemed in Part. Any Security
which is to be redeemed only in part shall be
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surrendered at an office or agency of the Issuer designated for that purpose
pursuant to Section 10.02 (with, if the Issuer or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory
to the Issuer and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing), and the Issuer shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities of like tenor, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal
of the Security so surrendered.
ARTICLE XII
Discharge of Indenture
SECTION 12.01. Termination of Issuer's Obligations. Except
as otherwise provided in this Section 12.01, each of the Issuer and the
Guarantor may terminate its obligations under the Securities and this
Indenture if:
(a) all Securities previously authenticated and delivered
(other than destroyed, lost or stolen Securities that have been
replaced or Securities for whose payment money or securities have
theretofore been held in trust and thereafter repaid to the Issuer,
as provided in Section 12.05) have been delivered to the Trustee for
cancelation and the Issuer has paid all sums payable by it hereunder;
or
(b)(i) all such Securities mature within one year or all of
them are to be called for redemption within one year under
arrangements satisfactory to the Trustee for giving the notice of
redemption, (ii) the Issuer irrevocably deposits in trust with the
Trustee during such one-year period, under the terms of an
irrevocable trust agreement in form satisfactory to the Trustee, as
trust funds solely for the benefit of the Holders of such Securities
for that purpose, money or U.S. Government Obligations sufficient (in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee), without consideration of any reinvestment of any
interest thereon, to pay principal, premium, if any, and interest on
such Securities to maturity or redemption, as the case may be, and to
pay all other sums payable by it hereunder, (iii) no Default or Event
of Default with respect to the Securities shall have occurred and
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be continuing on the date of such deposit, (iv) such deposit will
not result in a breach or violation of, or constitute a default
under, this Indenture or any other agreement or instrument to
which the Guarantor or the Issuer is a party or by which it is
bound, (v) if at such time the Securities are listed on a national
securities exchange, the Securities will not be delisted as a
result of such deposit, defeasance and discharge, and (vi) the
Issuer has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the satisfaction and
discharge of this Indenture have been complied with.
With respect to the foregoing clause (a), the Issuer's
obligations under Section 6.07 shall survive. With respect to the foregoing
clause (b), the Issuer's obligations in Sections 3.03, 3.04, 3.05, 3.06, 3.07,
10.01, 10.09, 6.07, 6.10, 6.11, 12.04, 12.05 and 12.06 shall survive until the
Securities have matured or have been redeemed. Thereafter, only the Issuer's
obligations in Sections 6.07, 12.05 and 12.06 shall survive. After any such
irrevocable deposit, the Trustee upon written request shall acknowledge in
writing the discharge of the Issuer's obligations under the Securities and
this Indenture, and the Guarantor's obligations under the Guarantee and this
Indenture, except for those surviving obligations specified above.
SECTION 12.02. Defeasance and Discharge of Indenture. The
Issuer will be deemed to have paid and will be discharged from any and all
obligations in respect of the Securities on the 123rd day after the date of
the deposit referred to in clause (a) of this Section 12.02 if:
(a) with reference to this Section 12.02, the Issuer has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee and has conveyed all right, title and interest for the
benefit of the Holders, under the terms of an irrevocable trust
agreement in form satisfactory to the Trustee as trust funds in
trust, specifically pledged to the Trustee for the benefit of the
Holders as security for payment of the Accreted Value or principal
of, premium, if any, and interest, if any, on the Securities, and
dedicated solely to, the benefit of the Holders, in and to (i) money
in an amount, (ii) U.S. Government Obligations that, through the
payment of interest, premium, if any, and principal in respect
thereof in accordance with their terms, will provide, not later than
one day before the due date of any payment referred to in this clause
(a), money in an amount or
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(iii) a combination thereof in an amount sufficient, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, without consideration of the
reinvestment of such interest and after payment of all federal,
state and local taxes or other charges and assessments in respect
thereof payable by the Trustee, the principal of, premium, if any,
and accrued interest on the Outstanding Securities at the Stated
Maturity of such principal or interest or upon earlier redemption;
provided that the Trustee shall have been irrevocably instructed
to apply such money or the proceeds of such U.S. Government
Obligations to the payment of such principal, premium, if any, and
interest with respect to the Securities and to give any related
notice of redemption;
(b) such deposit will not result in a breach or violation
of, or constitute a default under, this Indenture or any other
agreement or instrument to which the Guarantor, the Issuer or any of
their Subsidiaries is a party or by which the Guarantor, the Issuer
or any of their Subsidiaries is bound;
(c) immediately after giving effect to such deposit on a pro
forma basis, no Default or Event of Default, or event that after the
giving of notice or lapse of time or both could become a Default or
Event of Default, shall have occurred and be continuing on the date
of such deposit or during the period ending on the 123rd day after
the date of such deposit;
(d) the Issuer shall have delivered to the Trustee either
(i) a ruling based on relevant law and practice at the time directed
to the Trustee from the Inland Revenue or other relevant tax
authority to the effect that the Holders will not recognize income,
gain or loss for U.K. income tax or other tax purposes as a result of
the Issuer's exercise of its option under this Section 12.02,
disregarding income tax on any amounts that would have been received
but for such exercise of its option under this Section 12.02, and
will be subject to U.K. income tax on the same amount and in the same
manner and at the same time as would have been the case if such
option had not been exercised or (ii) an Opinion of Counsel to the
same effect as the ruling described in clause (i) above;
(e) the Issuer shall have delivered to the Trustee (i)
either (A) a ruling directed to the Trustee received from the
Internal Revenue Service to the effect that the Holders will not
recognize additional
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income, gain or loss for U.S. federal income tax purposes as a
result of the Issuer's exercise of its option under this Section
12.02 and will be subject to U.S. federal income tax on the same
amount and in the same manner and at the same times as would have
been the case if such option had not been exercised or (B) an
Opinion of Counsel to the same effect as the ruling described in
clause (A) above accompanied by a ruling to that effect published
by the Internal Revenue Service, unless there has been a change in
the relevant U.S. federal income tax law since the date of this
Indenture and (ii) an Opinion of Counsel to the effect that (A)
the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and (B) after the passage of 123
days following the deposit (except, with respect to any trust
funds for the account of any Holder who may be deemed to be
"connected" with the Issuer for purposes of the Insolvency Act
1986 after two years following the deposit), the trust funds will
not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law and either (I) the trust funds will no longer remain the
property of the Issuer (and therefore will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally) or (II) if a
court were to rule under any such law in any case or proceeding
that the trust funds remained property of the Issuer (1) assuming
such trust funds remained in the possession of the Trustee prior
to such court ruling to the extent not paid to the Holders, the
Trustee will hold, for the benefit of the Holders, a valid and
perfected security interest in such trust funds that is not
avoidable in bankruptcy or otherwise and (2) no property, rights
in property or other interests granted to the Trustee or the
Holders in exchange for, or with respect to, such trust funds will
be subject to any prior rights of holders of other Debt of the
Issuer or any of its Securities;
(f) if at such time the Securities are listed on a national
securities exchange, the Issuer shall have delivered to the Trustee
an Opinion of Counsel to the effect that the Securities will not be
delisted as a result of the Issuer's exercise of its opinion under
this Section 12.02; and
(g) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in each case stating
that all conditions precedent provided for herein relating to the
defeasance
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<PAGE>
contemplated by this Section 12.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the post
deposit period referred to in clause (e)(ii)(B) of this Section 12.02, none of
the Issuer's obligations under this Indenture shall be discharged. Subsequent
to the end of such period with respect to this Section 12.02, the Issuer's
obligations in Sections 3.03, 3.04, 3.05, 3.06, 3.07, 10.01, 10.09, 6.07,
6.10, 6.11, 12.04, 12.05 and 12.06 shall survive until the Securities mature
or are redeemed. Thereafter, only the Issuer's obligations in Sections 6.07,
12.05 and 12.06 shall survive. If and when a ruling from the Internal Revenue
Service or an Opinion of Counsel referred to in clause (e)(i) of this Section
12.02 may be provided specifically without regard to, and not in reliance
upon, the continuance of the Issuer's obligations under Section 10.01, then
the Issuer's obligations under such sentence shall cease upon delivery to the
Trustee of such ruling or Opinion of Counsel and compliance with the other
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 12.02.
After any such irrevocable deposit, the Trustee upon request
shall acknowledge in writing the discharge of the Issuer's obligations under
the Securities, any Subsidiary Guarantee, if any, and this Indenture except
for those surviving obligations in the immediately preceding paragraph.
SECTION 12.03. Defeasance of Certain Obligations. The
Issuer may omit to comply with any term, provision or condition set forth in
clauses (3) and (4) of Section 8.01 and Sections 10.05 through 10.18 (except
for Section 10.09 and any covenant otherwise required by the TIA), and clause
(d) of Section 5.01 with respect to clauses (3) and (4) of Section 8.01,
clauses (d) and (e) of Section 5.01 with respect to Sections 10.05 through
10.18, except as aforesaid, and clauses (c), (f) and (g) of Section 5.01 shall
be deemed not to be Events of Default, in each case with respect to the
Outstanding Securities if:
(a) with reference to this Section 12.03, the Issuer has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee and conveyed all right, title and interest to the Trustee for
the benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged to the Trustee for the benefit
of the Holders as security for payment of the principal of, premium,
if any, and interest, if any, on the Securities, and dedicated solely
to, the benefit of the
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<PAGE>
Holders, in and to (i) money in an amount, (ii) U.S. Government
Obligations that, through the payment of interest and principal in
respect thereof in accordance with their terms, will provide, not
later than one day before the due date of any payment referred to
in this clause (a), money in an amount or (iii) a combination
thereof in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such
interest and after payment of all federal, state and local taxes
or other charges and assessments in respect thereof payable by the
Trustee, the principal of, premium, if any, and interest on the
Outstanding Securities on the Stated Maturity or upon earlier
redemption of such principal or interest; provided that the
Trustee shall have been irrevocably instructed to apply such money
or the proceeds of such U.S. Government Obligations to the payment
of such principal, premium, if any, and interest with respect to
the Securities and to give any related notice of redemption;
(b) such deposit will not result in a breach or violation
of, or constitute a default under, this Indenture or any other
agreement or instrument to which the Guarantor, the Issuer or any of
their Subsidiaries is a party or by which the Guarantor, the Issuer
or any of their Subsidiaries is bound;
(c) immediately after giving effect to such deposit or a pro
forma basis, no Default or Event of Default, or event that after the
giving of notice or lapse of time or both would become a Default or
Event of Default, shall have occurred and be continuing on the date
of such deposit or during the period ending on the 123rd day after
the day of such deposit;
(d) the Issuer has delivered to the Trustee an Opinion of
Counsel to the effect that (i) the creation of the defeasance trust
does not violate the Investment Company Act of 1940, (ii) the Holders
will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such deposit and the defeasance of the
obligations referred to in the first paragraph of this Section 12.03
and will be subject to U.S. federal income tax on the same amount and
in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred and (iii) after the
passage of 123 days following the deposit (except with respect to any
trust funds for the account of any Holder who may be deemed
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<PAGE>
to be "connected" with the Issuer for purposes of the Insolvency
Act 1986 after two years following the deposit), the trust funds
will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law, and either (A) the trust funds will no longer remain
the property of the Issuer (and therefore will not be subject to
the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditor's rights
generally) or (B) if a court were to rule under any such law in
any case or proceeding that the trust funds remained property of
the Issuer (1) assuming such trust funds remained in the
possession of the Trustee prior to such court ruling to the extent
not paid to the Holders, the Trustee will hold, for the benefit of
the Holders, a valid and perfected security interest in such trust
funds that is not avoidable in bankruptcy or otherwise and (2) no
property, rights in property or other interests granted to the
Trustee or the Holders in exchange for, or with respect to, such
trust funds will be subject to any prior rights or holders of
other Indebtedness of the Issuer or any of its Securities;
(e) if at such time the Securities are listed on a national
securities exchange, the Issuer has delivered to the Trustee an
Opinion of Counsel to the effect that the Securities will not be
delisted as a result of the Issuer's exercise of its option under
Section 12.03; and
(f) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 12.03 have been complied with.
