<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1998.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
RSL COMMUNICATIONS, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA 4813 N/A
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION) ----------------------
CLARENDON HOUSE
CHURCH STREET
HAMILTON HM CX BERMUDA
(441) 295-2832
(ADDRESS AND TELEPHONE
NUMBER OF
REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
----------------------
ITZHAK FISHER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RSL COMMUNICATIONS, N. AMERICA, INC.
767 FIFTH AVENUE, SUITE 4300
NEW YORK, NY 10153
(212) 317-1800
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------------
Copy to:
GEORGE E.B. MAGUIRE, ESQ.
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NY 10022
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1) PRICE(1)
<S> <C> <C> <C>
$200,000,000
10 1/2% Senior Exchange Notes due 2008 principal amount 100% $200,000,000
Guarantee of 10 1/2% Senior Exchange
Notes due 2008 N/A N/A N/A
$100,000,000 principal amount at
12% Senior Exchange Notes due 2008 maturity 100% $100,000,000
Guarantee of 12% Senior Exchange Notes
due 2008 N/A N/A N/A
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF REGISTRATION
SECURITIES TO BE REGISTERED FEE
<S> <C>
10 1/2% Senior Exchange Notes due 2008 $59,000
Guarantee of 10 1/2% Senior Exchange
Notes due 2008 (2)
12% Senior Exchange Notes due 2008 $29,500
Guarantee of 12% Senior Exchange Notes
due 2008 (2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no registration
fee is payable with respect to the Guarantees.
----------------------
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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
THE INFORMATION IN THIS PROSPECTUS WILL BE AMENDED OR COMPLETED;
DATED DECEMBER 30, 1998
PROSPECTUS
OFFERS TO EXCHANGE FOR
ALL OUTSTANDING 10 1/2% SENIOR NOTES DUE 2008
ALL OUTSTANDING 12% SENIOR NOTES DUE 2008
RSL COMMUNICATIONS PLC
[LOGO]
GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY
RSL COMMUNICATIONS, LTD.
----------------------
In exchange for the Old Notes listed above, RSL Communications PLC is
offering the following New Notes:
New 10 1/2% Notes: We are offering new 10 1/2% Senior Exchange Notes
due 2008 in exchange for our outstanding 10 1/2%
Senior Notes due 2008.
New 12% Notes: We are offering new 12% Senior Exchange Notes due
2008 in exchange for our outstanding 12% Senior Notes
due 2008.
INVESTING IN THE NEW NOTES INVOLVES RISKS. SEE THE "RISK FACTORS" SECTION
BEGINNING ON PAGE 12.
The New Notes:
o The New Notes will be free of transfer restrictions for most investors
and the New Notes will not carry registration rights. Otherwise, the New
10 1/2% Notes will have terms that are substantially identical to the
terms of the Old 10 1/2% Notes and the New 12% Notes will have terms that
are substantially identical to the terms of the Old 12% Notes.
o We will apply to list the New Notes on the Luxembourg Stock Exchange.
The Exchange Offers:
o Each Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1999, unless extended.
o Each Exchange Offer is subject to customary conditions. We may waive
these conditions.
o We will exchange New 10 1/2% Notes for all outstanding Old 10 1/2% Notes
validly tendered to us and not withdrawn.
o We will exchange New 12% Notes for all outstanding Old 12% Notes validly
tendered to us and not withdrawn.
o If you tender Old Notes to us, you may withdraw your tender at any time
prior to the expiration of the Exchange Offers.
o We will not receive any proceeds from the Exchange Offers.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
The date of this Prospectus is , 1999.
<PAGE>
CERTAIN UK RELATED REGULATORY ISSUES
Persons in the UK will be eligible to receive the New Notes to be issued in
the Exchange Offers only if the ordinary activities of such persons involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
do not constitute an offer to the public in the UK for purposes of the Public
Offers of Securities Regulations 1995.
This Prospectus is being distributed on the basis that each person in the
UK to whom this Prospectus is issued is reasonably believed to be a person of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the document may
otherwise lawfully be issued or passed on and, accordingly, by accepting
delivery of this Prospectus the recipient warrants and acknowledges that it is a
person falling within any such exemption.
------------------------
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
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 28,
CURRENCY 1996 1997 1997 1998 1998
- --------------------- ------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Austrian Schilling... (1) 12.63 12.43 11.76 11.83
Australian Dollar.... 1.26 1.54 1.38 1.69 1.65
Belgian Franc........ (1) (1) (1) 34.49 34.64
British Pound........ 0.58 0.61 0.62 0.59 0.59
Danish Krone......... (1) 6.85 6.72 6.36 6.38
Dutch Guilder........ 1.74 2.03 1.99 1.89 1.88
Finnish Markka....... 4.60 5.45 5.29 5.09 5.10
French Franc......... 5.19 6.01 5.93 6.60 5.62
German Mark.......... 1.54 1.80 1.77 1.67 1.67
Italian Lira......... (1) 1,770 (1) 1,652 1,650
Spanish Peseta....... (1) 152.30 (1) 142.10 142.60
Swedish Krona........ 6.89 7.94 7.58 7.83 8.13
Swiss Franc.......... (1) 1.46 (1) 1.38 1.37
Venezuelan Bolivar... (1) 504.30 (1) 573.40 563.80
</TABLE>
- ------------------
(1) The Company had no business activity in these countries during the periods
indicated.
------------------------
THE EXCHANGE OFFERS ARE NOT BEING MADE, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM HOLDERS OF OLD NOTES, IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFERS OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR "BLUE SKY" LAWS OF SUCH JURISDICTION.
------------------------
3
<PAGE>
As used in this Prospectus, (i) the "Company," "we," "our" and like terms
refer to RSL Communications, Ltd., a Bermuda corporation, its predecessors and
all of its subsidiaries, (2) the "Guarantor" means RSL Communications, Ltd.
exclusive of its subsidiaries and (3) the "Issuer" means RSL Communications PLC,
a United Kingdom corporation.
Throughout this Prospectus we have used industry data obtained from
internal surveys, market research, publicly available information and industry
publications. Industry publications generally state that the information they
contain has been obtained from sources believed to be reliable but that the
accuracy and completeness of such information is not guaranteed. We have not
independently verified these data.
------------------------
Certain of the information contained in this Prospectus, including
information about 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 our actual results to differ materially from the forward-
looking statements, see the "Risk Factors" section.
4
<PAGE>
SUMMARY
The following summary highlights selected information from this Prospectus.
It may not contain all of the information that is important to you, including
Prospectus information regarding the Company, the Exchange Offer and the terms
of the New Notes. We encourage you to read the entire Prospectus, including the
Risk Factors and the financial statements.
THE COMPANY
We provide a broad array of telecommunications services, with an emphasis
on international long distance voice services, to small and medium-sized
businesses in key markets. Our 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, we have grown rapidly through acquisitions, strategic
investments, joint ventures, alliances, and the start-up of our own operations
in key markets. We generate revenue in 19 countries in which approximately 70%
of all international long distance telecommunications minutes originated in
1997.
We formed the Company 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 our operations is "RSL-NET," our integrated digital
telecommunications network. Our independent Local Operators in each country
market our services through (1) direct sales forces, (2) strategic marketing
alliances, (3) networks of independent agents and distributors and
(4) telemarketing organizations.
The key elements of our 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.
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 the "Business" section under the heading "Company Strategy."
RISK FACTORS
See the "Risk Factors" section beginning on page 12 for a discussion of
certain risks that you should consider before exchanging Old Notes for New
Notes, including risks relating to the Company's needs for additional capital,
historical and future net operating losses and negative EBITDA (as defined),
substantial indebtedness, holding company structure, rapidly changing industry,
increasing pricing pressures and government regulatory restrictions.
HEADQUARTERS
The Company's headquarters are located at Clarendon House, Church Street,
Hamilton HM CX Bermuda (telephone number: 441-295-2832). We also maintain
executive offices for some of our operations at 767 Fifth Avenue, Suite 4300,
New York, New York 10153 (telephone number: 212-317-1800).
5
<PAGE>
THE EXCHANGE OFFERS
On November 9, 1998, the Issuer issued the Old 12% Notes, in an aggregate
principal amount at maturity of $100,000,000, and, on December 8, 1998, the
Issuer issued the Old 10 1/2% Notes, in an aggregate principal amount of
$200,000,000. Each offering of Old Notes was exempt from registration under the
Securities Act of 1933, as amended.
We have agreed to use our best efforts to complete the Exchange Offer for
the Old 12% Notes by July 7, 1998 and to use our best efforts to complete the
Exchange Offer for the Old 10 1/2% Notes by August 5, 1998. The terms of the
Exchange Offers, which are specified in greater detail in the main body of this
Prospectus and the accompanying Letters of Transmittal, include the following:
<TABLE>
<S> <C>
Offer of New 10 1/2% Notes................ The Issuer is offering up to $200,000,000 principal amount at
maturity of 10 1/2% Senior Exchange Notes due 2008 in exchange for a
like principal amount of Old 10 1/2% Notes.
Offer of New 12% Notes.................... The Issuer is offering up to $100,000,000 principal amount at
maturity of 12% Senior Exchange Notes due 2008 in exchange for a like
principal amount of Old 12% Notes.
Exchange Procedures....................... The procedures that you must follow to tender Old Notes in the
Exchange Offers are specified in the section of this Prospectus
labeled "The Exchange Offers."
Expiration Date........................... Each Exchange Offer will expire at 5:00 p.m. New York City time, on
, 1999, or such later date and time to which it is
extended.
Withdrawal................................ You may withdraw your tender of Old Notes pursuant to an Exchange
Offer at any time prior to the applicable Expiration Date. If for any
reason we do not accept any Old Note that you tender for exchange we
will return that Old Note to you at our expense as promptly as
practicable after the expiration or termination of the applicable
Exchange Offer.
Conditions of the
Exchange Offers......................... We will be required to consummate each Exchange Offer only if certain
conditions are satisfied. If any of the conditions to an Exchange
Offer are not satisfied, however, we may nevertheless waive them and
consummate that Exchange Offer. See the section of this Prospectus
labeled "The Exchange Offers" under the heading "Certain Conditions
to the Exchange Offers." We may terminate or amend each Exchange
Offer at any time prior to the applicable Expiration Date.
United States Federal Income Tax
Consequences............................ The exchange of Old Notes for corresponding New Notes will not
constitute a taxable exchange for U.S. federal income tax purposes.
See "Certain United States Federal Income Tax Considerations."
Exchange Agent............................ The Chase Manhattan Bank is serving as Exchange Agent for the
Exchange Offers.
Use of Proceeds........................... The Issuer will not receive any proceeds from the Exchange Offers.
See the "Use of Proceeds" section for a description of the use of
proceeds from the issuance of the Old Notes.
</TABLE>
6
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the terms of the Old Notes for which they
are offered in exchange are identical in all material respects, except that
(1) the New Notes will be free of transfer restrictions for most investors, as
described below opposite the caption "Resales" and (2) the New Notes will not
entitle their holders to registration rights. The terms of the New Notes, which
are specified in greater detail in the main body of this Prospectus, include the
following:
<TABLE>
<S> <C>
New 10 1/2% Notes
Principal Amount..................... Up to $200,000,000 principal amount of 10 1/2% Senior Exchange Notes
due 2008.
Maturity............................. November 15, 2008.
Interest............................. Annual rate: 10.5%
Payments: Every six months on November 15 and May 15.
First payment: May 15, 1999.
New 12% Senior Notes
Principal Amount at Maturity......... Up to $100,000,000 principal amount at maturity of 12% Senior
Exchange Notes due 2008. The New 12% Notes will have an initial
accreted value equal to the accreted value of the Old Notes for which
they are exchanged.
Maturity............................. November 1, 2008.
Cash Interest........................ Annual rate: 12.0%
Payments: Every six months on November 1 and May 1.
First payment: May 1, 1999.
Accrual of Interest....................... Interest on each New Note will accrue from the last interest payment
date on which interest is paid on the Old Note surrendered in
exchange therefor or, if no interest has been paid on such Old Note,
from the date of the original issue of such Old Note. If we accept
your Old Notes for exchange you will not receive any payment in
respect of interest on those Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after
consummation of the Exchange Offer for the Old Notes.
Resales................................... We believe that you may offer the New Notes for resale, resell the
New Notes and otherwise transfer the New Notes without complying with
the registration and prospectus delivery provisions of the Securities
Act, so long as:
o you acquire the New Notes in the Exchange Offer in the ordinary
course of your business;
o you are not participating in any distribution of the New Notes that
you obtain in the Exchange Offer and you do not intend to
participate and have no arrangement or understanding with any
person to participate in any such distribution; and
o you are not an affiliate of the Company.
New Notes Guarantees...................... The New Notes are unconditionally guaranteed by the Guarantor as to
payment of principal, interest and any other amounts owed. If the
Issuer cannot make payments on the New Notes when they are due then
the Guarantor will be required to make those payments.
Ranking................................... The New Notes will be senior obligations of the Issuer and the New
Notes Guarantees will be senior obligations of the Guarantor. The New
Notes and the New Notes Guarantees will be unsecured. The New Notes
and the New Notes Guarantees will rank on the same level, or "pari
passu," in right of payment with all existing and future unsecured
obligations of the Issuer and the Guarantor and will rank senior in
right of payment to all existing and future subordinated
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
obligations of the Issuer and the Guarantor. The New 10 1/2% Notes
and the New 12% Notes will rank pari passu in right of payment with
each other.
The Guarantor conducts its principal operations through its
subsidiaries (other than the Issuer). Accordingly, the New Notes and
the New Notes Guarantees will be effectively subordinated to all
indebtedness and other liabilities of the Guarantor's other
subsidiaries. In addition, holders of secured obligations of the
Issuer or the Guarantor will have claims that rank prior to the
claims of the holders of the New Notes and the New Notes Guarantees
with respect to the assets securing such other obligations. See the
section "Description of the New Notes and the New Notes Guarantees"
under the heading "Ranking." Assuming that we had completed all of
our recent securities offerings at September 30, 1998:
o the total amount of outstanding liabilities of the Guarantor and
the Issuer (excluding their subsidiaries), including trade
payables, would have been approximately $1,002.5 million and
o the total amount of outstanding liabilities of the subsidiaries of
the Guarantor (other than the Issuer), including trade payables,
would have been approximately $439.5 million.
Optional Redemption....................... On or after November 15, 2003 we may redeem the New 10 1/2% Notes. On
or after March 1, 2003, we may redeem the New 12% Notes. We may
redeem the New Notes in each of these cases with any source of funds
available to us.
Before November 15, 2001 we may redeem up to 33 1/3% of the principal
amount of the New 10 1/2% Notes, and before March 1, 2001 we may
redeem up to 33 1/3% of the original principal amount at maturity of
the New 12 1/2% Notes. We may redeem the New Notes in each of these
cases only with the proceeds of one or more sales of equity of the
Guarantor.
The prices for each of these optional redemptions are listed in the
section "Description of the New Notes and the New Notes Guarantees"
under the heading "Optional Redemption."
Additional Amounts; Tax Redemption........ We will make payments under the New Notes or the New Notes Guarantees
without withholding or making any deduction for taxes unless required
by law. If withholding is required as a result of (1) a change to
current law or the interpretation or administration thereof or (2) a
Listing Failure (as defined in the section "Description of the New
Notes and the New Notes Guarantees" under the heading "Additional
Amounts"), we will pay, subject to certain exceptions, Additional
Amounts as may be necessary so that net payments will be no less than
the amounts provided for in the New Notes. If (1) we become obligated
to pay any Additional Amounts as a result of such change (or, in
certain cases, such Listing Failure) and (2) we are unable to avoid
such obligation to pay Additional Amounts by taking reasonable
measures available to us, then we may redeem all, but not less than
all, outstanding New Notes of any class of New Notes at any time at
100% of the principal amount (or accreted value, in the case of the
New 12% Notes) thereof, together with accrued interest thereon, if
any, to but excluding the redemption date. See the section
"Description of the New Notes and the New Notes Guarantees" under the
heading "Additional Amounts."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Change of Control......................... If we sell certain assets or if we experience specific kinds of
changes of control, we must offer to repurchase the New Notes at a
purchase price equal to 101% of the principal amount thereof (in the
case of the New 10 1/2% Notes) or 101% of the accreted value thereof
(in the case of the New 12% Notes) plus, in each case, accrued
interest, if any, to the date of purchase.
Basic Covenants........................... The New Notes will be governed by Indentures that we have established
with an indenture trustee. Each Indenture will restrict the ability
of the Guarantor and certain Restricted Subsidiaries of the Guarantor
to:
o incur certain additional indebtedness,
o pay dividends or make distributions on their capital stock,
o make investments or certain other restricted payments,
o create liens,
o sell assets,
o issue or sell capital stock of Restricted Subsidiaries,
o enter into transactions with stockholders or affiliates, or
o effect a consolidation or merger.
</TABLE>
For more details, see the section "Description of the New Notes and the New
Notes Guarantees" under the heading "Covenants."
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-4 under the Securities Act for the New Notes offered hereby.
This Prospectus does not contain all of the information included in the
Registration Statement and the exhibits and schedules to the Registration
Statement. This Prospectus describes certain contracts and other documents which
we have filed as exhibits to the Registration Statement. The descriptions of
those documents in this Prospectus are not necessarily complete and you should
refer to the copy of any contract or other document filed as an exhibit to the
Registration Statement for more detail concerning those documents. For further
information regarding the Issuer, the Guarantor and the New Notes, refer to the
Registration Statement and the exhibits and schedules to the Registration
Statement.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may inspect and
copy reports, proxy statements and other information that we have filed 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. You
may obtain copies of such material at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.
9
<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 the section "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)--Net................... -- -- 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...................................... $(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)
Net loss per share(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)
Ratio of earnings to fixed charges(6)......... -- -- -- -- -- --
Capital expenditures(7)....................... 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>
10
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------
ACTUAL AS ADJUSTED(8)
---------- --------------
($ IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 82,196 $ 525,366
Restricted marketable securities(9).................................................. 30,579 30,579
Total assets......................................................................... 1,167,049 1,616,561
Short-term debt, current portion of long-term debt, and current portion of capital
lease obligations(10).............................................................. 17,700 17,700
Long-term debt and capital lease obligations(10)..................................... 718,767 1,011,714
Shareholders' equity................................................................. 18,019 174,584
</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 notes issued
by the Company in 1996.
(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 (as defined), the Lauder Warrants (as
defined), Roll-Up Rights (as defined) or Incentive Units (as defined) or in
the Telegate Exchange (as defined) 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) The ratio of earnings to fixed charges is computed by dividing the loss
from operations before fixed charges by fixed charges. Fixed charges
consist of interest charges and amortization of debt issuance costs,
whether expensed or capitalized and that portion of rental expense deemed
to be representative of interest. For the years ended December 31, 1994,
1995, 1996 and 1997 and the nine months ended September 30, 1997 and 1998,
earnings were insufficient to cover fixed charges by approximately $3.1
million, $9.4 million, $37.7 million, $100.0 million, million and
million, respectively.
(7) Capital expenditures include assets acquired through capital lease
financing and other debt.
(8) Adjusted to give effect to the issuance of the Old 10 1/2% Notes (the net
proceeds of which were approximately $196.1 million), the issuance of
7,000,000 shares of common stock in 1998 (the net proceeds of which were
approximately $156.6 million) and the issuance of the Old 12% Notes (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."
(9) The restricted marketable securities consist of U.S. government securities
pledged to secure the payment of interest on the principal amount of the
notes issued by the Company in 1996. See "Description of Certain
Indebtedness--1996 Notes."
(10) As of September 30, 1998, the Company had approximately $3.4 million of
available (undrawn) borrowing capacity under its current bank and vendor
facilities.
11
<PAGE>
RISK FACTORS
An investment in the New Notes involves risks. You should carefully
consider the following factors as well as the other matters described in this
Prospectus. This Prospectus contains "forward-looking statements" regarding the
intent, belief or current expectations of the Company or its officers. These
forward looking statements relate to our financing plans, the regulatory
environments in which we operate, trends affecting our financial condition or
results of operations, the impact of competition, the start-up of certain of our
operations and acquisition opportunities. We caution you that forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual results may differ materially from those in the
forward-looking statements. Cautionary statmements in this Prospectus, including
information contained in this "Risk Factors" section and information under the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" sections identify 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 contained in this
Prospectus.
THE COMPANY HAS A SHORT OPERATING HISTORY
The Company acquired all of its operations since 1995 and, therefore, has
limited experience in conducting those operations. Our principal operations
commenced on various dates from 1990 through 1997 and, therefore, have limited
operating histories. In addition, we invest in start-up operations in markets
where we have no existing operations. Furthermore, in many markets, we plan to
offer services that have been provided only by existing government-owned post,
telegraph and telephone monopolies ("PTTs"). We 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 the heading "Our Anticipated Growth and
Acquisitions Engender Risks."
WE HAVE RECENTLY ENTERED INTO NEWLY OPENING MARKETS
You should consider the Company's prospects in light of the risks,
expenses, problems and delays inherent in establishing a new business. As a new
entrant in our markets, we may need to discount services to customers. In
addition, our 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 that we incur under
these circumstances could result in low or negative operating margins. See the
section "Management's Discussion and Analysis of Financial Condition and Results
of Operations" under the heading "Overview."
THE COMPANY HAS 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. Due to our need to expand our
operations, develop RSL-NET and build our customer base and marketing
operations, we expect to incur significant net losses through 2001, significant
negative cash flow from operating activities through 2000 and negative EBITDA
(as defined) through 1998. These are forward-looking statements, however, and we
caution you that our significant net losses, negative cash flow from operating
activities and negative EBITDA (as defined) might continue beyond the years
indicated.
WE MAY NEED ADDITIONAL CAPITAL
When market conditions are favorable, we may raise substantial additional
capital to fund our capital expenditures, acquisitions, strategic alliances,
start-up operations and anticipated substantial net losses. In 1997, we made
capital expenditures of approximately $49.4 million. We expect that we will
12
<PAGE>
have made capital expenditures of at least $115.0 million in 1998. We intend to
increase our capital expenditures in 1999. We have also experienced a
consistently increasing working capital deficit. If market conditions for future
capital-raising transactions are not favorable, we believe that the remaining
net proceeds from the sale of our securities and other sources of liquidity
available to us will be sufficient to fund a reduced capital expenditure and
expansion plan for our existing operations, as well as continuing net losses,
for approximately 18 to 24 months. We may be required to seek additional capital
regardless of market conditions if:
o our plans or assumptions change or prove to be inaccurate;
o we identify additional required or desirable infrastructure
investments or acquisitions;
o we experience unanticipated costs or competitive pressures; or
o the remaining net proceeds from the sale of our securities and other
sources of available liquidity otherwise prove to be insufficient.
The Company may also be required to raise capital to refinance its outstanding
debt securities when they mature. We cannot assure you that we will be able to
raise additional capital. The failure to obtain additional capital on acceptable
terms could materially adversely affect our business, results of operations and
financial condition and our ability to pay principal of and interest on the New
Notes.
OUR SUBSTANTIAL INDEBTEDNESS COULD ENDANGER OUR FINANCIAL CONDITION AND INHIBIT
OUR ABILITY TO SATISFY OUR OBLIGATIONS UNDER THE NEW NOTES
We have a significant amount of indebtedness. Assuming that we had
completed all of our recent securities offerings at September 30, 1998 and
applied the proceeds as intended, the Company would have had total consolidated
indebtedness of approximately $1,004.9 million and stockholders' equity of
approximately $174.6 million.
For the years ended December 31, 1994, 1995, 1996 and 1997, and the nine
months ended September 30, 1997 and 1998, our earnings were insufficient to
cover our fixed charges. The deficiency was approximately $3.1 million for the
year ended December 31, 1994, $9.4 million for the year ended December 31, 1995,
$37.7 million for the year ended December 31, 1996, $100.0 million for the year
ended December 31, 1997, million for the nine months ended September 30,
1997 and million for the nine months ended September 30, 1998.
We may incur substantial amounts of additional indebtedness resulting in
substantial and increasing interest expense that will likely exceed our EBITDA
(as defined). If we are unable to generate sufficient EBITDA (as defined) or we
are otherwise unable to obtain funds necessary to make required payments, or if
we fail to comply with the material terms of our indebtedness, we would be in
default and the holders of our indebtedness would be entitled to accelerate the
maturity of such indebtedness. Any such default could result in a default on the
New Notes and could delay or preclude payment of principal of and interest on
the New Notes.
The trust indentures governing our outstanding debt securities contain
certain restrictive covenants which impose limitations on the ability of the
Company and certain of its subsidiaries to:
o incur additional indebtedness;
o pay dividends or make certain other distributions;
o issue capital stock of certain subsidiaries;
o guarantee debt;
o enter into transactions with shareholders and affiliates;
o create liens;
o enter into sale-leaseback transactions; and
13
<PAGE>
o sell assets.
See the section "Description of Certain Indebtedness" under the headings "1996
Notes," "U.S. Dollar Notes," "DM Notes," "Old 12% Notes" and "Old 10 1/2%
Notes."
Our level of indebtedness could have important consequences to you as a
holder of the New Notes because:
o it could limit our ability to obtain any necessary financing in the
future for working capital, capital expenditures, debt service
requirements or other purposes;
o a substantial portion of our future cash flow from operations, if
any, will be dedicated to the payment of principal and interest on
our indebtedness and will not be available for our business;
o it could limit our flexibility in planning for, or reacting to
changes in, our business;
o we are more highly leveraged than some of our competitors, which may
place us at a competitive disadvantage; and
o it could make us more vulnerable in the event of a downturn in our
business.
See the sections "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OUR HOLDING COMPANY STRUCTURE MAY JEOPARDIZE OUR ABILITY TO REPAY THE NEW NOTES
The Issuer and the Guarantor are holding companies and their only material
assets consist of the stock of their subsidiaries and fluctuating cash balances.
The Issuer has contributed or loaned a substantial majority of the net proceeds
from the sale of the Old Notes to its subsidiaries and other affiliates. See the
"Use of Proceeds" section. The cash flow and the related ability of each of the
Issuer and the Guarantor to service its debt obligations, including the New
Notes and the New Notes Guarantees, depend upon the ability of the Issuer or the
Guarantor to receive cash from their subsidiaries. These subsidiaries, however,
are legally distinct from the Issuer and the Guarantor and may have no
obligation, contingent or otherwise, to pay amounts due pursuant to the New
Notes or to make funds available for such payment. These subsidiaries have no
obligation to guarantee the New Notes. Accordingly, the New Notes and the New
Notes Guarantees will be effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables) of these subsidiaries.
The ability of these subsidiaries to make such distributions to the Issuer and
the Guarantor will be subject to, among other things, the availability of funds
and the terms of such subsidiaries' indebtedness. In addition, the repayment of
loans and advances by such subsidiaries may be subject to statutory or other
legal restrictions and to taxation, are contingent upon the earnings of those
subsidiaries and are subject to various business considerations. Dividends and
other payments to the Issuer and the Guarantor from their subsidiaries, in
certain jurisdictions, may have adverse tax consequences to them and to the
shareholders of the Company, and the subsidiaries' ability to declare and pay
dividends and their ability to make any payment or transfer of property or
assets to the Issuer and the Guarantor are, in certain circumstances, subject to
local statutory or other legal restrictions, and restrictions contained in their
respective Articles of Association, other organizational documents or loan
agreements.
As shareholders of each of their subsidiaries, any right of the Issuer or
the Guarantor to receive assets of any of their subsidiaries upon any
liquidation or reorganization of those subsidiaries (and the consequent right of
the holders of the New Notes and the New Notes Guarantees to those assets) is
effectively subordinated to the claims of the subsidiaries' creditors, except to
the extent the Issuer or the Guarantor is independently recognized as a creditor
of those subsidiaries. Any recognized claims of the Issuer or the Guarantor as a
creditor of a subsidiary would be subordinate to any prior security interest
held by any other creditor of the subsidiary and obligations of the subsidiary
that are senior to those owing to the Issuer or the Guarantor. In the event of
such a subsidiary's liquidation, there may not be assets sufficient for the
Issuer and/or the Guarantor to recoup their investments in that subsidiary.
14
<PAGE>
The Company's Bermuda counsel has opined that the New Notes Guarantees will
be valid and binding obligations of the Company, subject to standard
qualifications regarding bankruptcy, insolvency and similar circumstances.
Assuming that we had completed all of our recent securities offerings at
September 30, 1998:
o the total amount of outstanding liabilities of the Guarantor and the
Issuer (excluding their subsidiaries), including trade payables,
would have been approximately $1,002.5 million; and
o the total amount of outstanding liabilities of the subsidiaries of
the Guarantor (other than the Issuer), including trade payables,
would have been $439.5 million. See the section "Description of the
New Notes and the New Notes Guarantees" under the heading "Ranking."
WE MAY NOT BE ABLE TO REPAY OR REFINANCE THE NEW NOTES
We may not be able to repay the New Notes with cash from operations.
Accordingly, we may need to seek capital from outside sources in order to repay
principal on the New Notes. Our ability to obtain capital from outside sources
will depend on our financial condition at the time, market conditions and other
factors, including factors beyond our control. If we are unable to refinance the
New Notes or obtain additional funds for their repayment, the value of the New
Notes would be adversely affected.
OUR ANTICIPATED GROWTH AND ACQUISITIONS ENGENDER RISKS
We have experienced rapid growth and we intend to pursue further expansion
of our existing operations, through acquisitions, joint ventures and strategic
alliances and the establishment of new operations. Our ability to manage our
growth will depend on our ability to:
o evaluate new markets and investment vehicles;
o monitor operations and control costs;
o maintain effective quality controls;
o obtain satisfactory and cost-effective lease rights from, and
interconnection agreements with, competitors that own transmission
lines; and
o significantly expand our internal management, technical and
accounting systems.
Our growth will also depend on our ability to purchase MIUs, IRUs and other
capacity, which may be adversely affected by competition and regulatory
restrictions on ownership. Our rapid growth strains our financial, management
and operational resources, including our ability to:
o identify acquisition targets and joint venture partners;
o negotiate acquisition and joint venture agreements; and
o maintain satisfactory relations with our 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 our operating results.
We may, as a result of legal restrictions or other reasons, be limited to
acquiring only a minority interest in strategic targets, in which case we would
lack control over the target company's operations and strategies. Any such lack
of control may interfere with our growth and the integration of our operations.
We may also acquire interests in operations, for strategic reasons, even if
those operations have operational or managerial problems or are incurring
losses. In such cases, those operational or managerial problems or losses may
cause the Company significant operational difficulties or consume substantial
monetary, management and other resources of the Company.
15
<PAGE>
WE MAY EXPERIENCE PROBLEMS INTEGRATING OUR NEW OPERATIONS
When we acquire or launch new businesses we must integrate them with our
existing operations. For businesses that we acquire, we must integrate various
systems, including switching, transmission, technical, sales, customer service,
marketing, billing, accounting, quality control, management, personnel, payroll
and regulatory compliance, and we must integrate other systems and operating
hardware and software. Some or all of these systems and hardware and software
elements 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, wireless resale.
Furthermore, acquired businesses generally suffer from higher levels of employee
and customer attrition and turnover, beginning when employees and customers
learn of a proposed transaction and ending some time after the transaction has
been completed. We have 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, we
expect to experience higher levels of customer attrition than previously
experienced by our European operations.