SECTION 12.04. Application of Trust Money. Subject to
Section 12.06, the Trustee or Paying Agent shall hold in trust money or U.S.
Government Obligations deposited with it pursuant to Section 12.01, 12.02 or
12.03, as the case may be, and shall apply the deposited money and the money
from U.S. Government Obligations in accordance with the Securities and this
Indenture to the payment of principal of, premium, if any, and interest on the
Securities; but such money need not be segregated from other funds except to
the extent required by law.
SECTION 12.05. Repayment to Issuer. Subject to Sections
6.07, 12.01, 12.02 and 12.03, the Trustee and the Paying Agent shall promptly
pay to the Issuer upon request set forth in an Officers' Certificate any
excess money held
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<PAGE>
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the
Issuer any money held by them for the payment of principal, premium, if any,
or interest that remains unclaimed in accordance with Section 10.02.
SECTION 12.06. Reinstatement. If the Trustee or Paying
Agent is unable to apply any money or U.S. Government Obligations in
accordance with Section 12.01, 12.02 or 12.03, as the case may be, by reason
of any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Issuer's obligations under this Indenture, the Securities
Guarantee, and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 12.01, 12.02 or 12.03, as the case
may be, until such time as the Trustee or Paying Agent is permitted to apply
all such money or U.S. Government Obligations in accordance with Section
12.01, 12.02 or 12.03, as the case may be; provided that, if the Issuer has
made any payment of principal of, premium, if any, or interest on any
Securities because of the reinstatement of its obligations, the Issuer shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
SECTION 12.07. Insiders. With respect to the determination
of the Persons constituting beneficial owners of Securities and whether any
such Person is "connected" with the Issuer for purposes of Sections
12.02(e)(ii)(B) and 12.03(d)(iii), the Trustee may rely on an Officers'
Certificate.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the day and year first above written.
Dated:
The Common Seal of
RSL COMMUNICATIONS PLC
was hereto affixed in
the presence of:
[SEAL]
RSL COMMUNICATIONS PLC,
by
/s/ Jacob Schuster
------------------
Name:
Title:
by
/s/ Itzhak Fisher
-----------------
Name:
Title:
THE CHASE MANHATTAN BANK,
by
/s/ Robert S. Peschler
----------------------
Name:
Title:
RSL COMMUNICATIONS, LTD.,
by
/s/ Jacob Schuster
------------------
Name:
Title:
<PAGE>
CONFORMED COPY
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of
November 9, 1998, among RSL Communications PLC, a United Kingdom corporation
(the "Issuer"), RSL Communications, Ltd. (the "Guarantor") and Goldman, Sachs &
Co. (the "Purchaser") as the purchaser of the 12% Senior Notes due 2008 (the
"Notes") of the Issuer.
The Issuer proposes to issue and sell to the Purchaser upon the terms set
forth in the Purchase Agreement the Securities (as defined herein). As an
inducement to the Purchaser to enter into the Purchase Agreement and in
satisfaction of a condition to the obligations of the Purchaser thereunder, the
Issuer agrees with the Purchaser for the benefit of holders (as defined herein)
from time to time of the Registrable Securities (as defined herein) as follows:
1. Certain Definitions.
For purposes of this Exchange and Registration Rights Agreement, the
following terms shall have the following respective meanings:
"Base Interest" shall mean the interest that would otherwise accrue on
the Securities under the terms thereof and the Indenture, without giving
effect to the provisions of this Agreement.
The term "broker-dealer" shall mean any broker or dealer registered
with the Commission under the Exchange Act.
"Closing Date" shall mean November 9, 1998.
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Exchange Act or the
Securities Act, whichever is the relevant statute for the particular
purpose.
"Effective Time," in the case of (i) an Exchange Registration, shall
mean the time and date as of which the Commission declares the Exchange
Registration Statement effective or as of which the Exchange Registration
Statement otherwise becomes effective and (ii) a Shelf Registration, shall
mean the time and date as of which the Commission declares the Shelf
Registration Statement effective or as of which the Shelf Registration
Statement otherwise becomes effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
successor thereto, as the same shall be amended from time to time.
"Exchange Offer" shall have the meaning assigned thereto in Section
2(a) hereof.
"Exchange Registration" shall have the meaning assigned thereto in
Section 3(d) hereof.
"Exchange Registration Statement" shall have the meaning assigned
thereto in Section 2(a) hereof.
<PAGE>
The term "holder" shall mean the Purchaser and other persons who
acquire Registrable Securities from time to time (including any successors
or assigns), in each case for so long as such person owns any Registrable
Securities.
"Indenture" shall mean the Indenture, dated as of November 9, 1998 (the
"Indenture"), between the Issuer, the Guarantor and The Chase Manhattan
Bank, as Trustee (the "Trustee"), as the same shall be amended from time to
time.
The term "person" shall mean a corporation, association, partnership,
organization, business, limited liability company, individual, government
or political subdivision thereof or governmental agency.
"Purchase Agreement" shall mean the Purchase Agreement, dated as of
November 2, 1998, between the Purchaser, the Issuer and the Guarantor
relating to the Securities.
"Registrable Securities" shall mean the Securities; provided, however,
that a Security shall cease to be a Registrable Security when (i) in the
circumstances contemplated by Section 2(a) hereof, the Security has been
exchanged for an Exchange Security in an Exchange Offer as contemplated in
Section 2(a) (provided that any Exchange Security received by a
broker-dealer in an Exchange Offer in exchange for a Registrable Security
that was not acquired by the broker-dealer directly from the Issuer will
also be a Registrable Security through and including the earlier of the
90th day after the Exchange Offer is completed or such time as such
broker-dealer no longer owns such Security); (ii) in the circumstances
contemplated by Section 2(b) hereof, a Shelf Registration Statement
registering such Security under the Securities Act has been declared or
becomes effective and such Security has been sold or otherwise transferred
by the holder thereof pursuant to and in a manner contemplated by such
effective Shelf Registration Statement; (iii) such Security is sold
pursuant to Rule 144 (or any successor provision) under circumstances in
which any legend borne by such Security relating to restrictions on
transferability thereof, under the Securities Act or otherwise, is removed
by the Issuer or pursuant to the Indenture; (iv) such Security is eligible
to be sold pursuant to paragraph (k) of Rule 144; or (v) such Security
shall cease to be outstanding.
"Registration Default" shall have the meaning assigned thereto in
Section 2(c) hereof.
"Registration Expenses" shall have the meaning assigned thereto in
Section 4 hereof.
"Resale Period" shall have the meaning assigned thereto in Section 2(a)
hereof.
"Restricted Holder" shall mean (i) a holder that is an affiliate of the
Issuer within the meaning of Rule 405, (ii) a holder who acquires Exchange
Securities outside the ordinary course of such holder's business, (iii) a
holder who has arrangements or understandings with any person to
participate in the Exchange Offer for the purpose of a distribution (within
the meaning of the Securities Act) of the Exchange Securities and (iv) a
holder that is a broker-dealer, but only with respect to Exchange
Securities
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<PAGE>
received by such broker-dealer pursuant to an Exchange Offer in exchange
for Registrable Securities acquired by the broker-dealer directly from the
Issuer.
"Rule 144," "Rule 405" and "Rule 415" shall mean, in each case, such
rule promulgated under the Securities Act (or any successor provision), as
the same shall be amended from time to time.
"Securities" shall mean the Notes to be issued and sold to the
Purchaser, and securities issued in exchange therefor or in lieu thereof
pursuant to the Indenture. Each security will be unconditionally guaranteed
as to payment of principal, interest and any other amounts due thereon by
the Guarantor, as provided by the Indenture, under which the Notes will be
issued (the "Notes Guarantee"). Unless the context otherwise requires, any
reference herein to "Security," or "Exchange Security" or a "Registrable
Security" shall include a reference to the related Notes Guarantee.
"Securities Act" shall mean the Securities Act of 1933, or any
successor thereto, as the same shall be amended from time to time.
"Shelf Registration" shall have the meaning assigned thereto in Section
2(b) hereof.
"Shelf Registration Statement" shall have the meaning assigned thereto
in Section 2(b) hereof.
"Special Interest" shall have the meaning assigned thereto in
Section 2(c) hereof.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, or
any successor thereto, and the rules, regulations and forms promulgated
thereunder, all as the same shall be amended from time to time.
Unless the context otherwise requires, any reference herein to a "Section"
or "clause" refers to a Section or clause, as the case may be, of this Exchange
and Registration Rights Agreement, and the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Exchange and
Registration Rights Agreement as a whole and not to any particular Section or
other subdivision.