In countries where we expand by establishing a new business, we 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 the heading "Our Markets Are Highly
Competitive." In addition, since we already operate businesses in many countries
and we intend to expand into additional countries and regions, including
countries and regions within Europe, Asia/Pacific Rim and Latin America, we must
manage the problems associated with integrating a culturally and linguistically
diverse workforce.
THE RAPIDLY CHANGING INDUSTRY IN WHICH WE OPERATE PRESENTS RISKS AND
UNCERTAINTIES
The international telecommunications industry is changing rapidly, due to
deregulation, privatization of PTTs, technological improvements, expansion of
telecommunications infrastructure, the globalization of the world's economies,
free trade and other factors. The Company may be unable to compete effectively
or adjust its contemplated plan of development to meet these changing market
conditions.
Much of our planned growth is predicated upon the deregulation of
telecommunications markets. Such deregulation may not occur when or as
anticipated, if at all, and the Company may not 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. We 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. Our profitability
will depend, in part, on our ability to anticipate and adapt to rapid
technological changes occurring in the telecommunications industry and on our
ability to offer, on a timely basis, services meeting evolving industry
standards and customer preferences. We may be unable to adapt to such
technological changes or offer such services on a timely basis.
WE FACE 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 our
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 our markets, would
likely have a material adverse effect on our prospects, financial condition and
results of operations and our ability to pay our debts. See the heading "We
Depend on Other Carriers."
16
<PAGE>
WE ARE UNABLE TO PREDICT TRAFFIC VOLUMES
We may enter into long-term agreements for leased capacity based on traffic
volumes that we expect will occur in the future. Traffic volumes, however, may
not reach expected levels and, thus, we may be obligated to pay for transmission
capacity without adequate corresponding revenues. Conversely, we may
underestimate our need for leased capacity and, thus, we may be required to
obtain transmission capacity through more expensive means. In the past, we have
at times overestimated our need for leased capacity and as a result we have
transported traffic at a higher cost. We have at times also understimated our
needs and leased capacity which was underutilized and, in some instances, led to
underutilization charges. See the section "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 our business and our ability to satisfy our obligations under the New
Notes.
WE DEPEND ON OTHER CARRIERS
The Company does not own any local exchange transmission facilities and we
own only limited intra-national transmission facilities. All of the telephone
calls made by our customers are connected at least in part through transmission
facilities that we lease. In many of the foreign jurisdictions in which we
conduct business, the primary provider of significant intra-national
transmission facilities is the PTT. Accordingly, prior to full deregulation, we
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 us from generating gross profit on the related calls. In addition, PTTs
may not be required by law to allow us to lease necessary transmission lines or,
if applicable law requires PTTs to lease transmission lines to the Company, we
may encounter delays in commencing operations and negotiating leases and
interconnection agreements. Additionally, disputes may result with respect to
pricing terms and billing. See the heading "Government Regulations Restrict Our
Operations."
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 pricing of local exchange
facilities that we lease in the U.S. is 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 our customers are
transported through transmission facilities that the Company leases from its
competitors, including American Telephone & Telegraph, Inc., Teleglobe Canada,
Inc., British Telecommunications PLC, France Telecom S.A., Deutsche Telekom AG,
Cable and Wireless Communications PLC, MCI WorldCom, Inc. and Sprint
Corporation. To the extent that we provide local exchange services in the U.S.,
we will be required to lease facilities from LECs that will be competitors of
the Company, such as the RBOCs. We generally lease lines on a short-term basis.
These include leases on a per-minute basis (some with minimum volume
commitments) and, where we anticipate higher volumes of traffic, leases of
transmission capacity for point-to-point circuits on a monthly or longer-term
fixed cost basis. When we negotiate lease agreements we must estimate future
supply and demand for transmission capacity as well as the calling patterns and
traffic levels of our 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. If we fail
to meet our minimum volume commitments pursuant to long-term leases, we must pay
"under-utilization" charges. See the heading "We Are Unable to Predict Traffic
Volumes." For these reasons, we would suffer competitive disadvantages if we
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
17
<PAGE>
volume routes), or if we failed to meet our minimum volume requirements. The
Company is also vulnerable to service interruptions and poor transmission
quality from leased lines. If our relationships with one or more of our carrier
vendors were to deteriorate, we could suffer a material adverse effect upon our
business, financial condition and results of operations.
WE DEPEND ON EFFECTIVE INFORMATION SYSTEMS
Sophisticated information systems are vital to the Company's growth and its
ability to:
o monitor costs;
o bill and receive payments from customers;
o reduce credit exposure;
o effect least cost routing; and
o achieve operating efficiencies.
We currently operate separate network management information systems for
our U.S., European and Australian operations. We intend to integrate and operate
the information services for all of our Local Operators from the regional
headquarters of each Local Operator. A failure of any of our 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
its results of operations.
THE YEAR 2000 PROBLEM PLACES OUR TECHNOLOGY SYSTEMS AT RISK
We are reviewing our computer systems and operations to identify and
determine the extent to which any of our 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 a temporary
inability to process transactions, billing and customer service or to engage in
similar normal business activities.
We are assessing and upgrading our computer system in an effort to prevent
major system failures that could result upon the transition from 1999 to the
year 2000. We may, however, be unable to successfully implement these upgrades,
and additional steps may 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.
If we complete our assessment 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 us from operating our business. We believe 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 against the Company. See the section "Management's Discussion
and Analysis of Financial Condition and Results of Operations" under the heading
"Year 2000 Technology Risks" and the section "Business" under the headings
"North American Operations--U.S. Operations" and "European Operations--General."
OUR MARKETS ARE HIGHLY COMPETITIVE
The telecommunications services markets are extremely competitive. Prices
for long distance calls are decreasing substantially in most of the Company's
markets. In addition, all of our markets have deregulated or are in the process
of deregulating telephone services. Customers in most of these
18
<PAGE>
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.
We must compete with a variety of other telecommunications providers in
each of our markets, including:
o the PTTs and other dominant carriers;
o 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";
o international fixed wire and wireless resellers;
o companies such as GTE and MCI WorldCom offering local exchange
service in conjunction with domestic long distance and international
long distance services;
o LECs such as the RBOCs; and
o other companies with business plans similar to our business plan.
We anticipate increased competition as worldwide deregulation accelerates.
Many of our competitors have significantly greater financial, management and
operational resources and more experience. If any of our competitors devote
additional resources to providing international long distance voice
telecommunication services to our key markets, including our target customer
base of small and medium-sized businesses, there could be a material adverse
effect on our 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.
We attempt to discount our services from the prices charged by the PTT or major
carriers in each of our markets. We have no control over the prices set by our
competitors, and some of our larger competitors may be able to use their
substantial financial resources to cause severe price competition in the
countries in which we operate. In certain deregulated markets severe price
competition has occurred, and as deregulation progresses in other markets we may
encounter severe price competition in those markets. Any price competition could
have a material adverse effect on our business, financial condition and results
of operations. In addition, certain of our competitors will provide potential
customers with a broader range of services than we currently offer or can offer
due to regulatory restrictions. See the section "Business" under the heading
"Industry Overview" and the section "Business" under the heading "European
Operations" and the sub-heading "General."
Recent and pending deregulation in each of our 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 affiliates outside
their service areas and are also allowed to provide long distance service within
their service areas, so long as 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 were 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.
19
<PAGE>
In November 1997, the FCC revised its rules to implement commitments made
by the U.S. under the Basic Telecommunications 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, we expect to encounter additional regional
competitors and increased competition. Moreover, we believe 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. Our Local Operator in any such 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 REGULATIONS RESTRICT OUR OPERATIONS
National and local laws and regulations differ significantly among the
countries in which we operate. The interpretation and enforcement of such laws
and regulations vary and could limit our ability to provide certain
telecommunications services, including IP telephony services. Changes in current
or future laws or regulations or future judicial intervention in the U.S. or in
any other country may have a material adverse effect on the Company, and FCC or
other regulatory intervention may have a material adverse effect on the Company.
Our 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 have already experienced delays in deregulation. Moreover, even if a
national legislature of an EU 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 that we provide in various EU
member states are subject to and affected by regulations and license conditions
enforced by the National Regulatory Authority ("NRA"). The NRA in the U.K. 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 that we can charge our U.K.
customers.
Governments in other foreign markets may fail to implement deregulation or
even if they do implement deregulation it may not 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 other national measures or may not pass them in the
form required, 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 our operations by preventing us from expanding our operations
as currently anticipated.
The Internet protocol ("IP") telephony services that we provide through
Delta Three may be subject to and affected by regulations introduced by the
authorities in each country where Delta Three operates. 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.
20
<PAGE>
OUR RESULTS DEPEND UPON KEY PERSONNEL
Our success depends, in part, upon our key management. In particular, we
depend highly upon Ronald S. Lauder, Chairman of the Board of Directors of the
Company and its largest and controlling shareholder, and Itzhak Fisher, the
President and Chief Executive Officer of the Company. If we were to lose the
services of Mr. Lauder, Mr. Fisher or any of the other members of our senior
management team, we could suffer material adverse effects.
We believe that our future success will depend in large part upon our
ability to attract, retain and motivate highly skilled employees. Such employees
are in great demand and are often subject to offers for competitive employment.
We may be unable to retain key managerial employees or to attract, integrate or
retain such employees in the future.
WE HAVE A CONTROLLING SHAREHOLDER
Ronald S. Lauder, Chairman of the Board of Directors of the Company,
beneficially owns approximately 58.2% of the voting power of the Company. In
addition, Mr. Lauder beneficially owns approximately 32.1% 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, controls approximately 92.4% of the voting power and approximately
56.8% of the outstanding capital stock of the Company.
The exercise of voting power by Mr. Lauder and the other persons described
above may present conflicts of interest between them, as shareholders, and the
holders of the New Notes. For example, if the Company encounters financial
difficulties, or is unable to pay its debts as they mature, our equity investors
may have an interest in pursuing acquisitions, divestitures, financings, or
other transactions that in their judgment could enhance their equity
investments, even though such transactions might involve risk to the holders of
the New Notes. See the "Principal Shareholders" section.
EFFECTS OF INCORPORATION UNDER BERMUDA CORPORATE LAW
The Guarantor is a Bermuda corporation 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 Guarantor in which any of its directors have an
interest and greater restrictions on the rights of its shareholders to dissent
from and obtain remedies in connection with mergers, takeovers and other
combination transactions and to pursue legal challenges to corporate actions.
EFFECTS OF INCORPORATION UNDER UNITED KINGDOM CORPORATE LAW
The Issuer is a United Kingdom corporation and, accordingly, is governed by
the Companies Act 1985 of the United Kingdom. This act differs materially from
laws generally applicable to United States corporations and their shareholders,
including regulations relating to interested directors, mergers and
indemnification of directors.
MANDATORY REDEMPTION UPON A CHANGE OF CONTROL
If the Company experiences a change of control, we may be required to
purchase all of the outstanding New Notes, along with any of our other notes
that are then outstanding, at a price equal to 101% of the principal amount (or
accreted value) thereof at the date of purchase plus accrued and unpaid
interest. However, we may not have sufficient funds to purchase the New Notes
and/or our other outstanding notes. See the section "Description of the New
Notes and the New Notes Guarantee" under the heading "Change of Control."
21
<PAGE>
ENFORCEMENT OF JUDGMENTS AND SERVICE OF PROCESS
The Issuer is incorporated in the United Kingdom and the Guarantor is
incorporated in Bermuda. Certain of their respective officers and directors
reside 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 serve 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 the section "Service of Process and
Enforcement of Liabilities."
OUR RESULTS MAY BE AFFECTED BY DEVALUATION AND CURRENCY RISKS
Most of our revenues, costs, assets and liabilities are denominated in
local currencies. In the future, we may acquire interests in entities that
operate in countries where the expatriation or conversion of currency is
restricted. Currently, we do not hedge against foreign currency exchange risks
but in the future we may commence such hedging against specific foreign currency
transaction risks. We may be unable to hedge all our exchange rate exposure
economically, and exchange rate fluctuations may have a material adverse effect
on the ability of the Issuer or the Guarantor to meet their respective
obligations under the New Notes. Because of the number of currencies involved,
our constantly changing currency exposure and the fact that all foreign
currencies do not fluctuate in the same manner against the United States dollar,
we cannot quantify the effect of exchange rate fluctuations on our future
financial condition or results of operations.
Under the treaty on the European Economic and Monetary Union, on or before
January 1, 1999 the "Euro" may replace all or some of the currencies of the
member states of the EU, including some countries in which we operate. We are
modifying our computer systems and programs to prepare for the upcoming
replacement of certain European currencies with the Euro. We are treating costs
associated with the modifications necessary to prepare for the Euro as expenses
during the period in which we incur them. Such costs may involve significant
expenditures and, if not implemented in a timely manner, could have a material
adverse effect on the Company.
NO PUBLIC MARKET EXISTS FOR THE NEW NOTES
The New Notes are a new issue of securities for which there is currently no
active trading market. If the New Notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities and other factors,
including general economic conditions and the financial condition, performance
and prospects of the Company. Even though the New Notes are being registered
under the Securities Act, an active trading market may not develop.
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW NOTES
If you hold Old Notes and you do not exchange them for New Notes in the
Exchange Offers you must continue to comply with (1) the provisions in the
Indentures governing the Old Notes regarding transfer and exchange of the Old
Notes and (2) the restrictions on transfer of the Old Notes written on the
legend appearing on the face of the certificates representing the Old Notes.
These transfer restrictions are imposed on the Old Notes because we issued the
Old Notes under exemptions from the Securities Act and applicable state
securities laws or in transactions not subject to the registration requirements
of the Securities Act and applicable state securities laws.
In general, you may offer or sell the Old Notes only if (1) you register
them under the Securities Act, (2) you sell them under an exemption from the
Securities Act and applicable state securities laws or (3) you sell them in a
transaction not subject to the Securities Act and applicable state securities
laws. We do not currently anticipate that we will register the Old Notes under
the Securities Act. See the section "Registration Rights Agreements for Old
Notes."
22
<PAGE>
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, we believe that you may offer for
resale, resell or otherwise transfer New Notes issued under the Exchange Offers
(unless you are an "affiliate" of the Issuer or the Guarantor within the meaning
of Rule 405 under the Securities Act) without complying with the registration
and prospectus delivery provisions of the Securities Act, so long as you acquire
the New Notes in the ordinary course of your business and you have no
arrangement with any person to participate in the distribution of the New Notes.
However, we do not intend to ask the Commission to consider, and the Commission
has not considered, the Exchange Offers in the context of a no-action letter and
we cannot assure you that the staff of the Commission would make a similar
determination with respect to the Exchange Offers as in such other
circumstances. Unless you are a broker-dealer, you must acknowledge that
(1) you will acquire the New Notes in your ordinary course of business, (2) at
the time of the completion of the Exchange Offers you will not have engaged in,
and do not intend to engage in, a distribution of New Notes and (3) you are not
an affiliate of the Issuer or the Guarantor within the meaning of Rule 405 of
the Securities Act or if you are such an affiliate, that you will comply with
the registration and prospectus delivery requirements of the Securities Act, to
the extent applicable. If you are a broker-dealer you must acknowledge that you
acquired your Old Notes as a result of market-making activities or other trading
activities and that you will deliver a prospectus in connection with any resale
of your New Notes. See the section "Plan of Distribution." In addition, to
comply with state securities laws, the New Notes may not be offered or sold in
any state unless they have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied
with. We currently do not intend to register or qualify the sale of the New
Notes in any state where an exemption from registration or qualification is
required and not available. See the section "The Exchange Offers" under the
heading "Consequences of Exchanging Old Notes" and the section "Registration
Rights Agreement for Old Notes."
23
<PAGE>
USE OF PROCEEDS
The Issuer will not receive any proceeds from the Exchange Offers. The net
proceeds to the Issuer from the sale of the Old Notes were approximately
$286.6 million, after deducting the underwriting discounts and estimated
expenses of the offerings of the Old Notes. Of the net proceeds, the Company
intends to use (1) approximately $146.1 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
(2) approximately $140.5 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 sale
of the Old Notes 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--Our
Anticipated Growth and Acquisitions Engender Risks."
CAPITALIZATION
The following table sets forth the unaudited consolidated cash and cash
equivalents, restricted marketable securities and capitalization of the Company
as of September 30, 1998 and as adjusted to give effect to (i) the issuance of
the Old 12% Notes and the application of the net proceeds therefrom received by
the Company, (ii) the issuance by the Company on December 1, 1998 of 7,000,000
shares of its Class A common shares, par value $0.00457 ("Class A Common
Stock"), pursuant to an underwritten public offering (the "1998 Equity
Offering") and the application of the net proceeds therefrom received by the
Company, and (iii) the issuance of the Old 10 1/2% Notes and the application of
the estimated net proceeds therefrom received by the Company. The table should
be read in conjunction with the Consolidated Financial Statements and notes
thereto and the other information included elsewhere in this Memorandum. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
----------------------------------------
AS ADJUSTED
FOR THE
12% NOTES
OFFERING, THE 1998
EQUITY OFFERING AND THE
ACTUAL 10 1/2% NOTES OFFERING
----------- ------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
----------------------------------------
<S> <C> <C>
Cash and cash equivalents......................... $ 82,196 $ 525,366 (1)(2)(3)
--------- ------------
--------- ------------
Restricted marketable securities(4)............... $ 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
Long-term debt and capital lease obligations:
Capital leases................................... 21,211 21,211
12 1/4% Senior Notes due 2006 (net of unamortized
discount of $1.8 million)...................... 170,667 170,667
9 1/8% Senior Notes due 2008..................... 200,000 200,000
10 1/8% Senior Discount Notes due 2008........... 212,131 212,131
10% Senior Discount Notes due 2008............... 114,758 114,758
12% Senior Notes due 2008 (net of unamortized
discount of $5.5 million)...................... -- 94,489
10 1/2% Senior Notes due 2008 (net of unamortized
discount of $1.5 million)...................... -- 198,458
--------- ------------
Total long-term debt, short-term debt and
capital lease obligations(5)................. 736,467 1,029,414
--------- ------------
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(6)..................... 81 113
26,874,795 shares of Class B Common Stock
outstanding(7)............................... 123 123
Preferred Stock, $.00457 par value; 65,700,000
shares authorized; no shares outstanding....... -- --
Warrants--Common Stock........................... 5,544 5,544
Additional paid-in capital....................... 328,443 484,976
Accumulated deficit.............................. (304,190) (304,190)
Foreign currency translation adjustment.......... (11,982) (11,982)
--------- ------------
Total shareholders' equity..................... 18,019 174,584
--------- ------------
Total capitalization........................... $ 754,486 1,203,998
--------- ------------
--------- ------------
</TABLE>
24
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Reflects the receipt of net proceeds of approximately $90.5 million from the
issuance of the Old 12% Notes.
(2) Reflects the receipt of net proceeds of approximately $156.6 million from
the 1998 Equity Offering.
(3) Reflects the receipt of net proceeds of approximately $196.1 from the
issuance of the Old 10 1/2% Notes.
(4) 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."
(5) As of September 30, 1998, the Company had approximately $3.4 million of
available (undrawn) borrowing capacity under its current bank and vendor
facilities.
(6) The foregoing does not include (i) 1,481,055 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, (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.
(7) Does not include 459,900 shares of Class B Common Stock issuable upon
exercise of the Lauder Warrants.
25
<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)--Net................ -- -- 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................................... $(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)
Net loss per share(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>
26
<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)
Ratio of earnings to fixed charges(6)...... -- -- -- -- -- --
Capital expenditures(7).................... 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(8)........ -- -- 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(9)............. 2,645 5,506 6,974 8,033 5,438 17,700
Long-term debt and capital lease
obligations(9)........................... 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) The ratio of earnings to fixed charges is computed by dividing the loss from
operations before fixed charges by fixed charges. Fixed charges consist of
interest charges and amortization of debt issuance costs, whether expensed
or capitalized and that portion of rental expense deemed to be
representative of interest. For the years ended December 31, 1994, 1995,
1996 and 1997 and the nine months ended September 30, 1997 and 1998,
earnings were insufficient to cover fixed charges by approximately $3.1
million, $9.4 million, $37.7 million, $100.0 million, million and
million, respectively.
(7) Capital expenditures include assets acquired through capital lease financing
and other debt.
(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.
27
<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>
28
<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 EU 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 EU 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 services at a
discount to the prices charged by the local PTTs and major carriers. The Company
has
29
<PAGE>
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--The Rapidly
Changing Industry in Which We Operate Presents Risks and Uncertainties" and
"--Our Markets Are Highly Competitive."
NORTH AMERICAN OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ----------------------
PREDECESSOR
-----------
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 believes that as a result of these changes to its business and as a
result of utilizing a greater proportion of owned versus leased facilities, the
Company has begun to experience decreasing quarterly losses commencing in
January 1998. 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.
30
<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--The Rapidly Changing
Industry in Which We Operate Presents Risks and Uncerainties," "--Government
Regulations Restrict Our Operations" and "Business--European
Operations--General--Regulatory Environment."
31
<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. As the Company migrates increasing amounts of traffic from
leased facilities to owned facilities, the Company experiences improving
operating results in those operations where such traffic migration occurs. 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.
32
<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 and certain of the Company's European operations have become cash
flow positive. 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 deregulation will result in improved
European operating results. 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.
33
<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--Our Results May Be Affected By 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
34
<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. Loss before extraordinary item increased
to $135.5 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.
35
<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 revenue growth in excess of the
Company's expectations continued to cause traffic overflow resulting in higher
cost of services, and increased operating losses.
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 is primarily attributable to the costs
associated with the Company's expansion into nine new markets and the concurrent
hiring of more than 1,000 new personnel. The Company also recognized all of the
costs associated with opening new offices, commencing advertising campaigns and
product development. 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.
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<PAGE>
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 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
37
<PAGE>
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.
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 an offering
completed in October 1996 (the "1996 Units Offering") of units consisting in the
aggregate of 300,000 warrants, each to purchase 3.975 shares of Class A Common
Stock of the Company at an exercise price of $.00457 per share, subject to
adjustment (the "Warrants"), and $300.0 million of the Issuer's 12 1/4% Senior
Notes due 2006.
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 $28.6 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.
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<PAGE>
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 all of the Company's long-term indebtedness is attributable to the
debt securities issued by the Issuer and guaranteed by the Guarantor.
In October 1996, the Issuer consummated the offering of $300.0 million of
12 1/4% Senior Notes due 2006, $127.5 million of which were redeemed by the
Issuer in April 1998. In February 1998, the Issuer 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, the Issuer consummated the offering of DM296.0 million
(approximately $99.1 million initial accreted value) of 10% Senior Discount
Notes. On November 9, 1998, the Company issued the Old 12% Notes, in the
principal amount at maturity of $100 million ($94.5 million initial accreted
value). In addition, on December 8, 1998, the company issued the Old 10 1/2%
Notes, in the principal amount of $200 million. The foregoing debt securities
(the "Existing Notes") were issued under indentures (the "Existing 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," "--Old 12%
Notes" and "--Old 10 1/2% Notes."
In connection with the issuance of the 1996 Notes, the Issuer 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."
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."
On December 1, 1998, the Company issued 7,000,000 shares of Class A Common
Stock in the 1998 Equity Offering. The net proceeds to the Company were
approximately $156.6 million after deducting the underwriting discount and
estimated expenses.
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.
If market conditions are not favorable, the Company believes that the net
proceeds from the issuance of the Old Notes and the 1998 Equity 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
39
<PAGE>
continuing net losses, for approximately 18 to 24 months. However, the Company
may be 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 issuance of the Old Notes, together
with the remaining proceeds of prior securities offerings and other sources of
liquidity otherwise prove to be insufficient. See "Risk Factors--The Company Has
Net Operating Losses and Negative EBITDA (as defined)," "--We May Need
Additional Capital" and "--Our Substantial Indebtedness Could Endanger Our
Financial Condition and Inhibit Our Ability to Satisfy Our Obligations Under the
New Notes."
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 has not yet determined the impact on its consolidated financial
statements of the adoption of SFAS 133.
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
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<PAGE>
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 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 against the Company. See
"Risk Factors--We Depend on Effective Information Systems" and "-- the Year 2000
Problem Places Our Technology Systems at Risk," and "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 39% April 1997 November 1997
Telecomunicacoes, 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) The Company has granted to a number of minority shareholders of its
subsidiaries 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"). 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 the right to exchange such Incentive Units for shares of
Class A Common Stock or, in certain circumstances, at the Company's option,
cash.
(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,
43
<PAGE>
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 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 in April 1998 a 12.5% equity interest
in RSL Europe. In June 1998, Metro Holding converted all of its interest in RSL
Europe into 1,607,142 shares of Class A Common Stock (based on value for value)
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.
The Company recently acquired a majority interest in Telegate Holding GmbH
("Telegate Holding"), the controlling holding company of Telegate AG
("Telegate"), Europe's third largest directory information provider, for
approximately $33.6 million. Certain affiliates of Metro Holding own a minority
interest in Telegate. 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 may, in certain
circumstances, be required to issue shares of Class A Common Stock to Metro
Holding and its affiliates in exchange for their interests (approximately 25%)
in Telegate Holding (the "Telegate Exchange").
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.
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.
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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
47
<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.
48
<PAGE>
INTERNATIONAL LONG DISTANCE MECHANICS
A long distance telephone call generally consists of three segments:
origination, transport and termination.
<TABLE>
<S> <C>
------------- ----------------------------------------- ---------------------
| Origination | | Transport | | Termination |
------------- ----------------------------------------- ---------------------
Stellite Connection
[Graphic of Satellite]
Originating Country /\ Terminating Country
/ \
Private Line / \ Private Line
_____________________________ / \ _____________________________
| | / \ | |
| | / \ | |
----------- --------------- /Half Circuit\ --------------- ------------
| Calling | | International | / Half Circuit \ | International | | Called |
| Customer | | Switch |------------------| Switch | | Customer |
----------- --------------- --------------- ------------
| --------- | Cable Connection | --------- |
|_______| |___________| |___________| |_______|
| P S T N | * Resale / Lease | P S T N |
--------- * MIU / IRU ---------
</TABLE>
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
49
<PAGE>
programming its network to direct all of the Company's customers' long distance
calls to the selected switch. Outside the United States, certain restrictions
require the Company to utilize one of the following methods to originate a call
via the PSTN.
PREFIX DIALING. Prefix dialing allows a customer to access the Company's
switch via the PSTN by dialing a multiple digit access code (the "prefix")
assigned to the Company prior to dialing the destination telephone number.
Prefix dialing requires direct interconnection with the operator of the PSTN,
typically the PTT or another major carrier, in order to allow the PSTN to
recognize the prefix and direct the call to the Company's switch. In order to
make the use of prefix dialing service transparent to the customer, the Company
can either program the customer's telephone system or install an auto-dialer
device to automatically dial the prefix on behalf of the customer when
appropriate. The auto-dialer device is purchased, installed and maintained by
the Company.
In Europe, prefix dialing is currently provided 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 Regulations Restrict Our Operations." 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
50
<PAGE>
the cable was placed in service, the carrier is only permitted to acquire
capacity on the cable through the purchase, by way of a lump sum payment, of an
IRU. The fundamental difference between an IRU holder and an owner of MIUs is
that the IRU holder is not entitled to participate in management decisions
relating to the cable system. 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 UK 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.
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A carrier which does not have an operating agreement with a carrier in a
particular country is able to provide international service to that country by
leasing capacity from a carrier which does. Until recently, in many foreign
countries there was only one operating agreement in place between that country's
PTT and a foreign based international carrier as a result of monopolies held by
such PTTs. For example, in the United States, before the deregulation of
telecommunications services, AT&T was the only carrier that had operating
agreements with foreign carriers. However, after deregulation, MCI
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--The Rapidly Changing Industry in Which We Operate Presents Risks and
Uncertainties."
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.
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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 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
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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
Regulations Restrict Our Operations."
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.
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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:
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."
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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."
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
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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.
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--We Depend 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--The Rapidly Changing
Industry in Which We Operate Presents Risks and Uncertainties," "--We Depend on
Effective Information Systems" and "--The Year 2000 Technology Problem Places
Our Technology Systems at Risk."
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
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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--The Company Has A Short Operating History," "--We Have Recently Entered
into Newly Opening Markets," "--We Are Unable to Predict Traffic Volume" and
"--We Depend on Other Carriers."
For calls to countries where the Company does not have a Local Operator,
the Company seeks to establish and utilize an operating agreement with a local
carrier. While this method generates higher costs than transporting calls
between the Local Operators, it has the potential to generate higher margin
return minutes. The Company has not generated significant return minutes to
date. In addition, by strategically establishing its Local Operators and
obtaining operating agreements, the Company will seek to arbitrage the
differential in settlement rates between countries.
Origination and termination of traffic 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
Regulations Restrict Our Operations" 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
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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 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.
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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 customers will
continue to represent a significant portion of the Company's overall revenues in
the future. See "Risk Factors--We Are Unable 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.
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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 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 Company directs the operations of its subsidiaries, including the
management of the growth of current operations, the expansion of operations into
new markets, the formation of potential joint ventures and strategic alliances
and the execution of acquisitions. Identification of key markets, determination
of the vehicles through which, as well as the manner in which, the Company will
enter such markets and oversight of the implementation of these plans is also
done at the Company level. The Company is continuously reviewing and considering
investment and acquisition opportunities. The Company intends to pursue
acquisitions which it believes will expand or enhance its current operations.
All such acquisitions will be identified, negotiated and consummated at the
Company level, generally working together with local and regional management in
cases where the acquisitions supplement existing operations. In addition, the
Company seeks alliances with carriers to expand the scope of the Company's
network and improve its competitive profile.
The Company currently provides centralized financial services for all of
the Local Operators, including financial planning and analysis, cost control and
network management. The Company attempts to coordinate the acquisition of
additional transmission capacity (either leased or purchased) with the growth of
traffic volumes of each Local Operator. The Company assists in securing
financing and discounts for these expenditures as well as other capital
expenditures through its arrangements with particular vendors. The Company also
maintains global treasury functions, including the management of cash flows
between the Local Operators for the transmission of traffic between them, as
well as the allocation of working capital.
The Company expects to eventually link all of its switching facilities to a
central billing system administered at the Company level, and provide the
billing information to Local Operators which will then invoice the customers
directly. The invoice will be branded with the Company's name and will be
payable to a Company account in the Local Operator's country.
The Company manages the expansion of RSL-NET, including the acquisition of
additional capacity for existing operations and the integration of developing
and new Local Operators into RSL-NET. The Company coordinates the routing of
traffic on RSL-NET to effect routing on a least cost basis. Least
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cost routing involves the programming of the Company's switches to transport
international calls over the route which is most likely to produce the lowest
cost to the Company without compromising call quality. The Company consolidates
the least cost routing information of each of its Local Operators to allow them
to take advantage of each others' cost structure.
The Company is in the process of coordinating the marketing activities of
the Local Operators and plans to introduce a universal brand image to create
worldwide name recognition for the Company. In addition, the Company intends to
direct the service offerings of the Local Operators to enable the Company to
provide services to a single customer in more than one country. The Company
intends to then provide the customer with a single bill and designate a primary
customer service representative to address the customer's overall needs.
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
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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-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,
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(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 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--We Depend on Effective Information Systems" and "--The Year
2000 Problem Places Our Technology Systems at Risk."
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
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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 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
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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
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
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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 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 Regulations Restrict Our Operations."
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
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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.
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. The Canadian
Radio-television and Telecommunications Commission (the "CRTC") has issued to
the Company an international telecommunications service license, effective
January 1, 1999, pursuant to which 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
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(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.
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.