2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Issuer agrees to file
under the Securities Act and use its reasonable best efforts to cause to be
declared effective, a registration statement relating to an offer to exchange
(such registration statement, the "Exchange Registration Statement", and such
offer, the "Exchange Offer") any and all of the Securities for a like aggregate
principal amount of debt securities issued by the Issuer and guaranteed by the
Guarantor, which debt securities and guarantees are substantially identical to
the Securities (and are entitled to the benefits of a trust indenture which is
substantially identical to the Indenture or is the Indenture, and which has been
qualified under the Trust Indenture Act), except that it has been registered
pursuant to an effective registration statement under the Securities Act and
does not contain registration rights, transfer restrictions and provisions for
the additional interest contemplated in Section 2(c) below (such new debt
securities hereinafter called "Exchange Securities"). The Issuer
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<PAGE>
agrees to use its reasonable best efforts to cause the Exchange Registration
Statement to become effective under the Securities Act and to consummate the
Exchange Offer as soon as practicable, but no later than 270 days after the
Closing Date. The Exchange Offer will be registered under the Securities Act on
the appropriate form required by the Commission and will comply with all
applicable tender offer rules and regulations under the Exchange Act and all
applicable federal and state securities laws. The Issuer further agrees to use
its reasonable best efforts to hold the Exchange Offer open for at least 30 days
and issue Exchange Securities for all Registrable Securities that have been
properly tendered and not withdrawn on or prior to the expiration of the
Exchange Offer. The Exchange Offer will be deemed to have been "completed" only
if the debt securities and related guarantees received by holders other than
Restricted Holders in the Exchange Offer for Registrable Securities are, upon
receipt, transferable by each such holder without need for further compliance
with Section 5 of the Securities Act (except for the requirement to deliver a
prospectus included in the Exchange Registration Statement applicable to resales
by broker-dealers of Exchange Securities received by such broker-dealer pursuant
to an Exchange Offer in exchange for Registrable Securities other than those
acquired by the broker-dealer directly from the Issuer) and without material
restrictions under the blue sky or securities laws of a substantial majority of
the States of the United States of America. The Exchange Offer shall be deemed
to have been completed upon the earlier to occur of (i) the Issuer having
exchanged the Exchange Securities for all outstanding Registrable Securities
pursuant to the Exchange Offer and (ii) the Issuer having exchanged, pursuant to
the Exchange Offer, Exchange Securities for all Registrable Securities that have
been properly tendered and not withdrawn before the expiration of the Exchange
Offer, which shall be on a date that is at least 30 days following the
commencement of the Exchange Offer. The Issuer agrees (x) to include in the
Exchange Registration Statement a prospectus for use in connection with any
resales of Exchange Securities by a broker-dealer, other than resales of
Exchange Securities received by a broker-dealer pursuant to an Exchange Offer in
exchange for Registrable Securities acquired by the broker-dealer directly from
the Issuer, and (y) to keep such Exchange Registration Statement effective for a
period (the "Resale Period") beginning when Exchange Securities are first issued
in the Exchange Offer and ending upon the earlier of (x) the expiration of the
90th day after the Exchange Offer has been completed and (y) such time as such
broker-dealers no longer own any Registrable Securities. With respect to such
Exchange Registration Statement, each broker-dealer that holds Exchange
Securities received in an Exchange Offer in exchange for Registerable Securities
not acquired by it directly from the Issuer shall have the benefit of the rights
of indemnification and contribution set forth in Sections 6(a), (c), (d) and (e)
hereof.
(b) If prior to the time the Exchange Offer is completed existing
Commission interpretations are changed such that the debt securities or any
related guarantees received by holders other than Restricted Holders in the
Exchange Offer for Registrable Securities are not or would not be, upon receipt,
transferable by each such holder without need for further compliance with
Section 5 of the Securities Act (except for the requirement to deliver a
prospectus included in the Exchange Registration Statement applicable to resales
by broker-dealers of Exchange Securities received by such broker-dealer pursuant
to an Exchange Offer in exchange for Registrable Securities other than those
acquired by the broker-dealer directly from the Issuer) in lieu of conducting
the Exchange Offer contemplated by Section 2(a), the Issuer shall file under the
Securities Act and use its reasonable best efforts to cause to be declared
effective a "shelf" registration statement providing for the registration of,
and the sale on a continuous or delayed basis by the
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<PAGE>
holders of, all of the Registrable Securities, pursuant to Rule 415 or any
similar rule that may be adopted by the Commission (such filing, the "Shelf
Registration" and such registration statement, the "Shelf Registration
Statement"). In addition, in the event that the Purchaser shall not have resold
all of the Securities initially purchased by it from the Issuer pursuant to the
Purchase Agreement, prior to the consummation of the Exchange Offer, the Issuer
shall file under the Securities Act as soon as practicable a Shelf Registration
Statement, which if permitted by the Commission may be by way of a
post-effective amendment to the Exchange Registration Statement. The Issuer
agrees to use its best efforts to cause the Shelf Registration Statement to
become or be declared effective no later than 270 days after the Closing Date
and to keep such Shelf Registration Statement continuously effective for a
period ending on the earlier of (x) the second anniversary of the Closing Date
and (y) such time as there are no longer any Registrable Securities outstanding.
The Issuer further agrees to supplement or make amendments to the Shelf
Registration Statement, as and when required by the rules, regulations or
instructions applicable to the registration form used by the Issuer for such
Shelf Registration Statement or by the Securities Act or rules and regulations
promulgated thereunder for a shelf registration, and the Issuer agrees to
furnish to the holders of the Registrable Securities copies of any such
supplement or amendment to such registration statement prior to its being used
or promptly following its filing with the Commission. Attached as Exhibit A
hereto is a form of Notice of Registration Statement and Selling Securityholder
Questionnaire to be completed by holders in connection with a Shelf Registration
pursuant to this Section 2(b).
(c) In the event that (i) the Exchange Offer has not been completed, or a
Shelf Registration Statement has not been declared effective, within 270 days
after the Closing Date or (ii) any Exchange Registration Statement or Shelf
Registration Statement required by Section 2(a) or 2(b) hereof is filed and
declared effective but shall thereafter, prior to the time such Exchange
Registration Statement or Shelf Registration Statement is no longer required to
be effective pursuant to Section 2(a) or 2(b) hereof, as the case may be, either
be withdrawn by the Issuer or shall become subject to an effective stop order
issued pursuant to Section 8(d) of the Securities Act suspending the
effectiveness of such registration statement (except as specifically permitted
herein) without being succeeded immediately by an additional registration
statement filed and declared effective (each such event referred to in clauses
(i) and (ii), a "Registration Default" and each period during which a
Registration Default has occurred and is continuing, a "Registration Default
Period"), then, as liquidated damages for such Registration Default, subject to
the provisions of Section 9(b), special interest ("Special Interest"), in
addition to the Base Interest, shall accrue at a per annum rate of 0.50% for the
Registration Default Period. The Special Interest shall be payable in cash
semi-annually in arrears on each May 1 and November 1. Special Interest, if any,
shall be computed on the basis of a 360 day year of twelve 30-day months and the
number of days actually elapsed.
(d) The Issuer and the Guarantor shall take all actions reasonably
necessary or advisable to be taken by them to ensure that the transactions
contemplated herein are effected as so contemplated.
(e) Any reference herein to a registration statement as of any time shall
be deemed to include any document incorporated, or deemed to be incorporated,
therein by reference as of such time and any reference herein to any
post-effective amendment to a registration
-5-
<PAGE>
statement as of any time shall be deemed to include any document incorporated,
or deemed to be incorporated, therein by reference as of such time.
3. Registration Procedures.
(a) (i) In connection with the Exchange Offer, the Issuer shall comply with
all of the provisions of Section 3(d) and Section 3(e) below, shall use its
reasonable best efforts to effect such exchange to permit the sale of
Registrable Securities being sold in accordance with the intended method or
methods of distribution thereof, and, prior to effectiveness of the Exchange
Offer Registration Statement, shall, if required by the Commission, provide a
supplemental letter to the Commission (A) stating that the Issuer is registering
the Exchange Offer in reliance on the position of the Commission enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988) and Morgan Stanley
and Co., Inc. (available June 5, 1991) and (B) including a representation that
the Issuer has not entered into any arrangement or understanding with any person
to distribute the Exchange Securities to be received in the Exchange Offer and
that, to the best of the Issuer's information and belief, each holder
participating in the Exchange Offer is acquiring the Exchange Securities in its
ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the Exchange Securities received in
the Exchange Offer.
(ii) As a condition to its participation in the Exchange Offer pursuant
to the terms of this Agreement, each holder of Registrable Securities shall
furnish, upon the request of the Issuer, prior to the consummation thereof, a
written representation to the Issuer (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to the
effect that (A) it is not an affiliate of the Issuer or the Guarantor, (B) it is
not engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Exchange
Securities to be issued in the Exchange Offer and (C) it is acquiring the
Exchange Securities in its ordinary course of business. In addition, all such
holders of Registrable Securities shall otherwise cooperate in the Issuer's and
the Guarantor's preparations for the Exchange Offer. Each holder hereby
acknowledges and agrees that any broker-dealer and any such holder, in either
case, exchanging Registrable Securities in the Exchange Offer, in connection
with the resale of Exchange Securities acquired in the Exchange Offer, (1) could
not under Commission policy as in effect on the date of this Agreement rely on
the position of the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation (available May
13, 1988), as interpreted in the Commission's letter to Shearman & Sterling
dated July 2, 1993, and similar no-action letters, and (2) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction and that such a secondary resale
transaction should be covered by an effective registration statement containing
the selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of Exchange Securities obtained
by such holder in exchange for Registrable Securities acquired by such holder
directly from the Issuer.
If the Issuer files a registration statement pursuant to Section 2(a) or
Section 2(b), the following provisions shall apply:
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<PAGE>
(b) At or before the Effective Time of the Exchange Offer or the Shelf
Registration, as the case may be, the Issuer shall qualify the Indenture under
the Trust Indenture Act.
(c) In the event that such qualification would require the appointment of a
new trustee under the Indenture, the Issuer shall appoint a new trustee
thereunder pursuant to the applicable provisions of such Indenture.