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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 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--We Depend on
Effective Information Systems" and "--The Year 2000 Problem Places Our
Technology Systems at Risk."
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 EU member states are in the initial stages of deregulation.
Deregulation in these countries may occur either because the member state
decides to open up its own market (e.g., the United Kingdom, Sweden and Finland)
or because it is directed to do so by the 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 Regulations Restrict Our Operations."
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 Regulations Restrict Our Operations."
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
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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 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 Regulations Restrict Our Operations."
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.
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.
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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 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.
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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.
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
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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 9 out of 18 interconnection zones of France
and enable it 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.
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 switches
located as follows: two in Paris, and one each in Marseilles, Nice and Nanterre.
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 Modulance
Global r3 and TRF, which offer 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, SIRIS, 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.
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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 ("Autorite
de 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
faces significant delay. 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.
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.
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.
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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.
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
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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 (formerly
known as Telecom Finland) and other carriers' international circuits. RSL
Finland utilizes an operating agreement with a Russian carrier and is directly
connected to RSL Sweden.
COMPETITION
The Company's principal competitor in Finland is Sonera Corporation, 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.
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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.
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.
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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.
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 is installing an Ericsson AXE-10 switch and has installed three AT&T
Definity switches in the Rome area. Additionally, the Company intends to install
18 additional 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, Global One and WorldCom. 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
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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. This regime is expected to be replaced in the near future by a
"general authorization" regime pursuant to Directive 97/13/EC.
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. A
separate individual 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 mid-1999.
Also, on November 25, 1998, the NRA adopted a resolution whereby Telecom
Italia's interconnection offer of July 1998 must be amended so as to bring such
offer further in line with the recommendations and principles of the European
Union and the Italian legislation on interconnection. Telecom Italia challenged
this resolution before the Administrative Court by requesting a temporary
restraining order that would suspend the binding effects of the NRA's
resolution. The Administrative Court rejected Telecom Italia's request for the
temporary restraining order. Telecom Italia may appeal the Administrative
Court's decision on the temporary restraining order before the State Council.
The decision on the merits of Telecom Italia's challenge is expected not earlier
than the end of 1999.
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.
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 and it is negotiating an interconnection agreement with
Telecom Italia.
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.
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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.
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"), Uni2 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.
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 Uni2, which was awarded a third nation-wide license to provide
voice telephony services, but has not yet
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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
Lince 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 a basic voice
telephony license (license type B1) and 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.
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.
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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.
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.
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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, 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 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.
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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 has
registered 100% of the foreign investment made in RSL Venezuela as required by
Venezuelan foreign investment regulations.
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
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
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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.
REGULATORY ENVIRONMENT
The Telecommunications Act 1997 (the "Australian Act") in Australia makes a
distinction between carriers and carriage service providers and requires a
carrier to be licensed under the Australian Act. A carriage service provider,
while not licensed, is required to comply with the terms of the Australian Act
including the service provider rules under the Australian Act. RSL Australia is
not required to be licensed as a carrier since it does not own a network unit in
Australia. A network unit is defined under the Australian Act as a line link
connecting distinct places in Australia at least 500 meters apart and includes a
radiocommunications facility used to supply a public mobile telecommunications
service. RSL Australia does not intend at this time to apply for a carrier
license.
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.
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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.
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 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.
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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 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 Regulations Restrict Our Operations."
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
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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.
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.
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since returning to the private sector from government service in 1987. From 1983
to 1986, Mr. Lauder served as Deputy Assistant Secretary of Defense for European
and NATO affairs. From 1986 to 1987, Mr. Lauder served as U.S. Ambassador to
Austria. Mr. Lauder is a director of Estee Lauder. He is 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>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
--------------------------- -------------
AWARDS
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 herein, 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.
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 contingent on the
completion of the Company's IPO, options to acquire 432,856 shares of Class A
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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 the discretion of the
Compensation Committee. In addition, the 1997 Performance Plan permits the
97
<PAGE>
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 $22.00 and is increased on the first
day of each calendar quarter after the date of grant, compounded annually,
equal to one-quarter of the yield to maturity on U.S. Treasury Securities
having a maturity, at the time of grant of the options, approximately equal
to seven years. Forty percent of the options are exercisable on
December 31, 2000, 70% are exercisable on December 31, 2001 and 100% are
exercisable on December 31, 2002.
(3) Shares of Class A Common Stock issuable upon the exercise of options issued
on October 6, 1997. In connection with an employment agreement dated as of
August 5, 1995 between Mr. Williams and the Company, Mr. Williams was
granted the RSL Europe Option Rights (as defined), which rights were
exchanged for the above-listed options.
(4) Shares of Class A Common Stock issuable upon the exercise of options granted
on January 1, 1997 under the 1995 Plan. The options became fully vested on
January 1, 1998.
98
<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 1997 by the Named
Executive Officers and the value at December 31, 1997 of unexercised stock
options held by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
VALUE OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED ON REALIZED FY-END (#) FY-END($)(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
99
<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.
100
<PAGE>
The Company has entered into a new employment agreement with Richard
Williams. The Company expects to enter into new employment agreements with two
of its other key employees, 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, warrants to
purchase 459,900 shares of Class B Common Stock of the Company at an exercise
price of $.00457 per share, subject to adjustment (the "Lauder Warrants"). 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.
101
<PAGE>
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.
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."
102
<PAGE>
PRINCIPAL 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 shares,
par value $0.00457 (the "Class B Common Stock" and, together with the Class A
Common Stock, the "Common Stock"), at December 24, 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 and (iii) the Company's directors and executive officers
as a group. Except as otherwise noted below, each of the shareholders identified
in the table has sole voting and investment power over the shares beneficially
owned by such person.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OVERALL VOTING
--------------------------------------------------------------------------- POWER AND
OWNERSHIP OF
CLASS A COMMON COMMON STOCK
STOCK(1) CLASS B COMMON STOCK --------------
DIRECTORS, EXECUTIVE OFFICERS --------------------- -------------------------------------------------- % OF VOTING
AND 5% SHAREHOLDERS NUMBER PERCENT NUMBER PERCENT POWER(2)
- ------------------------------------- --------- ------- ----------------------- ----------------------- --------------
<S> <C> <C> <C> <C> <C>
Ronald S. Lauder (3)(4)(5)(6)........ 1,363 * 17,063,429 63.9 58.1
Itzhak Fisher (3)(7)................. -- * 4,171,205 15.9 14.4
Leonard A. Lauder (3)(5)(6)(8)....... 454 * 6,190,178 23.6 21.4
RSL Investments Corporation (3)...... -- * 9,496,295 36.2 32.9
E/L RSLG Media, Inc. (3)............. -- * 1,814,579 6.9 6.3
Jacob Z. Schuster (3)(9)............. 41,656 * 1,646,559 6.3 5.7
Gustavo A. Cisneros (10)............. 1,409,083 5.3 -- * *
Coral Gate (11)...................... 1,408,629 5.3 -- * *
Nir Tarlovsky (12)................... 739,947 2.8 270,301 1.0 1.2
Nesim N. Bildirici (13).............. 619,642 2.3 87,958 * *
Mark J. Hirschhorn................... 36,605 * -- * *
Eugene A. Sekulow (14)............... 44,254 * -- * *
Fred H. Langhammer (15).............. 12,680 * -- * *
Richard E. Williams.................. 350,400 1.3 -- * *
Nicolas G. Trollope (16)............. 1,000 * -- * *
All directors and officers as a group
(19 persons) (17).................. 3,635,766 13.6 26,705,961 100.0 92.1
Metro Holding AG (18)................ 3,214,284 12.1 -- * 1.1
Essex Investment (19)................ 1,384,950 5.2 -- * *
Putnam Investments, Inc.(20)......... 3,326,011 12.5 -- * 1.2
<CAPTION>
DIRECTORS, EXECUTIVE OFFICERS
AND 5% SHAREHOLDERS % OWNERSHIP
- ------------------------------------- --------------
<S> <C>
Ronald S. Lauder (3)(4)(5)(6)........ 32.1
Itzhak Fisher (3)(7)................. 7.9
Leonard A. Lauder (3)(5)(6)(8)....... 11.7
RSL Investments Corporation (3)...... 18.0
E/L RSLG Media, Inc. (3)............. 3.4
Jacob Z. Schuster (3)(9)............. 3.2
Gustavo A. Cisneros (10)............. 2.7
Coral Gate (11)...................... 2.7
Nir Tarlovsky (12)................... 1.9
Nesim N. Bildirici (13).............. 1.3
Mark J. Hirschhorn................... *
Eugene A. Sekulow (14)............... *
Fred H. Langhammer (15).............. *
Richard E. Williams.................. *
Nicolas G. Trollope (16)............. *
All directors and officers as a group
(19 persons) (17).................. 56.8
Metro Holding AG (18)................ 6.1
Essex Investment (19)................ 2.6
Putnam Investments, Inc.(20)......... 6.3
</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) 1,090,482 shares of Class A Common Stock issuable upon the exercise of
outstanding stock options, (ii) 26,250,229 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 459,900 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 December 23, 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) 909,090 shares of Class B Common Stock owned by Lauder Gaspar Ventures
LLC ("LGV") (see note 5); (c) 9,496,295 shares of Class B Common Stock
owned by RSL Investments Corporation, a corporation wholly-owned by
Mr. Lauder; (d) 1,814,579 shares of Class B
(Footnotes continued on next page)
103
<PAGE>
(Footnotes continued from previous page)
Common Stock owned by EL/RSLG Media, Inc. ("EL/RSLG") (see note 6);
(e) 907,290 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; (f) 3,476,275 shares of Class B Common Stock owned
directly by Ronald S. Lauder; and (g) 459,900 shares of Class B Common
Stock issuable upon exercise of the Lauder Warrants.
(5) 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.
(6) 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.
(7) Such shares are owned by Fisher Investment Partners, L.P. Mr. Fisher
disclaims beneficial ownership of such shares.
(8) 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 909,090 shares of Class B
Common Stock owned by LGV (see note 5); (c) 2,205,968 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) 1,814,579 shares of Class B Common
Stock owned by EL/RSLG (see note 6); and (g) 907,290 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.
(9) Such shares are owned by Schuster Family Partners I, L.P. Mr. Schuster
disclaims beneficial ownership of such shares.
(10) 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) 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.
(11) 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.
(12) Consists of (a) 667,804 shares of Class A Common Stock owned by Tarlovsky
Investment Partners, L.P. ("Tarlovsky Investment Partners"), (b) 72,143
shares of Class A Common Stock issuable upon the exercise of an equal
number of options granted to Mr. Tarlovsky under the 1997 Plan and
(c) 270,301 shares of Class B Common Stock owned by Tarlovsky Investment
Partners.
(13) Consists of (a) 547,499 shares of Class A Common Stock and (b) 72,143
shares of Class A Common Stock issuable upon the exercise of an equal
number of options granted to Mr. Bildirici under the 1997 Plan.
(14) 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.
(15) 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.
(16) Such shares are owned by The Proverbs Trust, a Bermuda trust, of which
Mr. Trollope and his wife are the trustees and beneficiaries.
(17) Includes 228,494 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.
(18) 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.
(19) 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.
(20) Putnam Investments, Inc. ("PI"), which is a wholly-owned subsidiary of
Marsh & McLennan Companies, Inc. ("M&MC"), wholly owns two registered
investment advisers: Putnam Investment Management, Inc., which is the
investment adviser to the Putnam family of mutual funds and The Putnam
Advisory Company, Inc., which is the investment adviser to Putnam's
institutional clients. Both subsidiaries have dispository power over the
shares as investment managers, but each of the mutual fund's trustees have
voting power over the shares held by each fund, and The Putnam Advisory
Company, Inc. has shared voting power over the shares held by the
institutional clients. Purcuant to Rule 13d-4, M&MC and PI have disclaimed
beneficial ownership of such shares. Information as to the shares owned by
PI and such affiliates of PI is taken from a Schedule 13G filed with the
Commission on November 6, 1998. The address for PI is One Post Office
Square, Boston, Massachusetts 02109.
104
<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 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 Facility with Chase Manhattan Bank was permanently reduced to $5 million
at July 1, 1998.
1996 NOTES
GENERAL
On October 3, 1996, the Issuer issued $300.0 million of 12 1/4% Senior
Notes pursuant to the Indenture, dated October 3, 1996 (the "1996 Indenture"),
among the Issuer, the Guarantor 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
Guarantor.
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. The Issuer 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 the Issuer to make interest payments on the 1996 Notes
through November 15, 1999.
RANKING
The 1996 Notes are unsecured senior obligations of the Issuer, rank pari
passu in right of payment with (i) the U.S. Dollar Notes, (ii) the DM Notes,
(iii) the Old 12% Notes, (iv) the Old 10 1/2% Notes, (v) the New Notes and all
existing and future senior obligations of the Issuer, and rank senior in right
of payment to all future subordinated obligations of the Guarantor.
REDEMPTION
The 1996 Notes are not redeemable prior to November 15, 2001. Thereafter,
the 1996 Notes are subject to redemption at the option of the Issuer, 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>
105
<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 Guarantor'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, the Issuer 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 the Issuer, the Guarantor 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 the Issuer, the Guarantor 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 Guarantor.
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 the Issuer and
the Guarantor, rank pari passu in right of payment with (i) the 1996 Notes,
(ii) the DM Notes, (iii) the Old 12% Notes, (iv) the Old 10 1/2% Notes, and (v)
the New Notes and all existing and future senior obligations of the Issuer and
the Guarantor, and rank senior in right of payment to all future subordinated
obligations of the Issuer and the Guarantor.
106
<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 the
Issuer, 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................................................................................ 105.06%
2004................................................................................ 103.37%
2005................................................................................ 101.68%
2006 and thereafter................................................................. 100.00%
</TABLE>
In addition, at any time on or before March 1, 2001, in the event the
Guarantor receives net cash proceeds from the public or private sale of its
common stock, the Issuer (to the extent the Issuer 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 Guarantor and
certain of its subsidiaries.
107
<PAGE>
DM NOTES
GENERAL
On March 15, 1998, the Issuer 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, among the Issuer, the Guarantor, 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 Guarantor.
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 the Issuer and the
Guarantor, rank pari passu in right of payment with (i) the 1996 Notes,
(ii) the U.S. Dollar Notes, (iii) the Old 12% Notes, (iv) the Old 10 1/2% Notes
and (v) the New Notes and all other existing and future senior obligations of
the Issuer and the Guarantor, and rank senior in right of payment to all future
subordinated obligations of the Issuer and the Guarantor.
REDEMPTION
The DM Notes are not redeemable prior to March 15, 2003. Thereafter, the DM
Notes are subject to redemption, at the option of the Issuer, 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
Guarantor receives net cash proceeds from the public or private sale of its
common stock, the Issuer (to the extent the Issuer 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.
108
<PAGE>
OLD 12% NOTES
GENERAL
On November 9, 1998, the Company, through the Issuer, issued the Old 12%
Notes, pursuant to an Indenture, dated as of November 9, 1998 (the "12% Notes
Indenture"), among the Issuer, the Guarantor and The Chase Manhattan Bank, as
Trustee. The 12% Notes are unconditionally guaranteed by the Guarantor.
PRINCIPAL, MATURITY AND INTEREST
The Old 12% 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 Old 12% 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 Old 12% Notes are unsecured senior obligations of the Issuer and the
Guarantor, rank pari passu in right of payment with (i) the 1996 Notes, (ii) the
U.S. Dollar Notes, (iii) the DM Notes, (iv) the Old 10 1/2% Notes and (v) the
New Notes all other existing and future senior obligations of the Issuer and the
Guarantor, and rank senior in right of payment to all future subordinated
obligations of the Issuer and the Guarantor.
REDEMPTION
The Old 12% Notes are not redeemable prior to November 1, 2003. Thereafter,
the 12% Notes are subject to redemption, at the option of the Issuer, 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, in the event the
Guarantor receives net cash proceeds from the public or private sale of its
common stock, the Issuer (to the extent the Issuer 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, Old 12% 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 Old 12% Notes, provided, however, that Old 12% Notes in an
amount equal to at least 66% of the aggregate principal amount at maturity of
the Old 12% Notes remain outstanding immediately after such redemption.
COVENANTS; EVENTS OF DEFAULT
The Old 12% 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.
109
<PAGE>
OLD 10 1/2% NOTES
GENERAL
On December 8, 1998, the Company, through the Issuer, issued the Old
10 1/2% Notes, pursuant to an Indenture, dated as of December 8, 1998 (the
"10 1/2% Notes Indenture" and, together with the 12% Notes Indenture, the
"Indentures"), among the Issuer, the Guarantor and The Chase Manhattan Bank, as
Trustee. The Old 10 1/2% Notes are unconditionally guaranteed by the Guarantor.
PRINCIPAL, MATURITY AND INTEREST
The Old 10 1/2% Notes are initially limited in aggregate principal amount
to $100 million and will mature on November 15, 2008. Interest on the Old
10 1/2% Notes will accrue on the principal amount of such notes at the rate of
10.5% per annum and is payable semiannually on November 15 and May 15 of each
year, commencing May 15, 1999. Interest is computed on the basis of a 360-day
year comprised of twelve 30-day months.
RANKING
The Old 10 1/2% Notes are unsecured senior obligations of the Issuer and
the Guarantor, rank pari passu in right of payment with (i) the 1996 Notes, (ii)
the U.S. Dollar Notes, (iii) the DM Notes, (iv) the Old 12% Notes and (v) the
New Notes all other existing and future senior obligations of the Issuer and the
Guarantor, and rank senior in right of payment to all future subordinated
obligations of the Issuer and the Guarantor.
REDEMPTION
The Old 10 1/2% Notes are not redeemable prior to November 1, 2003.
Thereafter, the 10 1/2% Notes are subject to redemption, at the option of the
Issuer, 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................................................................................ 105.25%
2004................................................................................ 103.50%
2005................................................................................ 101.75%
2006 and thereafter................................................................. 100%
</TABLE>
In addition, at any time prior to November 1, 2001, in the event the
Guarantor receives net cash proceeds from the public or private sale of its
common stock, the Issuer (to the extent the Issuer 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, Old 10 1/2% 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 Old 10 1/2% Notes, provided, however, that Old 10 1/2% Notes
in an amount equal to at least 66% of the aggregate principal amount at maturity
of the Old 10 1/2% Notes remain outstanding immediately after such redemption.
COVENANTS; EVENTS OF DEFAULT
The Old 10 1/2% 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.
110
<PAGE>
REGISTRATION RIGHTS AGREEMENTS FOR OLD NOTES
The Issuer and the Guarantor have entered into Exchange and Registration
Rights Agreements (the "Registration Rights Agreements") pursuant to which the
Issuer and the Guarantor have agreed, for the benefit of the holders of the Old
Notes, to use their reasonable best efforts (i) to file with the Commission a
registration statement (the "Exchange Offer Registration Statement") under the
Securities Act relating to the Exchange Offers and (ii) to use their reasonable
best efforts to consummate each Exchange Offer as soon as practicable, but no
later than 270 days following the original issue dates of the applicable Old
Notes. The Issuer and the Guarantor have further agreed to hold the Exchange
Offers open for at least 30 days, and to exchange New Notes for all Old Notes
validly tendered and not withdrawn before the Expiration Date (as defined).
Under existing Commission interpretations, the New Notes would in general
be freely transferable after the Exchange Offers without further registration
under the Securities Act of 1933, as amended (the "Securities Act") except that
broker-dealers ("Participating Broker-Dealers") receiving New Notes in the
Exchange Offers will be subject to a prospectus delivery requirement with
respect to resale of those New Notes. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the New Notes (other than a resale of any unsold allotment from
the original sale of the Notes) by delivery of the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreements,
the Issuer and the Guarantor are required to allow Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements
to use the prospectus contained in the Exchange Offer Registration Statement in
connection with the resale of such New Notes. The Exchange Offer Registration
Statement will be kept effective for a period of 90 days after the Exchange
Offers have been consummated in order to permit resales of New Notes acquired by
broker-dealers in after-market transactions. Each holder of the Old Notes (other
than certain specified holders) who wishes to exchange such Old Notes for New
Notes in the Exchange Offer with respect to such Old Notes will be required to
represent that any New Notes to be received by it will be acquired in the
ordinary course of its business, that at the time of the commencement of the
Exchange Offer with respect to such Old Notes it has no arrangement with any
Person to participate in the distribution (within the meaning of the Securities
Act) of the New Notes and that it is not an affiliate of the Issuer or the
Guarantor.
However, if on or before the date of consummation of the Exchange Offers
the existing Commission interpretations are changed such that the New Notes
would not in general be freely transferable on such date, the Issuer and the
Guarantor will, in lieu of effecting registration of the New Notes, use their
reasonable best efforts to cause a registration statement under the Securities
Act relating to a shelf registration of the Old Notes for resale by holders (the
"Resale Registration") to become effective and to remain effective for a period
of up to two years after original issue dates of the Old Notes. The Issuer and
the Guarantor will, in the event of the Resale Registration, provide to the
holders of the Old Notes copies of the prospectus that is a part of the
registration statement filed in connection with the Resale Registration, notify
such holders when the Resale Registration for the Old Notes has become effective
and take certain other actions as are required to permit unrestricted resales of
the Old Notes. A holder of Old Notes that sells such Old Notes pursuant to the
Resale Registration generally would be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreements that are applicable to such a
holder (including certain indemnification obligations).
In the event that (i) the Exchange Offers have not been consummated with
respect to the Old Notes within 270 days after the original issue dates of the
Old Notes (or, if applicable, the Resale Registration is not effective within
such period) or (ii) any Resale Registration required by the Registration Rights
Agreements 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
(any such event referred to in clauses (i) and (ii), a "Registration Default"),
then interest will accrue (in addition to any stated interest on the Old Notes)
at the rate of 0.5% per annum, determined daily, on the principal amount of the
Old 10 1/2% Notes and the Accreted Value of the
111
<PAGE>
Old 12% Notes with respect to which there is a Registration Default, for the
period from and including the date of occurrence of the Registration Default to
but excluding such date as no Registration Default is in effect.
The summary herein of certain provisions of the Registration Rights
Agreements does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreements, copies of which are filed as exhibits to the Registration Statement
of which this Prospectus constitutes a part.
112
<PAGE>
THE EXCHANGE OFFERS
TERMS OF THE EXCHANGE OFFERS; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letters of Transmittal, the Issuer will accept for
exchange Old Notes which are properly tendered on or prior to the applicable
Expiration Date and not withdrawn as permitted below. As used herein, the term
"Expiration Date" means 5:00 p.m., New York time, on , 1999;
provided, however, that if the Issuer, in its sole discretion, has extended the
period of time for which any Exchange Offer is open, the term "Expiration Date"
means with respect to such Exchange Offer the latest time and date to which such
Exchange Offer is extended.
As of the date of this Prospectus, $200,000,000 aggregate principal amount
of Old 10 1/2% Notes and $100,000,000 aggregate principal amount at maturity of
Old 12% Notes are outstanding. This Prospectus, together with the Letters of
Transmittal, is first being sent on or about , 1999 to all holders of
Old Notes known to the Issuer. The Issuer's obligation to accept Old Notes for
exchange pursuant to the Exchange Offers is subject to certain conditions as set
forth below under "--Certain Conditions to the Exchange Offers."
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which any Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes pursuant to such Exchange
Offer, by giving oral or written notice of any extension, amendment,
non-acceptance or termination to the holders of Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of a
press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuer of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Issuer will constitute a binding
agreement between the tendering holder and the Issuer upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letters
of Transmittal. Except as set forth below, a holder who wishes to tender Old
Notes for exchange pursuant to the Exchange Offers must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to The Chase Manhattan Bank, as exchange
agent (the "Exchange Agent") at the address set forth below under "--Exchange
Agent" on or prior to the Expiration Date. In addition, either (1) certificates
of such Old Notes must be received by the Exchange Agent along with the Letter
of Transmittal, or (2) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the account of the Book-Entry Depositary (as defined) at The Depository
Trust Company (the "Book-Entry Transfer Facility"), must be received by the
Exchange Agent prior to the Expiration Date with the Letter of Transmittal or
Agent's Message in lieu of such Letter of Transmittal, or (3) the holder must
comply with the guaranteed delivery procedures described below. The term
"Agent's Message" means a message, transmitted by the Book-Entry Transfer
Facility to and received by the Book-Entry Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the tendering participant, which
acknowledgment states that such participant has received and agrees to be bound
by, and makes the representations and warranties contained in, the Letter of
Transmittal and that the Issuer may enforce such Letter of Transmittal against
such participant. The Exchange Agent will also act as exchange agent for the
Book-Entry Depositary in effecting such book-entry exchange. THE METHOD OF
DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS
IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
ISSUER.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (1) by a registered holder of Old Notes who has
not completed the box entitled "Special Issuance Instructions"
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or "Special Delivery Instructions" on the Letter of Transmittal or (2) for the
account of an Eligible Institution (as defined). In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Issuer in its
sole discretion, duly executed by, the registered holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Issuer in its sole discretion, which determination shall be final and
binding. The Issuer reserves the absolute right to reject any and all tenders of
any particular Old Notes not properly tendered or to not accept any particular
Old Notes the acceptance of which might, in the judgment of the Issuer or its
counsel, be unlawful. The Issuer also reserves the absolute right to waive any
defects or irregularities or conditions of the Exchange Offers as to any
particular Old Notes either before or after the applicable Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offers). The interpretation of the terms and
conditions of the Exchange Offers as to any particular Old Notes either before
or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Issuer shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Notes for exchange must be cured within such reasonable period of time as the
Issuer shall determine. Neither the Issuer, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
If a Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes tendered pursuant to such Letter of
Transmittal, such Old Notes must be endorsed or accompanied by appropriate
powers of attorney, in either case signed exactly as the name or names of the
registered holder or holders that appear on the Old Notes.
If a Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Issuer, proper evidence satisfactory to the Issuer of their authority to so
act must be submitted.
By tendering, each holder will represent to the Issuer that, among other
things, the New Notes acquired pursuant to the Exchange Offers are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the holder, and that neither the holder nor
such other person has any arrangement or understanding with any person to
participate in the distribution of the New Notes. In the case of a holder that
is not a broker-dealer, each such holder, by tendering, will also represent to
the Issuer that such holder is not engaged in, or intends to engage in, a
distribution of the New Notes. If any holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Issuer, or
is engaged in or intends to engage in or has an arrangement or understanding
with any person to participate in a distribution of such New Notes to be
acquired pursuant to the Exchange Offers, such holder or any such other person
(1) could not rely on the applicable interpretations of the staff of the
Commission and (2) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution." The Letters of Transmittal state that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
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ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to an Exchange Offer,
the Issuer will accept, promptly after the applicable Expiration Date, all Old
Notes properly tendered pursuant to such Exchange Offer and will issue the New
Notes to be issued pursuant to such Exchange Offer promptly after acceptance of
such Old Notes. See "--Certain Conditions to the Exchange Offers."
For the purposes of the Exchange Offers, the Issuer shall be deemed to have
accepted properly tendered Old Notes for exchange when, as and if the Issuer has
given oral or written notice thereof to the Exchange Agent, with written
confirmation of any oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount (or principal amount at maturity
and Accreted Value) equal to that of the surrendered Old Note. Interest on the
New Notes will accrue from the last interest payment date on which interest was
paid on the Old Notes surrendered in exchange therefor or, if no interest has
been paid on such Old Notes, from the date of original issue of such Old Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment in respect of accrued interest on such Old Notes otherwise payable
on any interest payment date the record date for which occurs on or after
consummation of the Exchange Offer with respect to such Old Notes. In the event
that the Exchange Offer is not consummated or a registration statement pursuant
to a Resale Registration is not declared effective with respect to any Old Notes
on or prior to the 270th day following the applicable date of original issue of
such Old Notes, additional interest will be payable with respect to such Old
Notes. See "Registration Rights Agreements for Old Notes."
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offers will be made only after timely receipt
by the Exchange Agent of (1) certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, (2) a properly completed and duly executed
Letter of Transmittal or an Agent's Message in lieu thereof and (3) all other
required documents. If any tendered Old Notes are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer with respect to such
Old Notes or if Old Notes are submitted for a greater principal amount or
original issue price than the holder desired to exchange, such unaccepted or
non-exchanged Old Notes will be returned without expense to the tendering holder
thereof (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offers.
BOOK-ENTRY TRANSFER
The Book-Entry Depositary (as defined) will make a request to establish an
account with respect to the Old Notes at the Book-Entry Transfer Facility for
purposes of the Exchange Offers within two business days after the date of this
Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes
by causing the Book-Entry Transfer Facility to transfer such Old Notes into the
account of the Book-Entry Depositary at the Book-Entry Transfer Facility in
accordance with the Book-Entry Transfer Facility's procedures for transfer.
Although delivery of Old Notes may be effected through book-entry transfer at
the Book-Entry Transfer Facility, the Letters of Transmittal (or facsimile
thereof or an Agent's Message in lieu thereof) with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at one of the addresses set forth below
under "--Exchange Agent" on or prior to the applicable Expiration Date or the
guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the applicable Expiration Date, or the procedure for book-entry transfer
cannot be completed on a timely basis, a tender may be effected if (1) the
tender is made through an Eligible Institution, (2) prior to the Expiration
Date, the Exchange Agent received from such
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Eligible Institution a notice of guaranteed delivery ("Notice of Guaranteed
Delivery"), substantially in the form provided by the Issuer (by telegram,
telex, facsimile transmission, mail or hand delivery), setting forth the name
and address of the holder of Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, together with a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof or Agent's Message in lieu thereof) with any
required signature guarantees and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent and (3) the certificates for all physically tendered Old Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, together
with a properly completed and duly executed Letter of Transmittal (or facsimile
thereof or Agent's Message in lieu thereof) with any required signature
guarantees and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within three NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the applicable Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent." Any such notice of withdrawal must specify the name of the
persons having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount or principal amount at maturity of
such Old Notes), and (where certificates for Old Notes have been transmitted)
specify the name in which such Old Notes are registered, if different from that
of the withdrawing holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of the Book-Entry Transfer Facility. All questions as to the validity, form and
eligibility (including time and receipt) of such notices will be determined by
the Issuer, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offers. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer with
respect to such Old Notes. Properly withdrawn Old Notes may be retendered by
following one of the procedures described under "--Procedures for Tendering Old
Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFERS
Each Exchange Offer shall be subject to the following conditions:
(1) neither such Exchange Offer, nor the making of any exchange by a holder
violates applicable law or any applicable interpretation of the staff of the
Commission, (2) the due tendering of Old Notes in accordance with such Exchange
Offer, (3) no action or proceeding shall have been instituted or threatened in
any court or by or before any governmental agency with respect to such Exchange
Offer which, in the Issuer's judgment, would reasonably be expected to impair
the ability of the Issuer to proceed with such Exchange Offer, (4) there shall
not have been adopted or enacted any law, statute, rule or regulation which, in
the Issuer's judgment, would reasonably be expected to impair the ability of the
Issuer to proceed with such Exchange Offer, (5) there shall not have been
declared by U.S. federal or New York State authorities a banking moratorium
which, in the Issuer's judgment, would reasonably be expected to impair the
ability
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of the Issuer to proceed with such Exchange Offer and (6) each holder of Old
Notes (other than any Participating Broker-Dealer) who wishes to exchange such
Old Notes for New Notes in such Exchange Offer shall have represented that
(A) it is not an affiliate of the Issuer, (B) any New Notes to be received by it
were acquired in the ordinary course of business and (C) at the time of the
commencement of such Exchange Offer it has no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
the New Notes and shall have made such other representations as may be
reasonably necessary under applicable Commission rules, regulations or
interpretations to render the use of Form S-4 or another appropriate form under
the Securities Act available; provided, however, that none of the foregoing
conditions shall relieve the Issuer of its obligations under the Registration
Rights Agreements or effect any increase in the interest rate borne by the Old
Notes pursuant to the Registration Rights Agreements.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time. The failure by the Issuer at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as the Exchange Agent for the
Exchange Offers. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letters of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
Delivery To The Chase Manhattan Bank, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission By Hand:
Number:
The Chase Manhattan Bank (212) 946-8161/62 The Chase Manhattan Bank
Global Trust Services Global Trust Services
450 West 33rd Street 450 West 33rd Street
15th Floor 15th Floor
New York, NY 10001 New York, NY 10001
Attn: Robert S. Peschler, Assistant Attn: Robert S. Peschler,
Vice President Assistant Vice President
Confirm by Telephone: By Overnight Courier:
(212) 946-3084 The Chase Manhattan Bank
Global Trust Services
450 West 33rd Street
15th Floor
New York, NY 10001
Attn: Robert S. Peschler,
Assistant Vice President
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
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FEES AND EXPENSES
The Issuer will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offers.