(d) In connection with the Issuer's obligations with respect to the
registration of Exchange Securities as contemplated by Section 2(a) (the
"Exchange Registration"), if applicable, the Issuer shall, as soon as reasonably
possible (or as otherwise specified):
(i) prepare and file with the Commission an Exchange Registration
Statement on any form which may be utilized by the Issuer and which shall
permit the Exchange Offer and resales of Exchange Securities by
broker-dealers during the Resale Period to be effected as contemplated by
Section 2(a), and use its reasonable best efforts to cause such Exchange
Registration Statement to become effective and to consummate the Exchange
Offer, as soon as practicable thereafter, but no later than 270 days after
the Closing Date;
(ii) as soon as practicable prepare and file with the Commission such
amendments and supplements to such Exchange Registration Statement and the
prospectus included therein as may be necessary to effect and maintain the
effectiveness of such Exchange Registration Statement for the periods and
purposes contemplated in Section 2(a) hereof and as may be required by the
applicable rules and regulations of the Commission and the instructions
applicable to the form of such Exchange Registration Statement, and
promptly provide each broker-dealer holding Exchange Securities with such
number of copies of the prospectus included therein (as then amended or
supplemented), in conformity in all material respects with the requirements
of the Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder, as such broker-dealer reasonably
may request prior to the expiration of the Resale Period, for use in
connection with resales of Exchange Securities;
(iii) promptly notify the Purchaser and its counsel and (with respect
to clause C, E and F below only), any broker-dealer that has advised the
Issuer or the Guarantor that it is entitled to a resale prospectus during
the Resale Period, and confirm such advice in writing, (A) when such
Exchange Registration Statement or the prospectus included therein or any
prospectus amendment or supplement or post-effective amendment has been
filed, and, with respect to such Exchange Registration Statement or any
post-effective amendment, when the same has become effective, (B) of any
comments by the Commission and by the Blue Sky or securities commissioner
or regulator of any state with respect thereto or any request by the
Commission for amendments or supplements to such Exchange Registration
Statement or prospectus or for additional information, (C) of the issuance
by the Commission of any stop order suspending the effectiveness of such
Exchange Registration Statement or the initiation or threatening of any
proceedings for that purpose, (D) if at any time the representations and
warranties of the Issuer and the Guarantor contemplated by Section 5 hereof
cease to be true and correct in all material respects, (E) of the receipt
by the Issuer or the Guarantor of any notification with respect to the
suspension of the qualification of the Exchange Securities for sale in any
jurisdiction or the initiation or
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<PAGE>
threatening of any proceeding for such purpose or (F) at any time during
the Resale Period when a prospectus is required to be delivered under the
Securities Act, that such Exchange Registration Statement, prospectus,
prospectus amendment or supplement or post-effective amendment thereto does
not conform in all material respects to the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and regulations of
the Commission thereunder or contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(iv) in the event that the Issuer would be required, pursuant to
Section 3(d)(iii)(F) above, to notify any broker-dealer entitled to a
resale prospectus during the Resale Period, prepare and furnish without
delay to each such holder a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to purchasers of
such Exchange Securities during the Resale Period, such prospectus shall
conform in all material respects to the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and regulations of
the Commission thereunder and shall 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 not misleading in light
of the circumstances then existing;
(v) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of such Exchange Registration Statement
or any post-effective amendment thereto at the earliest practicable date;
(vi) use its reasonable best efforts to (A) register or qualify the
Exchange Securities under the securities laws or blue sky laws of such
jurisdictions in the United States as are contemplated by Section 2(a) no
later than the commencement of the Exchange Offer, (B) keep such
registrations or qualifications in effect and comply with such laws so as
to permit the continuance of offers, sales and dealings therein in such
jurisdictions until the expiration of the Resale Period and (C) take any
and all other actions as may be reasonably necessary or advisable to enable
each broker-dealer holding Exchange Securities to consummate the
disposition thereof in such jurisdictions; provided, however, that neither
the Issuer nor the Guarantor shall be required for any such purpose to (1)
qualify as a foreign corporation in any jurisdiction wherein it would not
otherwise be required to qualify but for the requirements of this Section
3(d)(vi), (2) consent to general service of process in any such
jurisdiction, (3) become subject to any tax or (4) make any changes to its
certificate of incorporation or by-laws or any agreement between it and its
stockholders;
(vii) use its reasonable best efforts to obtain the consent or approval
of each governmental agency or authority, whether federal, state or local,
which may be required to effect the Exchange Registration, the Exchange
Offer and the offering and sale of Exchange Securities by broker-dealers
during the Resale Period;
(viii) provide a CUSIP number for all Exchange Securities, not later
than the applicable Effective Time;
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<PAGE>
(ix) comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders as soon as
practicable but no later than eighteen months after the effective date of
such Exchange Registration Statement, an earning statement of the Issuer,
the Guarantor and their subsidiaries complying with Section 11(a) of the
Securities Act (including, at the option of the Issuer, Rule 158
thereunder).
(e) In connection with the Issuer's obligations with respect to the Shelf
Registration, if applicable, the Issuer shall use its reasonable best efforts to
cause the Shelf Registration to permit the disposition of the Registrable
Securities by the holders thereof in accordance with the intended method or
methods of disposition thereof provided for in the Shelf Registration Statement.
In connection therewith, the Issuer shall, as soon as reasonably possible (or as
otherwise specified):
(i) prepare and file with the Commission, as soon as practicable, a
Shelf Registration Statement on any form which may be utilized by the
Issuer and which shall permit the disposition of the Registrable Securities
in accordance with the intended method or methods thereof, as specified in
writing by the holders of the Registrable Securities, and use its
reasonable best efforts to cause such Shelf Registration Statement to
become or be declared effective as soon as practicable thereafter, but no
later than 270 days after the Closing Date;
(ii) as soon as practicable prepare and file with the Commission such
amendments and supplements to such Shelf Registration Statement and the
prospectus included therein as may be necessary to effect and maintain the
effectiveness of such Shelf Registration Statement for the period specified
in Section 2(b) hereof and as may be required by the applicable rules and
regulations of the Commission and the instructions applicable to the form
of such Shelf Registration Statement, and furnish to the holders of the
Registrable Securities copies of any such supplement or amendment
simultaneously with or prior to its being used or filed with the
Commission;
(iii) comply with the provisions of the Securities Act with respect to
the disposition of all of the Registrable Securities covered by such Shelf
Registration Statement in accordance with the intended methods of
disposition by the holders thereof provided for in such Shelf Registration
Statement;
(iv) provide (A) the holders of the Registrable Securities to be
included in such Shelf Registration Statement, (B) the underwriters (which
term, for purposes of this Exchange and Registration Rights Agreement,
shall include a person deemed to be an underwriter within the meaning of
Section 2(11) of the Securities Act), if any, thereof, (C) any sales or
placement agent therefor, (D) counsel for any such underwriter or agent and
(E) not more than one counsel for all the holders of such Registrable
Securities the opportunity to participate in the preparation of such Shelf
Registration Statement, each prospectus included therein or filed with the
Commission and each amendment or supplement thereto;
(v) for a reasonable period prior to the filing of such Shelf
Registration Statement, and throughout the period specified in Section
2(b), make available at reasonable times at the Issuer's principal place of
business or such other reasonable place for
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<PAGE>
inspection by the persons referred to in Section 3(e)(iv) who shall certify
to the Issuer that they have a current intention to sell the Registrable
Securities pursuant to the Shelf Registration such financial and other
information and books and records of the Issuer as reasonably requested,
and cause the officers, employees, counsel and independent certified public
accountants of the Issuer to respond to such inquiries, as shall be
reasonably necessary, in the judgment of the respective counsel referred to
in such Section, to conduct a reasonable investigation within the meaning
of Section 11 of the Securities Act; provided, however, that each such
party shall be required to maintain in confidence and not disclose to any
other person any information or records reasonably designated by the Issuer
as being confidential, until such time as (A) such information becomes a
matter of public record (whether by virtue of its inclusion in such
registration statement or otherwise), or (B) such person shall be required
so to disclose such information pursuant to a subpoena or order of any
court or other governmental agency or body having jurisdiction over the
matter (subject to the requirements of such order, and only after such
person shall have given the Issuer prompt prior written notice of such
requirement), or (C) after the Effective Time and after having requested,
without compliance, that the Issuer include such information in such Shelf
Registration Statement or an amendment or supplement thereto, such
information is required to be set forth in such Shelf Registration
Statement or the prospectus included therein or in an amendment to such
Shelf Registration Statement or an amendment or supplement to such
prospectus in order that such Shelf Registration Statement, prospectus,
amendment or supplement thereto, as the case may be, complies with
applicable requirements of the Federal securities laws and the rules and
regulations of the Commission and does not contain an untrue statement of a
material fact or omit to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing;
(vi) promptly notify the selling holders of Registrable Securities, any
sales or placement agent therefor and any underwriter thereof (which
notification may be made through any managing underwriter that is a
representative of such underwriter for such purpose) and confirm such
advice in writing, (A) when such Shelf Registration Statement or the
prospectus included therein or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to such Shelf
Registration Statement or any post-effective amendment, when the same has
become effective, (B) of any comments by the Commission and by the Blue Sky
or securities commissioner or regulator of any state with respect thereto
or any request by the Commission for amendments or supplements to such
Shelf Registration Statement or prospectus or for additional information,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of such Shelf Registration Statement or the initiation or
threatening of any proceedings for that purpose, (D) if at any time the
representations and warranties of the Issuer and the Guarantor contemplated
by Section 3(e)(xv) or Section 5 hereof cease to be true and correct in all
material respects, (E) of the receipt by the Issuer and the Guarantor of
any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, or (F) if at any time when
a prospectus is required to be delivered under the Securities Act, such
Shelf Registration Statement, prospectus, prospectus amendment or
supplement or post-effective amendment does not conform in all material
respects to the applicable requirements of the Securities Act and the Trust
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<PAGE>
Indenture Act and the rules and regulations of the Commission thereunder or
contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(vii) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of such registration statement or any
post-effective amendment thereto at the earliest practicable date;
(viii) if requested by any managing underwriter or underwriters, any
placement or sales agent or any holder of Registrable Securities, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as is required by the applicable rules and regulations of the
Commission and as such managing underwriter or underwriters, such agent or
such holder specifies should be included therein relating to the terms of
the sale of such Registrable Securities, including information with respect
to the principal amount of Registrable Securities being sold by such holder
or agent or to any underwriters, the name and description of such holder,
agent or underwriter, the offering price of such Registrable Securities and
any discount, commission or other compensation payable in respect thereof,
the purchase price being paid therefor by such underwriters and with
respect to any other terms of the offering of the Registrable Securities to
be sold by such holder or agent or to such underwriters; and make all
required filings of such prospectus supplement or post-effective amendment
promptly after notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment;
(ix) upon request, furnish to each holder of Registrable Securities,
each placement or sales agent, if any, therefor, each underwriter, if any,
thereof and the respective counsel referred to in Section 3(e)(iv) an