The estimated cash expenses to be incurred in connection with the Exchange
Offers will be paid by the Issuer and are estimated in the aggregate to be
approximately $100,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Issuer to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offers be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offers will continue to be subject to the provisions in
the Indentures regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuer does not currently anticipate that
it will register Old Notes under the Securities Act. See "Registration Rights
Agreements for Old Notes." Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued to third parties, the
Issuer believes that New Notes issued pursuant to the Exchange Offers in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the Issuer does not intend to request the Commission to
consider, and the Commission has not considered, the Exchange Offers in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offers as in such other circumstances. Each holder, other than a broker-dealer,
must acknowledge that (i) the New Notes received by such holder will be acquired
in the ordinary course of its business, (ii) at the time of the consummation of
the applicable Exchange Offer such holder will not have engaged in, and such
holder does not intend to engage in, a distribution of New Notes and such holder
has no arrangement or understanding to participate in a distribution of New
Notes and (iii) such holder is not an affiliate of the Issuer within the meaning
of Rule 405 of the Securities Act or if it is such an affiliate, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act, to the extent applicable. If any holder is an affiliate of the
Issuer, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offers, such holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with state securities laws, the New Notes may not be offered
or sold in any state unless they have been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
is complied with. The Issuer currently does not intend to register or qualify
the sale of the New Notes in any state where an exemption from registration or
qualification is required and not available.
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DESCRIPTION OF THE NEW NOTES AND THE NEW NOTES GUARANTEES
The New 10 1/2% Notes will be issued under the 10 1/2% Notes Indenture and
the New 12% Notes will be issued under the 12% Notes Indenture. The statements
under this caption relating to the New Notes and the Indentures are summaries
and do not purport to be complete, and are subject to, and are qualified in
their entirety by reference to, all the provisions of the Indentures, including
the definitions of certain terms therein. Each Indenture is by its terms subject
to and governed by the Trust Indenture Act of 1939, as amended. Unless otherwise
indicated, references under this caption to sections, "Section " or articles are
references to the applicable Indenture. Where reference is made to particular
provisions of the Indentures or to defined terms not otherwise defined herein,
such provisions or defined terms are incorporated herein by reference. The
definitions of certain capitalized terms used in the following summary are set
forth below under "--Certain Definitions."
THE NEW 10 1/2% NOTES
GENERAL
The New 10 1/2% Notes will be senior unsecured obligations of the Issuer
and will mature on November 15, 2008. The New 10 1/2% Notes will bear interest
at the rate of 10.5% per annum on the stated principal amount thereof from
December 8, 1998 or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, payable semi-annually on May 15 and November
15 of each year, commencing May 15, 1999, to the Book-Entry Depositary (in the
case of Global Notes) or to the Person in whose name the New 10 1/2% Note (or
any predecessor New 10 1/2% Note) is registered (in the case of Definitive
Registered Notes) at the close of business on the preceding May 1 and November
1, as the case may be. Interest on the New 10 1/2% Notes will be computed on the
basis of a 360-day year of twelve 30-day months (Sections 301, 307 &
310).
The guarantee by the Guarantor in respect of payments in respect of the New
10 1/2% Notes (the "New 10 1/2% Notes Guarantee") will rank pari passu with the
Guarantor's unsecured unsubordinated obligations, including its obligations
under (1) the Old 10 1/2% Notes and (2) the New 12% Notes and the Old 12% Notes
(collectively, the "12% Notes").
OPTIONAL REDEMPTION
The New 10 1/2% Notes are subject to redemption, at the option of the
Issuer, in whole or in part, at any time on or after November 15, 2003 and prior
to maturity, upon not less than 30 nor more than 60 days' notice mailed to each
holder of New 10 1/2% Notes to be redeemed at such holder's address appearing in
the register for the New 10 1/2% Notes, in principal amounts of $1,000 or an
integral multiple of $1,000, at the following Redemption Prices (expressed as
percentages of the principal amount thereof) plus accrued interest to but
excluding the Redemption Date (subject to the right of holders 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 March 1 of the years
indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2003.................................................. 105.25%
2004.................................................. 103.50%
2005.................................................. 101.75%
2006 and thereafter................................... 100.00%
</TABLE>
(Sections 203, 1101, 1105 & 1107)
In addition, at any time prior to November 15, 2001, in the event the
Guarantor receives net cash proceeds from the public or private sale of its
Common Stock, the Issuer (to the extent it receives such proceeds) 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 10 1/2% Notes in a principal amount of
up to an aggregate amount equal to 33 1/3% of the original principal amount of
the New 10 1/2% Notes, provided, however, that New 10 1/2% Notes in an amount
equal to at least 66 2/3% of the aggregate original principal amount of the New
10 1/2% Notes 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'
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notice mailed to each holder of New 10 1/2% Notes to be redeemed at such
holder's address appearing in the applicable note register, in amounts of $1,000
or an integral multiple of $1,000 at a redemption price equal to 110.50% of the
principal amount of the New 10 1/2% Notes plus accrued interest to but excluding
the Redemption Date.
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) certain
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 New 10 1/2% Notes on a "recognized stock exchange" (within the meaning of
Section 841 of the U.K. Income and Corporation Taxes Act 1988), 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
New 10 1/2% Notes 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 New 10 1/2% Notes at any time at 100% of the
principal amount 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 is
entitled to effect such redemption based on a written opinion of independent tax
counsel or accounting firm reasonably satisfactory to the Trustee. See
"--Additional Amounts."
If less than all the New 10 1/2% Notes are to be redeemed, the Trustee
shall select, in such manner as it shall deem fair and appropriate, the
particular New 10 1/2% Notes to be redeemed or any portion thereof that is an
integral multiple of $1,000. (Section 1104)
The New 10 1/2% Notes do not have the benefit of any sinking fund.
Other Applicable Terms
For a description of other terms applicable to the New 10 1/2% Notes and
the New 12% Notes, see "--General Terms of the New Notes," "--Luxembourg Stock
Exchange Listing," "--Ranking," "--Book-Entry; Delivery and Form,"
"--Covenants," "--Certain Definitions," "--Description of Guarantees by RSL
Communications, Ltd.," "--Events of Default," "--Defeasance," "--Modification
and Waiver," "--The Trustee," "--Additional Amounts," "--Consent to Jurisdiction
and Service" and "--Governing Law."
THE NEW 12% NOTES
GENERAL
The New 12% Notes will be senior unsecured obligations of the Issuer and
will mature on November 1, 2008. The New 12% Notes will bear cash interest at
the rate of 12% per annum on the stated principal amount at maturity thereof
from November 9, 1998 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, payable semiannually on May 1 and
November 1 of each year, commencing May 1, 1999, to the Book-Entry Depositary
(in the case of Global Notes) or to the Person in whose name the New 12% Note
(or any predecessor New 12% Note) is registered (in the case of Definitive
Registered Notes) at the close of business on the preceding April 15 and October
15, as the case may be. Interest on the New 12% Notes will be computed on the
basis of a 360-day year of twelve 30-day months. (Sections 301, 307 &
310).
The guarantee by the Guarantor in respect of payments in respect of the New
12% Notes (the "New 12% Notes Guarantee" and, together with the New 10 1/2%
Notes Guarantee, the "New Notes Guarantees") will rank pari passu with the
Guarantor's unsecured unsubordinated obligations, including its obligations
under (1) the Old 12% Notes and (2) the New 10 1/2% Notes and the Old 10 1/2%
Notes (collectively, the "10 1/2% Notes").
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OPTIONAL REDEMPTION
The New 12% Notes are subject to redemption, at the option of the Issuer,
in whole or in part, at any time on or after November 1, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' notice mailed to each
holder of New 12% Notes to be redeemed at such holder's address appearing in the
applicable register for the New 12% Notes, in principal amounts of $1,000 or an
integral multiple of $1,000, at the following Redemption Prices (expressed as
percentages of the Accreted Value thereof) plus accrued interest to but
excluding the Redemption Date (subject to the right of holders 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 March 1 of the years
indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2003.................................................. 106%
2004.................................................. 104%
2005.................................................. 102%
2006 and thereafter................................... 100%
</TABLE>
(Sections 203, 1101, 1105 & 1107)
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, the Issuer (to the extent it receives such proceeds) 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 12% Notes in a principal amount at
maturity of up to an aggregate amount equal to 33 1/3% of the aggregate original
principal amount at maturity of the New 12% Notes, provided, however, that New
12% Notes in an amount equal to at least 66 2/3% of the aggregate original
principal amount at maturity of the New 12% Notes 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 mailed
to each holder of New 12% Notes to be redeemed at such holder's address
appearing in the applicable register for the New 12% Notes, in amounts of $1,000
or an integral multiple of $1,000 at a redemption price equal to 112% of the
Accreted Value of the New 12% Notes plus accrued interest to but excluding the
Redemption Date.
If less than all the New 12% Notes are to be redeemed, the Trustee shall
select, in such manner as it shall deem fair and appropriate, the particular New
12% Notes to be redeemed or any portion thereof that is an integral multiple of
$1,000. (Section 1104)
In the event that (i) the Guarantor or the Issuer has become or would
become obligated to pay any Additional Amounts (as defined herein) as a result
of (x) certain 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 a listing of the New 12% Notes on a "recognized stock
exchange" (within the meaning of Section 841 of the U.K. Income and Corporation
Taxes Act 1988), 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 New 12% Notes 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 New 12% Notes 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 is entitled to effect such redemption based on a written opinion of
independent tax counsel or accounting firm reasonably satisfactory to the
Trustee. See "--Additional Amounts."
The New 12% Notes do not have the benefit of any sinking fund.
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"Accreted Value" is defined to mean, with respect to the 12% Notes, 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 12% Notes:
(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:
<TABLE>
<CAPTION>
SEMIANNUAL ACCRETED
ACCRUAL DATE VALUE
- ------------ ---------
<S> <C>
May 1, 1999................................................. $ 946.33
November 1, 1999............................................ $ 947.84
May 1, 2000................................................. $ 949.45
November 1, 2000............................................ $ 951.16
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
</TABLE>
(ii) 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 Old 12%
Notes 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 Old 12% Notes to the first Semiannual Accrual Date, using a
360-day year of twelve 30-day months;
(iii) 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
(iv) if the Specified Date occurs after the last Semiannual Accrual
Date, the Accreted Value will equal $1,000.
Other Applicable Terms
For a description of other terms applicable to the New 12% Notes and the
New 10 1/2% Notes, see "--General Terms of the New Notes," "--Luxembourg Stock
Exchange Listing," "--Ranking," "--Book-Entry; Delivery and Form,"
"--Covenants," "--Certain Definitions," "--Description of Guarantees by RSL
Communications, Ltd.," "--Events of Default," "--Defeasance," "--Modification
and Waiver," "--The Trustee," "--Additional Amounts," "--Consent to Jurisdiction
and Service" and "--Governing Law."
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GENERAL TERMS OF THE NEW NOTES
Principal of and premium, if any, and interest on the New Notes will be
payable, and the New Notes may be presented for registration of transfer and
exchange, at one or more offices or agencies of the Issuer maintained for that
purpose, provided that, at the option of the Issuer, payment of interest on the
New Notes may be made by check mailed to the address of the Person entitled
thereto as it appears in the related Note Register. Until otherwise designated
by the Issuer, such office or agency will be the corporate trust office of the
Trustee, as Paying Agent and Registrar, in the Borough of Manhattan, The City of
New York, or in Luxembourg. (Sections 301, 305 & 1002)
If the day for any payment of principal, premium, if any, or interest is
not a business day in the location of each paying agent, such payment will be
made on the next following day that is a business day in each such location.
(Section 1.13)
The New Notes will be issued without coupons, in denominations of $1,000
and any integral multiples of $1,000 in excess thereof. (Section 302) No service
charge will be made for any registration of transfer or exchange of New Notes,
but the Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Section 305)
LUXEMBOURG STOCK EXCHANGE LISTING
The Issuer intends to list the New Notes on the Luxembourg Stock Exchange.
As long as the New Notes are listed on the Luxembourg Stock Exchange and such
exchange so requires, the Company will maintain a paying agent and transfer
agent in Luxembourg. The name and address of the initial paying agent in
Luxembourg is set forth at the end of this Prospectus. If Definitive Registered
Notes are issued, such paying agent will also act as transfer agent and
registrar with respect to the Definitive Registered Notes. In addition, upon
maturity, such Definitive Registered Notes may be presented for payment at the
offices of such paying agent in Luxembourg. If money for the payment of
principal or interest remains unclaimed for two years, the paying agent will pay
the money back to the Issuer at its request. After that, holders of the New
Notes which are entitled to the money must look to the Issuer for payment,
unless an applicable law designates another person, and all liability of the
paying agent with respect to such money shall cease.
The Indentures do not prevent the Issuer from purchasing New Notes or Old
Notes (collectively, the "Notes") trading on the Luxembourg Stock Exchange. In
the event of such a purchase of Notes by the Issuer, Notes so purchased shall be
disregarded for certain voting purposes consistent with the terms of the
applicable Indenture.
NOTICES
All notices to holders of the New Notes, including any notices with respect
to the redemption of all or a portion of the New Notes by the Issuer or notices
with respect to the Exchange Offer, will be given by publication in a daily
newspaper in Luxembourg, which is expected to be the Luxembourg Wort.
In the event of a Change of Control, the Issuer will provide notice to
holders of the New Notes of an Offer to Purchase all New Notes then outstanding
by publication in a daily newspaper in Luxembourg, which is expected to be the
Luxembourg Wort. See "--Covenants--Change of Control."
RANKING
The New Notes and the New Notes Guarantees will be unsecured obligations of
the Issuer and the Guarantor, respectively, rank pari passu in right of payment
with all existing and future unsecured obligations of the Issuer and the
Guarantor, respectively, and rank senior in right of payment to all future
subordinated obligations of the Issuer and the Guarantor, respectively. Holders
of secured obligations of the Issuer or the Guarantor, however, will have claims
that are prior to the claims of the holders of the New Notes or the New Notes
Guarantees with respect to the assets securing such other obligations.
The Issuer is a direct wholly-owned subsidiary of the Guarantor. The
Guarantor's principal operations are conducted through subsidiaries of the
Issuer and, therefore, the Guarantor and the Issuer are dependent upon the cash
flow of such subsidiaries to meet their respective obligations. The Guarantor's
other subsidiaries have no obligation to guarantee or otherwise pay amounts due
under the
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New Notes. Therefore, the New Notes are effectively subordinated to all
indebtedness and other liabilities and commitments (including trade payables) of
the Guarantor's other subsidiaries. Any right of the Issuer to receive assets of
any of the subsidiaries upon any liquidation or reorganization of such
subsidiary (and the consequent right of holders of the New Notes to participate
in those assets) is effectively subordinated to the claims of the subsidiary's
creditors, except to the extent that the Issuer is itself recognized as a
creditor of the subsidiary. Any recognized claims of the Issuer as a creditor of
the subsidiary would be subordinate to any prior security interest held by any
other creditor of the subsidiary and obligations of the subsidiary that are
senior to those owing to the Issuer.