executed copy (or, in the case of a holder of Registrable Securities, a
conformed copy) of such Shelf Registration Statement, each such amendment
and supplement thereto (in each case including all exhibits thereto (in the
case of a holder of Registrable Securities, upon request) and documents
incorporated by reference therein) and such number of copies of such Shelf
Registration Statement (excluding exhibits thereto and documents
incorporated by reference therein unless specifically so requested by such
holder, agent or underwriter, as the case may be) and of the prospectus
included in such Shelf Registration Statement (including each preliminary
prospectus and any summary prospectus), in conformity in all material
respects with the applicable requirements of the Securities Act and the
Trust Indenture Act and the rules and regulations of the Commission
thereunder, and such other documents, as such holder, agent, if any, and
underwriter, if any, may reasonably request in order to facilitate the
offering and disposition of the Registrable Securities owned by such
holder, offered or sold by such agent or underwritten by such underwriter
and to permit such holder, agent and underwriter to satisfy the prospectus
delivery requirements of the Securities Act; and, subject to Sections 2(a)
and (b) and 3(e)(vi)(C), (E) and (F), the Issuer hereby consents to the use
of such prospectus (including such preliminary and summary prospectus) and
any amendment or supplement thereto by each such holder and by any such
agent and underwriter, in each case in the form most recently provided to
such person by the Issuer, in connection with the offering and sale of the
Registrable Securities covered by the prospectus (including such
preliminary and summary prospectus) or any supplement or amendment thereto;
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<PAGE>
(x) use its reasonable best efforts to (A) register or qualify the
Registrable Securities to be included in such Shelf Registration Statement
under such securities laws or blue sky laws of such jurisdictions as any
holder of such Registrable Securities and each placement or sales agent, if
any, therefor and underwriter, if any, thereof shall reasonably request,
(B) keep such registrations or qualifications in effect and comply with
such laws so as to permit the continuance of offers, sales and dealings
therein in such jurisdictions during the period the Shelf Registration is
required to remain effective under Section 2(b) above or, if a shorter
period, for so long as may be necessary to enable any such holder, agent or
underwriter to complete its distribution of Securities pursuant to such
Shelf Registration Statement and (C) take any and all other actions as may
be reasonably necessary or advisable to enable each such holder, agent, if
any, and underwriter, if any, to consummate the disposition in such
jurisdictions of such Registrable Securities; provided, however, that
neither the Issuer nor the Guarantor shall be required for any such purpose
to (1) qualify as a foreign corporation in any jurisdiction wherein it
would not otherwise be required to qualify but for the requirements of this
Section 3(e)(x), (2) consent to general service of process in any such
jurisdiction, (3) become subject to any tax or (4) make any changes to its
certificate of incorporation or by-laws or any agreement between it and its
stockholders;
(xi) use its reasonable best efforts to obtain the consent or approval
of each governmental agency or authority, whether Federal, state or local,
which may be required to effect the Shelf Registration or the offering or
sale in connection therewith or to enable the selling holder or holders to
offer, or to consummate the disposition of, their Registrable Securities;
(xii) cooperate with the holders of the Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold,
which certificates shall be printed, lithographed or engraved, or produced
by any combination of such methods, and which shall not bear any
restrictive legends; and, in the case of an underwritten offering, enable
such Registrable Securities to be in such denominations and in such names
as the managing underwriters may request at least two business days prior
to any sale of the Registrable Securities;
(xiii) provide a CUSIP number for all Registrable Securities, not later
than the applicable Effective Time;
(xiv) enter into one or more underwriting agreements, engagement
letters, agency agreements, "best efforts" underwriting agreements or
similar agreements, as appropriate, including customary provisions relating
to indemnification and contribu tion, and take such other actions in
connection therewith as any holders of Registrable Securities aggregating
at least 20% aggregate principal amount of the Registrable Securities at
the time outstanding shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities; provided, that
the Issuer shall not be required to enter into any such agreement more than
once with respect to all of the Registrable Securities and may delay
entering into such agreement until the consummation of any underwritten
public offering which the Issuer shall have then engaged;
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<PAGE>
(xv) whether or not an agreement of the type referred to in Section
3(e)(xiv) hereof is entered into and whether or not any portion of the
offering contemplated by the Shelf Registration is an underwritten offering
or is made through a placement or sales agent or any other entity, (A) make
such representations and warranties to the holders of the Registrable
Securities covered by such Shelf Registration and the placement or sales
agent, if any, therefor and the underwriters, if any, thereof in form,
substance and scope as are customarily made in connection with an offering
of debt securities pursuant to any appropriate agreement or to a
registration statement filed on the form applicable to the Shelf
Registration; (B) obtain an opinion of counsel to the Issuer and the
Guarantor in customary form and covering such matters, of the type
customarily covered by such an opinion, as the managing underwriters, if
any, or as any holders of at least 20% in aggregate principal amount of the
Registrable Securities at the time outstanding may reasonably request,
addressed to such holder or holders and the placement or sales agent, if
any, therefor and the underwriters, if any, thereof and dated the effective
date of such Shelf Registration Statement (and if such Shelf Registration
Statement contemplates an underwritten offering of a part or all of the
Registrable Securities, dated the date of the closing under the
underwriting agreement relating thereto) (it being agreed that the matters
to be covered by such opinion shall include the due incorporation of the
Issuer, the Guarantor and their material subsidiaries; the qualification of
the Issuer, the Guarantor and their material U.S. subsidiaries to transact
business as foreign corporations; the due authorization, execution and
delivery of the relevant agreement of the type referred to in Section
3(d)(xiv) hereof; the due authorization, execution, authentication and
issuance, and the validity and enforceability, of the Registrable
Securities; the absence of material legal or governmental proceedings
involving the Issuer; the absence of a breach by the Issuer or any of its
subsidiaries of, or a default under, material agreements binding upon the
Issuer or any subsidiary of the Issuer; the absence of governmental
approvals required to be obtained in connection with the Shelf
Registration, the offering and sale of the Registrable Securities, this
Exchange and Registration Rights Agreement or any agreement of the type
referred to in Section 3(e)(xiv) hereof, except such approvals as may be
required under state securities or blue sky laws; the material compliance
as to form of such Shelf Registration Statement and any documents
incorporated by reference therein and of the Indenture with the
requirements of the Securities Act and the Trust Indenture Act and the
rules and regulations of the Commission thereunder, respectively; and,
subject to reasonable and customary limitations and exceptions; and, such
counsel shall also state that, as of the date of the opinion and of the
Shelf Registration Statement or most recent post-effective amendment
thereto, as the case may be, the absence from such Shelf Registration
Statement and the prospectus included therein, as then amended or
supplemented, and from the documents incorporated by reference therein (in
each case other than the financial statements and related footnotes and
schedules and other financial information contained therein) of an untrue
statement of a material fact or the omission to state therein a material
fact necessary to make the statements therein not misleading (in the case
of such documents, in the light of the circumstances existing at the time
that such documents were filed with the Commis sion under the Exchange
Act)); (C) obtain a "cold comfort" letter or letters from the
independent certified public accountants of the Issuer addressed to the
selling holders of Registrable Securities, the placement or sales agent, if
any, therefor or the underwriters, if any, thereof, dated (i) the effective
date of such Shelf Registration Statement and (ii) the effective date of
any prospectus supplement to the prospectus included in such Shelf
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<PAGE>
Registration Statement or post-effective amendment to such Shelf
Registration Statement which includes unaudited or audited financial state
ments as of a date or for a period subsequent to that of the latest such
statements included in such prospectus (and, if such Shelf Registration
Statement contemplates an underwritten offering pursuant to any prospectus
supplement to the prospectus included in such Shelf Registration Statement
or post-effective amendment to such Shelf Registration Statement which
includes unaudited or audited financial statements as of a date or for a
period subsequent to that of the latest such statements included in such
prospectus, dated the date of the closing under the underwriting agreement
relating thereto), such letter or letters to be in customary form and
covering such matters of the type customarily covered by letters of such
type; (D) deliver such documents and certificates, including officers'
certificates, as may be reasonably requested by any holders of at least a
20% in aggregate principal amount of the Registrable Securities at the time
outstanding or the placement or sales agent, if any, therefor and the
managing underwriters, if any, thereof to evidence the accuracy of the
representations and warranties made pursuant to clause (A) above or those
contained in Section 5(a) hereof and the compliance with or satisfaction of
any agreements or conditions contained in the underwriting agreement or
other agreement entered into by the Issuer or the Guarantor; and (E)
undertake such obligations relating to expense reimbursement,
indemnification and contribution as are provided in Section 6 hereof;
(xvi) notify in writing each holder of Registrable Securities of any
proposal by the Issuer to amend or waive any provision of this Exchange and
Registration Rights Agreement pursuant to Section 9(h) hereof and of any
amendment or waiver effected pursuant thereto, each of which notices shall
contain the text of the amendment or waiver proposed or effected, as the
case may be;
(xvii) in the event that any broker-dealer registered under the
Exchange Act shall underwrite any Registrable Securities or participate as
a member of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of the Rules of Fair Practice and the
By-Laws of the National Association of Securities Dealers, Inc. ("NASD") or
any successor thereto, as amended from time to time) thereof, whether as a
holder of such Registrable Securities or as an underwriter, a placement or
sales agent or a broker or dealer in respect thereof, or otherwise, assist
such broker-dealer in complying with the requirements of such Rules and
By-Laws, including by (A) if such Rules or By-Laws shall so require,
engaging a "qualified independent underwriter" (as defined in the schedules
thereto (or any successor thereto)) to participate in the preparation of
the Shelf Registration Statement relating to such Registrable Securities,
to exercise usual standards of due diligence in respect thereto and, if any
portion of the offering contemplated by such Shelf Registration Statement
is an underwritten offering or is made through a placement or sales agent,
to recommend the yield of such Registrable Securities, (B) indemnifying any
such qualified independent underwriter to the extent of the indemnification
of underwriters provided in Section 6 hereof, and (C) providing such
information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the Rules of Fair Practice
of the NASD; and
(xviii) comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders as soon as
practicable but in any event not later than eighteen months after the
effective date of such Shelf Registration
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Statement, an earning statement of the Issuer, the Guarantor and their
subsidiaries complying with Section 11(a) of the Securities Act (including,
at the option of the Issuer, Rule 158 thereunder).
(f) In the event that the Issuer would be required, pursuant to Section
3(e)(vi)(F) above, to notify the selling holders of Registrable Securities, the
placement or sales agent, if any, therefor and the managing underwriters, if
any, thereof, as applicable, the Issuer shall without delay prepare and furnish
to each such holder, to each placement or sales agent, if any, and to each such
underwriter, if any, a reasonable number of copies of a prospectus supplemented
or amended so that, as thereafter delivered to purchasers of Registrable
Securities, such prospectus shall conform in all material respects to the
applicable requirements of the Securities Act and the Trust Indenture Act and
the rules and regulations of the Commission thereunder and shall 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 not misleading in
light of the circumstances then existing. Each holder of Registrable Securities
agrees that upon receipt of any notice from the Issuer pursuant to Section
3(e)(vi)(F) hereof, such holder shall forthwith discontinue the disposition of
Registrable Securities pursuant to the Shelf Registration Statement applicable
to such Registrable Securities until such holder shall have received copies of
such amended or supplemented prospectus, and if so directed by the Issuer, such
holder shall deliver to the Issuer, (at the Issuer's expense) all copies, other
than permanent file copies, then in such holder's possession of the prospectus
covering such Registrable Securities at the time of receipt of such notice.
(g) The Issuer may require each holder of Registrable Securities as to
which any Shelf Registration pursuant to Section 2(b) is being effected to
furnish to the Issuer such information regarding such holder and such holder's
intended method of distribution of such Registrable Securities as the Issuer may
from time to time reasonably request in writing, but only to the extent that
such information is required in order to comply with the Securities Act. Each
such holder agrees to notify the Issuer as promptly as practicable of any
inaccuracy or change in information previously furnished by such holder to the
Issuer or of the occurrence of any event in either case as a result of which any
prospectus relating to such Shelf Registration contains or would contain an
untrue statement of a material fact regarding such holder or such holder's
intended method of disposition of such Registrable Securities or omits to state
any material fact regarding such holder or such holder's intended method of
disposition of such Registrable Securities required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and promptly to furnish to the Issuer any
additional information required to correct and update any previously furnished
information or required so that such prospectus shall not contain, with respect
to such holder or the disposition of such Registrable Securities, 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 in
light of the circumstances then existing.
(h) Until the expiration of two years after the Closing Date, the Issuer
will not, and will not permit any of its "affiliates" (as defined in Rule 144)
to, resell any of the Securities that have been reacquired by any of them except
pursuant to an effective registration statement under the Securities Act.
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<PAGE>
4. Registration Expenses.
The Issuer and the Guarantor, jointly and severally, agree to bear and to
pay or cause to be paid promptly, upon request, all expenses incident to the
Issuer's and the Guarantor's performance of or compliance with this Exchange and
Registration Rights Agreement, including (a) all Commission and any NASD
registration, filing and review fees and expenses, (b) all fees and expenses in
connection with the qualification of the Securities for offering and sale under
the State securities and blue sky laws referred to in Section 3(e)(x) hereof and
determination of their eligibility for investment under the laws of such
jurisdictions as any managing underwriters or the holders of such Registrable
Securities may designate, including any reasonable fees and disbursements of
counsel for the selling holders or underwriters in connection with such
qualification and determination, (c) all expenses relating to the preparation,
printing, production, distribution and reproduction of each registration
statement required to be filed hereunder, each prospectus included therein or
prepared for distribution pursuant hereto, each amendment or supplement to the
foregoing, the expenses of preparing the Securities for delivery and the
expenses of reproducing and distributing any underwriting agreements, agreements
among underwriters, selling agreements and "Blue Sky" or legal investment
memoranda and all other documents in connection with the offering, sale or
delivery of Securities to be disposed of (including certificates representing
the Securities), (d) messenger, telephone and delivery expenses of the Issuer
and the Guarantor relating to the offering, sale or delivery of Securities and
the preparation of documents referred in clause (c) above, (e) fees and expenses
of the Trustee under the Indenture, any agent of the Trustee and any counsel for
the Trustee and of any collateral agent or custodian, (f) internal expenses
(including all salaries and expenses of the Issuer's and the Guarantor's
officers and employees performing legal or accounting duties), (g) fees,
disbursements and expenses of counsel and independent certified public
accountants of the Issuer and the Guarantor (including the expenses of any
opinions or "cold comfort" letters required by or incident to such performance
and compliance), (h) reasonable fees, disbursements and expenses of any
"qualified independent underwriter" engaged pursuant to Section 3(e)(xvii)
hereof (i) reasonable fees, disbursements and expenses of one counsel for the
holders of Registrable Securities retained in connection with an Exchange
Registration and a Shelf Registration, as selected by the holders of at least a
majority in aggregate principal amount of the Registrable Securities being
registered (which counsel shall be reasonably satisfactory to the Issuer), (j)
any fees charged by securities rating services for rating the Securities and (k)
fees, expenses and disbursements of any other persons, including special
experts, retained by the Issuer or the Guarantor in connection with such
registration (collectively, the "Registration Expenses"). To the extent that any
Registration Expenses are incurred, assumed or paid by any holder of Registrable
Securities or any placement or sales agent therefor or underwriter thereof, the
Issuer and the Guarantor, jointly and severally, shall reimburse such person for
the full amount of the Registration Expenses so incurred, assumed or paid
promptly after receipt of a request therefor. It is understood, however, that
except as provided in this Section and in Section 6, the holders of the
Registrable Securities being registered shall pay all of their own costs and
expenses, including, but not limited to, all agency fees and commissions and
underwriting discounts and commissions attributable to the sale of such
Registrable Securities and the fees and disbursements of any counsel or other
advisors or experts retained by such holders (severally or jointly, other than
the counsel and experts specifically refereed to above).
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<PAGE>
5. Representations and Warranties.
The Issuer and the Guarantor, jointly and severally, represents and
warrants to, and agrees with, the Purchaser and each of the holders from time to
time of Registrable Securities that:
(a) Each registration statement covering Registrable Securities and
each prospectus (including any preliminary or summary prospectus) contained
therein or furnished pursuant to Section 3(e) or Section 3(d) hereof and
any further amendments or supplements to any such registration statement or
prospectus, when it becomes effective or is filed with the Commission, as
the case may be, and, in the case of an underwritten offering of
Registrable Securities, at the time of the closing under the underwriting
agreement relating thereto, will conform in all material respects to the
applicable requirements of the Securities Act and the Trust Indenture Act
and the rules and regulations of the Commission thereunder and will 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 not misleading; and at all times subsequent to the Effective Time
when a prospectus would be required to be delivered under the Securities
Act, other than from (i) such time as a notice has been given to holders of
Registrable Securities pursuant to Section 3(e)(vi)(F) or Section
3(d)(iii)(F) hereof until (ii) such time as the Issuer furnishes an amended
or supplemented prospectus pursuant to Section 3(f) or Section 3(d)(iv)
hereof, each such registration statement, and each prospectus (including
any summary prospectus) contained therein or furnished pursuant to Section
3(e) or Section 3(d) hereof, as then amended or supplemented, will conform
in all material respects to the applicable requirements of the Securities
Act and the Trust Indenture Act and the rules and regulations of the
Commission thereunder and will 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 not misleading in the
light of the circumstances then existing; 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 Issuer by or on behalf of a holder of Registrable Securities
expressly for use therein.
(b) Any documents incorporated by reference in any prospectus referred
to in Section 5(a) hereof, when they become or became effective or are or
were filed with the Commission, as the case may be, will conform or
conformed in all material respects to the requirements of the Securities
Act or the Exchange Act, as applicable, and none of such documents will
contain or contained an untrue statement of a material fact or will omit or
omitted 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 Issuer by or on behalf of a holder of Registrable Securities
expressly for use therein.
(c) The compliance by the Issuer and the Guarantor with all of the
provisions of this Exchange and Registration Rights Agreement and the
consummation of the transactions herein contemplated will not (i) result in
any violation of the provisions of the Memorandum and Articles of
Association of the Issuer, the Memorandum of
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<PAGE>
Association or Bye-laws of the Guarantor, (ii) 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 Issuer or the Guarantor or any of
their subsidiaries is a party or by which the Issuer or the Guarantor or
any of their subsidiaries is bound or to which any of the property or
assets of the Issuer or the Guarantor or any of their subsidiaries is
subject, nor (iii) will such action result in any violation of any existing
statute, order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Issuer, the Guarantor or any of their
subsidiaries or any of their properties except, in the case of clauses (ii)
and (iii) above, such breaches or violations which would not, individually
or in the aggregate, be reasonably likely to have a material adverse
change, in or affecting the general affairs, management, financial
position, shareholders' equity or results of operations of the Issuer, the
Guarantor and their subsidiaries taken as a whole; and no consent,
approval, authorization, order, registration or qualification of or with
any such governmental agency is required for the issue and sale of the
Securities or the consummation by the Issuer or the Guarantor of the
transactions contemplated by this Registration Rights Agreement, except the
registration under the Securities Act of the Securities, qualification of
the Indenture under the Trust Indenture Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
State securities or blue sky laws in connection with the offering and
distribution of the Securities.
(d) This Exchange and Registration Rights Agreement has been duly
authorized, executed and delivered by the Issuer and the Guarantor.
6. Indemnification.
(a) Indemnification by the Issuer and the Guarantor. The Issuer and the
Guarantor, jointly and severally, will indemnify and hold harmless each of the
holders of Registrable Securities included in a registration statement filed
pursuant to Section 2(a) or 2(b) hereof, and each person who participates as a
placement or sales agent or as an underwriter in any offering or sale of such
Registrable Securities against any losses, claims, damages or liabilities, joint
or several, to which such holder, agent or underwriter may become subject under
the Securities 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
registration statement under which such Registrable Securities were registered
under the Securities Act, or any preliminary, final or summary prospectus
contained therein or furnished by the Issuer or the Guarantor to any such
holder, agent or underwriter, 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 necessary to make the statements therein not misleading, and will
reimburse such holder, such agent and such underwriter for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Issuer and the Guarantor 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 such registration statement, or preliminary, final or
summary prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the
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<PAGE>
Issuer or the Guarantor by or on behalf of holders of Registrable Securities
expressly for use therein;
(b) Indemnification by the Holders and any Agents and Underwriters. The
Issuer may require, as a condition to including any Registrable Securities in
any registration statement filed pursuant to Section 2(b) hereof and to entering
into any underwriting agreement with respect thereto, that the Issuer shall have
received an undertaking reasonably satisfactory to it from the holder of such
Registrable Securities and from each underwriter named in any such underwriting
agreement, severally and not jointly, to (i) indemnify and hold harmless the
Issuer and the Guarantor, and all other holders of Registrable Securities,
against any losses, claims, damages or liabilities to which the Issuer or the
Guarantor or such other holders of Registrable Securities may become subject,
under the Securities 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
such registration statement, or any preliminary, final or summary prospectus
contained therein or furnished by the Issuer to any such holder, agent or
underwriter, 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 reliance upon and in conformity with written information furnished to the
Issuer or the Guarantor by or on behalf of such holder or underwriter expressly
for use therein, and (ii) reimburse the Issuer or the Guarantor for any legal or
other expenses reasonably incurred by the Issuer or the Guarantor in connection
with investigating or defending any such action or claim as such expenses are
incurred; provided, however, that no such holder shall be required to undertake
liability to any person under this Section 6(b) for any amounts in excess of the
dollar amount of the proceeds to be received by such holder from the sale of
such holder's Registrable Securities pursuant to such registration.
(c) Notices of Claims, Etc. 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 an indemnifying party pursuant to the indemnification provisions of or
contemplated by this Section 6, notify such indemnifying party in writing of the
commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, and such 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 reasonably 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, such indemnifying party shall
not be liable to such indemnified party 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
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<PAGE>
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) Contribution. If for any reason the indemnification provisions
contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient
to hold harmless an indemnified party 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 fault of the indemnifying party and the indemnified party 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 fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or by such indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contributions pursuant to this Section 6(d) were determined by
pro rata allocation (even if the holders or any agents or underwriters or all of
them 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 in this Section 6(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 shall be deemed to include any legal or other fees or
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(d), no holder shall be required to contribute any
amount in excess of the amount by which the dollar amount of the proceeds
received by such holder from the sale of any Registrable Securities (after
deducting any fees, discounts and commissions applicable thereto) exceeds the
amount of any damages which such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission, and no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities 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 Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The holders' and any underwriters' obligations in this
Section 6(d) to contribute shall be several in proportion to the principal
amount of Registrable Securities registered or underwritten, as the case may be,
by them and not joint.
(e) The obligations of the Issuer and the Guarantor under this Section 6
shall be in addition to any liability which the Issuer or the Guarantor may
otherwise have and shall extend, upon the same terms and conditions, to each
officer, director and partner of each holder, agent and underwriter and each
person, if any, who controls any holder, agent or
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<PAGE>
underwriter within the meaning of the Securities Act; and the obligations of the
holders and any agents or underwriters contemplated by this Section 6 shall be
in addition to any liability which the respective holder, agent or underwriter
may otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Issuer and the Guarantor (including any person who,
with his consent, is named in any registration statement as about to become a
director of the Issuer or the Guarantor) and to each person, if any, who
controls the Issuer or the Guarantor within the meaning of the Securities Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Securities covered
by the Shelf Registration are to be sold pursuant to an underwritten offering,
the managing underwriter or underwriters thereof shall be designated by the
holders of at least a majority in aggregate principal amount of the Registrable
Securities to be included in such offering, provided that such designated
managing underwriter or underwriters is or are reasonably acceptable to the
Issuer.
(b) Participation by Holders. Each holder of Registrable Securities hereby
agrees with each other such holder that no such holder may participate in any
underwritten offering hereunder unless such holder (i) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
8. Rule 144.
Each of the Issuer and the Guarantor covenants to the holders of
Registrable Securities that to the extent it shall be required to do so under
the Exchange Act, it shall timely file the reports required to be filed by it
under the Exchange Act or the Securities Act (including the reports under
Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of
Rule 144 adopted by the Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder, and shall take such further
action as any holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitations
of the exemption provided by Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or any similar or successor rule or regulation
hereafter adopted by the Commis sion. Upon the request of any holder of
Registrable Securities in connection with that holder's sale pursuant to Rule
144, the Issuer or the Guarantor, as applicable, shall deliver to such holder a
written statement as to whether it has complied with such requirements.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Issuer represents, warrants, covenants
and agrees that it has not granted, and shall not grant, registration rights
with respect to Registrable Securities or any other securities which would be
inconsistent with the terms contained in this Exchange and Registration Rights
Agreement.
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<PAGE>
(b) Specific Performance. The parties hereto acknowledge that there would
be no adequate remedy at law if any party fails to perform any of their
respective obligations hereunder and that each party may be irreparably harmed
by any such failure, and accordingly agree that each party, in addition to any
other remedy to which they may be entitled at law or in equity, shall be
entitled to compel specific performance of the respective obligations of any
other party under this Exchange and Registration Rights Agreement in accordance
with the terms and conditions of this Exchange and Registration Rights
Agreement, in any court of the United States or any State thereof having
jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows: If to the Issuer or the
Guarantor, to it at 767 Fifth Avenue, Suite 4300, New York, New York 10153, c/o
RSL Communications, N. America, Inc., Attention: Avery Fischer, Esq. with a copy
to Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022, Attention:
George Maguire, Esq., and if to a holder, to the address of such holder set
forth in the security register or other records of the Issuer, or to such other
address as the Issuer or any such holder may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effec tive only upon receipt.
(d) Parties in Interest. All the terms and provisions of this Exchange and
Registration Rights Agreement shall be binding upon, shall inure to the benefit
of and shall be enforceable by the parties hereto and the holders from time to
time of the Registrable Securities and the respective successors and assigns of
the parties hereto and such holders. In the event that any transferee of any
holder of Registrable Securities shall acquire Registrable Securities, in any
manner, whether by gift, bequest, purchase, operation of law or otherwise, such
transferee shall, without any further writing or action of any kind, be deemed a
beneficiary hereof for all purposes and such Registrable Securi ties shall be
held subject to all of the terms of this Exchange and Registration Rights
Agreement, and by taking and holding such Registrable Securities such transferee
shall be entitled to receive the benefits of, and be conclusively deemed to have
agreed to be bound by, all of the applicable terms and provisions of this
Exchange and Registration Rights Agreement. If the Issuer shall so request, any
such successor, assign or transferee shall acknowledge in writing that such
successor, assign, or transferee will acquire and hold the Registrable
Securities subject to all of the applicable terms hereof.
(e) Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in this Exchange and Registration
Rights Agreement or made pursuant hereto shall remain in full force and effect
regardless of any investigation (or statement as to the results thereof) made by
or on behalf of the Purchaser or any holder of Registrable Securities, any
director, officer or partner of such holder, any agent or underwriter or any
director, officer or partner thereof, or any controlling person of any of the
foregoing, and shall survive delivery of and payment for the Registrable
Securities pursuant to the Purchase Agreement and the transfer and registration
of Registrable Securities by such holder and the consummation of an Exchange
Offer.
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<PAGE>
(f) LAW GOVERNING. THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
(g) Headings. The descriptive headings of the several Sections and
paragraphs of this Exchange and Registration Rights Agreement are inserted for
convenience only, do not constitute a part of this Exchange and Registration
Rights Agreement and shall not affect in any way the meaning or interpretation
of this Exchange and Registration Rights Agreement.
(h) Entire Agreement; Amendments. This Exchange and Registration Rights
Agreement and the other writings referred to herein (including the Indenture and
the form of Securities) or delivered pursuant hereto which form a part hereof
contain the entire understanding of the parties with respect to its subject
matter. This Exchange and Registration Rights Agreement supersedes all prior
agreements and understandings between the parties with respect to its subject
matter. This Exchange and Registration Rights Agreement may be amended and the
observance of any term of this Exchange and Registration Rights Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument duly executed by the Issuer and the
holders of at least a majority in aggregate principal amount of the Registrable
Securities at the time outstanding. Each holder of any Registrable Securities at
the time or thereafter outstanding shall be bound by any amendment or waiver
effected pursuant to this Section 9(h), whether or not any notice, writing or
marking indicating such amendment or waiver appears on such Registrable
Securities or is delivered to such holder. Notwithstanding the foregoing, a
waiver or consent to departure from the provisions hereof that relates
exclusively to the rights of holders whose Registrable Securities are being
tendered pursuant to the Exchange Offer and that does not affect directly or
indirectly the rights of other holders whose Registrable Securities are not
being tendered pursuant to such Exchange Offer may be given by the holders of at
least a majority of the outstanding principal amount of Registrable Securities
being tendered or registered.
(i) Inspection. For so long as this Exchange and Registration Rights
Agreement shall be in effect, this Exchange and Registration Rights Agreement
and a complete list of the names and addresses of all the holders of Registrable
Securities shall be made available for inspection and copying on any business
day by any holder of Registrable Securities for proper purposes only (which
shall include any purpose related to the rights of the holders of Registrable
Securities under the Securities, the Indenture and this Agreement) at the
offices of the Issuer at the address thereof set forth in Section 9(c) above and
at the office of the Trustee under the Indenture.
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<PAGE>
(j) Counterparts. This agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
Agreed to and accepted as of the date referred to above.
RSL COMMUNICATIONS PLC
By: /s/ Jacob Schuster
-----------------------------------------
Name:
Title:
RSL COMMUNICATIONS, LTD.
By: /s/ Jacob Schuster
-----------------------------------------
Name:
Title:
GOLDMAN, SACHS & CO.
By: /s/ Goldman, Sachs & Co.
-----------------------------------------
(Goldman, Sachs & Co.)
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<PAGE>
Exhibit A
RSL COMMUNICATIONS PLC
RSL COMMUNICATIONS LTD.
INSTRUCTION TO DTC PARTICIPANTS
(Date of Mailing)
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: [DATE]1/
The Depository Trust Company ("DTC") has identified you as a DTC
Participant through which beneficial interests in RSL Communications PLC's (the
"Issuer") $100,000,000 aggregate principal amount at maturity 12% Senior Notes
due 2008 (the "Notes") are held. The Notes are unconditionally guaranteed as to
payment of principal, interest and any other amounts due thereon (the "Notes
Guarantee") by RSL Communications, Ltd. (the "Guarantor"). The Notes and the
Notes Guarantee, collectively, are the "Securities".
The Issuer is in the process of registering the Securities under the
Securities Act of 1933 for resale by the beneficial owners thereof. In order to
have their Securities included in the registration statement, beneficial owners
must complete and return the enclosed Notice of Registration Statement and
Selling Securityholder Questionnaire.
It is important that beneficial owners of the Securities receive a copy
of the enclosed materials as soon as possible as their rights to have the
Securities included in the registration statement depend upon their returning
the Notice and Questionnaire by [DEADLINE FOR RESPONSE]. Please forward a copy
of the enclosed documents to each beneficial owner that holds interests in the
Securities through you. If you require more copies of the enclosed materials or
have any questions pertaining to this matter, please contact [
] , Attention:[ ].
- --------
1/ Not less than 28 calendar days from date of mailing.
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<PAGE>
RSL Communications PLC
RSL Communications, Ltd.
Notice of Registration Statement
and
Selling Securityholder Questionnaire
(Date)
Reference is hereby made to the Exchange and Registration Rights
Agreement (the "Exchange and Registration Rights Agreement"), between RSL
Communications PLC (the "Issuer"), RSL Communications, Ltd. (the "Guarantor")
and the Purchaser named therein. Pursuant to the Exchange and Registration
Rights Agreement, the Issuer has filed with the United States Securities and
Exchange Commission (the "Commission") a registration statement on Form [___]
(the "Shelf Registration Statement") for the registration and resale under Rule
415 of the Securities Act of 1933, as amended (the "Securities Act"), of the
Issuer's $100,000,000 aggregate principal amount at maturity 12% Senior Notes
due 2008 (the "Notes"). The Notes are unconditionally guaranteed as to payment
of principal, interest and any other amounts due thereon (the "Notes Guarantee")
by RSL Communications, Ltd. (the "Guarantor"). The Notes Guarantee together with
the Notes are the "Securities". A copy of the Exchange and Registration Rights
Agreement is attached hereto. All capitalized terms not otherwise defined herein
shall have the meanings ascribed thereto in the Exchange and Registration Rights
Agreement.
Each beneficial owner of Registrable Securities (as defined below) is
entitled to have the Registrable Securities beneficially owned by it included in
the Shelf Registration Statement. In order to have Registrable Securities
included in the Shelf Registration Statement, this Notice of Registration
Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire")
must be completed, executed and delivered to the Issuer's counsel at the address
set forth herein for receipt ON OR BEFORE [DEADLINE FOR RESPONSE]. Beneficial
owners of Registrable Securities who do not complete, execute and return this
Notice and Questionnaire by such date (i) will not be named as selling
securityholders in the Shelf Registration Statement and (ii) may not use the
Prospectus forming a part thereof for resales of Registrable Securities.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and related Prospectus.
Furthermore, pursuant to the Exchange and Registration Rights Agreement, you may
be liable to the Issuer, the Guarantor and other selling securityholders for any
losses that result from inaccuracies or omissions in the information you are
requested to provide herein. Accordingly, holders and beneficial owners of
Registrable Securities are advised to consult their own securities law counsel
regarding the consequences of being named or not being named as a selling
securityholder in the Shelf Registration Statement and related Prospectus.
The term "Registrable Securities" is defined in the Exchange and
Registration Rights Agreement.
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<PAGE>
ELECTION
The undersigned holder (the "Selling Securityholder") of Registrable
Securities hereby elects to include in the Shelf Registration Statement the
Registrable Securities beneficially owned by it and listed below in Item (3).
The undersigned, by signing and returning this Notice and Questionnaire, agrees
to be bound with respect to such Registrable Securities by the terms and
conditions of this Notice and Questionnaire and the Exchange and Registration
Rights Agreement, including, without limitation, Section 6 of the Registration
Rights Agreement, as if the undersigned Selling Securityholder were an original
party thereto.
Upon any sale of Registrable Securities pursuant to the Shelf
Registration Statement, the Selling Securityholder will be required to deliver
to the Issuer and Trustee the Notice of Transfer set forth in Appendix A to the
Prospectus and as Exhibit B to the Exchange and Registration Rights Agreement.
The Selling Securityholder hereby provides the following information to
the Issuer and represents and warrants that such information is accurate and
complete:
<PAGE>
QUESTIONNAIRE
(a) Full Legal Name of Selling Securityholder:
-----------------------------------------------------------------
(i) Full Legal Name of Registered Holder (if not the
same as in (a) above) of Registrable Securities
Listed in Item (3) below:
-----------------------------------------------------------------
(ii) Full Legal Name of DTC Participant (if applicable
and if not the same as (i) above) Through Which
Registrable Securities Listed in Item (3) below
are Held:
-----------------------------------------------------------------
(b) Address for Notices to Selling Securityholder:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Telephone: __________________________________
Fax: ________________________________________
Contact Person: _____________________________
(c) Beneficial Ownership of Securities:
Except as set forth below in this Item (3), the undersigned does not
beneficially own any Securities.
(i) Principal amount of Registrable Securities
beneficially owned: _________________________________________
CUSIP No(s). of such Registrable Securities: ________________
(ii) Principal amount of Securities other than
Registrable Securities beneficially owned: __________________
CUSIP No(s). of such other Securities: _______________________________
<PAGE>
(iii) Principal amount of Registrable Securities which
the undersigned wishes to be included in the
Shelf Registration Statement: __________________
CUSIP No(s). of such Registrable Securities to be included in the Shelf
Registration Statement: ______________________________________________
(d) Beneficial Ownership of Other Securities of the
Issuer and the Guarantor:
Except as set forth below in this Item (4), the undersigned Selling
Securityholder is not the beneficial or registered owner of any other securities
of the Issuer or the Guarantor, other than the Securities listed above in Item
(3).
State any exceptions here:
(e) Relationships with the Issuer and the Guarantor:
Except as set forth below, neither the Selling Securityholder nor any of
its affiliates, officers, directors or principal equity holders (5% or more) has
held any position or office or has had any other material relationship with the
Issuer or the Guarantor (or their predecessors or affiliates) during the past
three years.
State any exceptions here:
(f) Plan of Distribution:
Except as set forth below, the undersigned Selling Securityholder
intends to distribute the Registrable Securities listed above in Item (3) only
as follows (if at all): Such Registrable Securities may be sold from time to
time directly by the undersigned Selling Securityholder or, alternatively,
through underwriters, broker-dealers or agents. Such Registrable Securities may
be sold in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at varying prices determined at the time of sale, or at
negotiated prices. Such sales may be effected in transactions (which may involve
crosses or block transactions) (i) on any national securities exchange or
quotation service on which the Registered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or services or in the over-the-counter market,
or (iv) through the writing of options. In connection with sales of the
Registrable Securities or otherwise, the Selling Securityholder may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the Registrable Securities in the course of hedging the positions they
assume. The Selling Securityholder may also sell Registrable Securities
-2-
<PAGE>
short and deliver Registrable Securities to close out such short positions, or
loan or pledge Registrable Securities to broker-dealers that in turn may sell
such securities.
State any exceptions here:
By signing below, the Selling Securityholder acknowledges that it
understands its obligation to comply, and agrees that it will comply, with the
provisions of the Exchange Act and the rules and regulations thereunder,
particularly Regulation M.
In the event that the Selling Securityholder transfers all or any portion
of the Registrable Securities listed in Item (3) above after the date on which
such information is provided to the Issuer, the Selling Securityholder agrees to
notify the transferee(s) at the time of the transfer of its rights and
obligations under this Notice and Questionnaire and the Exchange and
Registration Rights Agreement.
By signing below, the Selling Securityholder consents to the disclosure of
the information contained herein in its answers to Items (1) through (6) above
and the inclusion of such information in the Shelf Registration Statement and
related Prospectus. The Selling Securityholder understands that such information
will be relied upon by the Issuer and the Guarantor in connection with the
preparation of the Shelf Registration Statement and related Prospectus.
In accordance with the Selling Securityholder's obligation under Section
3(d) of the Exchange and Registration Rights Agreement to provide such
information as may be required by law for inclusion in the Shelf Registration
Statement, the Selling Securityholder agrees to promptly notify the Issuer of
any inaccuracies or changes in the information provided herein which may occur
subsequent to the date hereof at any time while the Shelf Registration Statement
remains in effect. All notices hereunder and pursuant to the Exchange and
Registration Rights Agreement shall be made in writing, by hand-delivery,
first-class mail, or air courier guaranteeing overnight delivery as follows:
(i) To the Issuer and the Guarantor:
(c/o RSL Communications, N. America, Inc.)
RSL Communications PLC
RSL Communications, Ltd.
[ ]
[ ]
Attention:
-3-
<PAGE>
(ii) With a copy to:
[ ]
[ ]
[ ]
Attention:
Once this Notice and Questionnaire is executed by the Selling
Securityholder and received by the Issuer 's counsel, the terms of this Notice
and Questionnaire, and the representations and warranties contained herein,
shall be binding on, shall inure to the benefit of and shall be enforceable by
the respective successors, heirs, personal representatives, and assigns of the
Issuer, the Guarantor and the Selling Securityholder (with respect to the
Registrable Securities beneficially owned by such Selling Securityholder and
listed
-4-
<PAGE>
in Item (3) above. This Agreement shall be governed in all respects by the laws
of the State of New York.
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: ________________
---------------------------------------------------------
Selling Securityholder
(Print/type full legal name of beneficial
owner of Registrable Securities)
By:
------------------------------------------------------
Name:
Title:
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND
QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE]
TO THE ISSUER'S COUNSEL AT:
[ ]
[ ]
[ ]
[ ]
-5-
<PAGE>
Exhibit B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
RSL Communications PLC
c/o Trustee
[ ]
[ ]
[ ]
Attention: Trust Officer
Re: RSL Communications PLC (the "Issuer")
12% Senior Notes due 2008
-------------------------
Dear Sirs:
Please be advised that _____________________ has transferred
$___________ aggregate principal amount of the above-referenced Notes pursuant
to an effective Registration Statement on Form [___] (File No. 333-____) filed
by the Issuer.
We hereby certify that the prospectus delivery requirements, if any, of
the Securities Act of 1933, as amended, have been satisfied and that the
above-named beneficial owner of the Notes is named as a "Selling Holder" in the
Prospectus dated ___________, 199_ or in supplements thereto, and that the
aggregate principal amount of the Notes transferred are the Notes listed in such
Prospectus opposite such owner's name.
Dated:
Very truly yours,
-------------------------
(Name)
By:
-------------------------
(Authorized Signature)
<PAGE>
EXHIBIT 21.1
MATERIAL SUBSIDIARIES
RSL United States Operating Subsidiaries
- ----------------------------------------
Name State of Incorporation
RSL COM N. America, Inc. Delaware
RSL COM U.S.A., Inc. Delaware
RSL COM PrimeCall, Inc. Delaware
Delta Three, Inc. Delaware
LDM Systems, Inc. New York
RSL Foreign Operating Subsidiaries
- ----------------------------------
Name Country of Organization
RSL COM Europe Ltd. United Kingdom
RSL COM Sweden AB Sweden
RSL COM Finland OY Finland
Telecenter OY Finland
RSL COM France S.A. France
RSL COM Deutschland GmbH Germany
RSL COM Nederland B.V. Netherlands
RSL COM Denmark A/S Denmark
RSL COM Japan K.K. Japan
Maxitel Servicos e Gestao de
Telecomunicacoes, S.A. Portugal
RSL COM Italia S.r.L. Italy
RSL COM Venezuela C.A. Venezuela
Newtelco Telekom AG Austria
RSL Communications Spain, S.A. Spain
CallCom AG FUR TeleKommunization Switzerland
European Telecom S.A./N.V. Belgium
European Telecom SARL Luxembourg
RSL COM Canada, Inc. Canada
RSL COM Australia Pty. Ltd Australia
Call Australia Pty. Ltd.
Associated Service Providers Pty. Limited
Digiplus Pty. Limited
Power Serve Communications
Consultants Pty. Limited
Talk 2000 Networks Pty. Limited
Telephone Bill Pty. Limited