As of September 30, 1998, on a pro forma basis after giving effect to the
sale of the Old Notes and the 1998 Equity Offering, (i) the total amount of
outstanding liabilities of the Guarantor and the Issuer (excluding their
subsidiaries), including trade payables, would have been approximately
$1,002.5 million and (ii) the total amount of outstanding liabilities of the
subsidiaries of the Guarantor (other than the Issuer), including trade payables,
would have been $439.5 million.
BOOK-ENTRY; DELIVERY AND FORM
GENERAL
The New Notes will initially be represented by one or more global
securities in bearer form without interest coupons which will be issued in
denominations equal to the outstanding principal amount of the Notes represented
thereby (each a "Global Note" and collectively, the "Global Notes"). The Global
Notes will be deposited with the Book-Entry Depositary pursuant to the terms of
one or more Note Deposit Agreements, dated as of December 8, 1998, in the case
of the 10 1/2% Notes (the "10 1/2% Notes Deposit Agreement"), and as of
November 9, 1998, in the case of the 12% Notes (the "12% Notes Deposit
Agreement" and, together with the 10 1/2% Notes Deposit Agreement, the "Deposit
Agreements"), between the Issuer, for the limited purposes set forth therein,
and The Chase Manhattan Bank, as book-entry depositary (the "Book-Entry
Depositary").
The Book-Entry Depositary will issue a certificateless interest for each
Global Note issued with respect to the New Notes (a "New Global Note"),
representing a 100% interest in the respective underlying New Note, to The
Depositary Trust Company ("DTC") by recording such interest in the Book-Entry
Depositary's books and records in the name of Cede & Co., as a nominee of DTC.
Beneficial interests in the Notes (as defined) will be shown on, and transfers
thereof will be effected only through, records maintained in book-entry form by
DTC (with respect to its participants) and its participants. Such beneficial
interests in the Notes are collectively referred to herein as "Book-Entry
Interests."
DEFINITIVE REGISTERED NOTES
Under the terms of the Deposit Agreements and the Indentures, owners of
Book-Entry Interests in the Global Notes will receive definitive Notes in
registered form ("Definitive Registered Notes") (1) if DTC 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 Securities Exchange Act of 1934, as amended (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,
(2) at any time if the Issuer determines that the Global Notes (in whole but not
in part) should be exchanged for Definitive Registered Notes, 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 the Global Note to be exchanged
or any related Book-Entry Interest are, or would become, subject to any
deduction or withholding for taxes, (3) at any time after the consummation of
the Exchange Offers, if the owner of a Book-Entry Interest related to any New
Notes requests such exchange in writing, delivered to DTC and through DTC to the
Book-Entry Depositary and the Trustee, or (4) 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.
In no event will definitive securities in bearer form be issued. Any
Definitive Registered Notes will be issued in fully registered form in
denominations of $1,000 principal amount and integral multiples
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thereof. Any Definitive Registered Notes will be registered in such name or
names as DTC shall instruct the Trustee, through the Book-Entry Depositary. It
is expected that DTC's instructions will be based upon directions received by
DTC from its participants (including Euroclear System ("Euroclear") and Cedel
Bank ("Cedel")) reflecting the beneficial ownership of Book-Entry Interests. To
the extent permitted by law, the Issuer, the Trustee and any paying agent shall
be entitled to treat the person in whose name any Definitive Registered Note is
registered as the absolute owner thereof. While any Global Note is outstanding,
holders of Definitive Registered Notes may exchange their Definitive Registered
Notes for a corresponding Book-Entry Interest in such Global Note by
surrendering their Definitive Registered Notes to the Trustee (either in New
York or in Luxembourg) and providing the certificates and opinions required by
the applicable Indenture. The Book-Entry Depositary will make the appropriate
adjustments to the Global Note underlying such Book-Entry Interest to reflect
any issue or surrender of Definitive Registered Notes. The Indentures contain
provisions relating to the maintenance by a registrar of a register reflecting
ownership of Definitive Registered Notes, if any, and other provisions customary
for a registered debt security. Payment of principal and interest on each
Definitive Registered Note will be made to the holder appearing on the register
at the close of business on the record date at his address shown on the register
on the record date.
U.S. HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. LAW, UPON THE
ISSUANCE TO A HOLDER OF DEFINITIVE REGISTERED NOTES, SUCH HOLDER WILL BECOME
SUBJECT TO U.K. INCOME TAX (CURRENTLY 20%) TO BE WITHHELD ON ANY PAYMENTS OF
INTEREST ON THE DEFINITIVE REGISTERED NOTES. A U.S. HOLDER OF DEFINITIVE
REGISTERED NOTES WILL NOT, UNLESS THERE HAS BEEN A CHANGE IN LAW OR A "LISTING
FAILURE" (AS DEFINED HEREIN) AND CERTAIN OTHER CONDITIONS ARE MET, BE ENTITLED
TO RECEIVE ADDITIONAL AMOUNTS WITH RESPECT TO SUCH DEFINITIVE REGISTERED NOTES.
SEE "ADDITIONAL AMOUNTS." HOWEVER, A U.S. HOLDER OF DEFINITIVE REGISTERED NOTES
MAY BE ENTITLED TO RECEIVE A REFUND OF WITHHELD AMOUNTS FROM THE INLAND REVENUE
IN CERTAIN CIRCUMSTANCES.
DESCRIPTION OF BOOK-ENTRY SYSTEM
Upon receipt of the Global Notes, the Book-Entry Depositary will issue a
certificateless interest for each such Global Note, representing a 100% interest
in the respective underlying Global Note, to DTC by recording such interest in
the Book-Entry Depositary's books and records in the name of Cede & Co., as
nominee of DTC. Ownership of Book-Entry Interests will be limited to persons who
have accounts with DTC, including Euroclear and Cedel ("DTC participants"), or
persons who have accounts through DTC participants ("DTC indirect
participants"). Upon such issuance of interests in such Global Notes to DTC, DTC
will credit, on its internal book-entry registration and transfer system, its
participants' accounts with the respective interests owned by such participants.
Ownership of Book-Entry Interests will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of indirect participants).
The laws of some countries and some states in the United States may require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such laws may impair the ability to own, transfer or pledge
the Book-Entry Interests in the Global Notes.
So long as the Book-Entry Depositary, or its nominee, is the holder of the
Global Notes, the Book-Entry Depositary or such nominee, as the case may be,
will be considered the sole holder of such Global Notes for all purposes under
the Indentures and the Notes. Except as set forth above, participants or
indirect participants will not be entitled to have Notes or Book-Entry Interests
registered in their names, will not receive or be entitled to receive physical
delivery of Notes or Book-Entry Interests in definitive bearer or registered
form and will not be considered the owners or holders thereof under the
Indentures. Accordingly, each person owning a Book-Entry Interest must rely on
the procedures of the Book-Entry Depositary and DTC, as applicable, and, if such
person is an indirect participant in DTC, on the procedures of the participant
in DTC through which such person owns its interest, to exercise any rights and
remedies of a holder under the applicable Indenture. If any definitive Notes are
issued to DTC participants or DTC indirect participants, they will be issued in
registered form,
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as described above. Unless and until Book-Entry Interests related to the New
Notes are exchanged for Definitive Registered Notes, the certificateless
interest held by DTC may not be transferred except as a whole between DTC and a
nominee of DTC between nominees of DTC, or by DTC or any such nominee to a
successor of DTC or a successor of such nominee.
PAYMENTS ON THE GLOBAL NOTES
Payments of any amounts owing in respect of the Global Notes will be made
through one or more paying agents appointed under the Indentures (which
initially will include The Chase Manhattan Bank, as paying agent for the Notes)
to the Book-Entry Depositary as the holder of the Global Notes. All such amounts
will be payable in U.S. dollars. Upon receipt of any such amounts in respect of
the Global Notes, the Book-Entry Depositary will pay such amounts to DTC, in
proportion to its respective interests, as shown on the Book-Entry Depositary's
records.
The Issuer expects that DTC or its nominee, upon receipt of any payment
made in respect of the Global Notes, will credit its participants' accounts with
such payments in amounts proportionate to their respective interest in the
principal amount of such Global Note as shown on the records of DTC or its
nominee. The Issuer expects that payments by DTC participants to owners of
Book-Entry Interests held through such participants will be governed by standing
customer instructions and customary practices, as is now the case with the
securities held for the account of customers in bearer form or registered in
"street name," and will be the responsibility of such participants.
None of the Issuer, the Book-Entry Depositary or any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of Book-Entry Interests or for maintaining, supervising
or reviewing all records relating to such Book-Entry Interests or beneficial
ownership interests.
REDEMPTION OF GLOBAL NOTES
In the event any Global Note (or any portion thereof) is redeemed, the
Book-Entry Depositary will, through DTC, redeem, from the amount received by it
in respect of the redemption of such Global Note, an equal amount of the
Book-Entry Interests in such Global Note. The redemption price payable in
connection with the redemption of such Book-Entry Interests will be equal to the
amount received by the Book-Entry Depositary in connection with the redemption
of such Global Note (or any portion thereof). The Issuer understands that under
existing practices of if fewer than all of the Notes are to be redeemed at any
time, DTC will credit participants' accounts on a proportionate basis (with
adjustments to prevent fractions) or by lot or on such other basis as DTC deems
fair and appropriate; provided that no beneficial interests of less than $1,000
principal amount at maturity may be redeemed in part.
TRANSFERS
Pursuant to the Deposit Agreements, the Global Notes may be transferred
only to the successor to the Book-Entry Depositary.
All transfers of Book-Entry Interests between DTC participants will be
effected by DTC pursuant to customary procedures established by DTC and its
participants. Transfers between participants in Euroclear and Cedel will be
effected in the ordinary way in accordance with their respective rules and
operating procedures.
ACTION BY OWNERS OF BOOK-ENTRY INTERESTS
As soon as practicable after receipt by the Book-Entry Depositary of notice
of any solicitation of consents or request for a waiver of other action by the
holders of the New Notes, or of any offer to purchase the New Notes with Excess
Proceeds or upon a Change of Control (as defined under "--Change of Control" and
"--Certain Definitions," respectively), the Book-Entry Depositary will mail to
DTC a notice containing (a) such information as is contained in the notice
received by the Book-Entry Depositary, (b) a statement that at the close of
business on a specified record date DTC, will be entitled to instruct the
Book-Entry Depositary as to the consent, waiver or other action, if any,
pertaining to such New Notes and (c) a statement as to the manner in which such
instructions may be given. In addition,
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the Book-Entry Depositary will forward to DTC all materials pertaining to any
such solicitation, request, offer or other action. Upon the written request of
DTC the Book-Entry Depositary shall endeavor insofar as practicable to take such
action regarding the requested consent, waiver, offer or other action in respect
of such New Notes in accordance with any instructions set forth in such request.
DTC may grant proxies or otherwise authorize DTC participants or DTC indirect
participants to provide such instructions to the Book-Entry Depositary so that
it may exercise any rights of a holder or take any other actions which a holder
is entitled to take under the applicable Indenture. Under its usual procedures,
DTC would mail an omnibus proxy to the Issuer and the Book-Entry Depositary
assigning Euroclear's and Cedel's consenting or voting rights to those DTC
participants to whose accounts such Book-Entry Interests are credited on a
record date as soon as possible after such record date. Euroclear or Cedel, as
the case may be, will take any action permitted to be taken by a holder under
the applicable Indenture on behalf of a Euroclear participant or Cedel
participant only in accordance with its relevant rules and procedures and
subject to its depositary's ability to effect such actions on its behalf through
DTC. The Book-Entry Depositary will not exercise any discretion in the granting
of consents or waivers or the taking of any other action relating to the
applicable Indenture.
DTC has advised the Issuer that it will take any action permitted to be
taken by a holder of New Notes (including the presentation of New Notes for
exchange as described above) only at the direction of one or more DTC
participants to whose account the DTC interests in the Global Notes are credited
and only in respect of such portion of the aggregate principal amount of New
Notes, as to which such participant or participants has or have given such
direction.
REPORTS
The Book-Entry Depositary will immediately send to DTC a copy of any
notices, reports and other communications received relating to the Issuer, the
New Notes or the Book-Entry Interests.
ACTION BY BOOK-ENTRY DEPOSITARY
Upon the occurrence of a Default with respect to the New Notes, or in
connection with any other right of the holder of a Global Note under the
Indentures, if requested in writing by DTC, the Book-Entry Depositary will take
any such action as shall be requested in such notice; provided that the
Book-Entry Depositary has been offered reasonable security or indemnity against
the costs, expenses and liabilities that might be incurred by it in compliance
with such request by the owners of Book-Entry Interests.
RESIGNATION OF BOOK-ENTRY DEPOSITARY
The Book-Entry Depositary may at any time resign as Book-Entry Depositary
by written notice to the Issuer and DTC, such resignation to become effective
upon the appointment of a successor book-entry depositary, in which case the
Global Notes shall be delivered to that successor. If no such successor has been
so appointed by the Issuer within 90 days, the Book-Entry Depositary may request
the Issuer to issue Definitive Registered Notes as described above.
If at any time DTC is unwilling or unable to continue as a depositary for
the Book-Entry Interests and a successor depositary is not appointed by the
Issuer within 90 days, DTC may request that the Issuer issue Definitive
Registered Notes in exchange therefor.
EXPENSES OF BOOK-ENTRY DEPOSITARY
The Issuer has agreed to indemnify the Book-Entry Depositary against
certain liabilities incurred by it and pay the charges of the Book-Entry
Depositary as agreed between the Issuer and the Book-Entry Depositary.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENTS
The Deposit Agreements may be amended by the Issuer and the Book-Entry
Depositary without notice to or consent of DTC, or any owner of a Book-Entry
Interest: (a) to cure any ambiguity, defect or inconsistency, provided that such
amendment or supplement does not adversely affect the rights of DTC or any
holder of Book-Entry Interests, (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
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by any such successor of the covenants of the Issuer therein, (c) to evidence or
provide for a successor Book-Entry Depositary, (d) to make any amendment, change
or supplement that does not adversely affect DTC or any owner of Book-Entry
Interests, (e) to add to the covenants of the Issuer or the Book-Entry
Depositary, (f) to add a guarantor when a guarantor is made a party to an
Indenture pursuant to such Indenture or (g) to comply with the United States
federal and U.K. securities laws. Except as provided in the Deposit Agreements,
no amendment that adversely affects DTC may be made without the consent of DTC
and no amendment that adversely affects the holders of Book-Entry Interests may
be made without the consent of a majority of the aggregate principal amount of
Book-Entry Interests outstanding. Upon the issuance of Definitive Registered
Notes in exchange for Book-Entry Interests constituting the entire principal
amount of the 10 1/2% Notes or the 12% Notes, the applicable Deposit Agreement
will terminate. Each Deposit Agreement may be terminated upon the resignation of
the Book-Entry Depositary with respect thereto if no successor has been
appointed within 90 days as set forth above.
INFORMATION CONCERNING DTC, EUROCLEAR AND CEDEL
The Issuer understands as follows with respect to DTC, Euroclear and Cedel:
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities of its participants and to facilitate the
clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. Access to the DTC book-entry system
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of an owner of a
Book-Entry Interest to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
Book-Entry Interests to such persons may be limited. In addition, beneficial
owners of Book-Entry Interests through the DTC system will receive distributions
attributable to the Global Notes only through DTC participants.
Euroclear and Cedel hold securities for participating organizations and
facilitate the clearance and settlement of securities transactions between their
respective participants through electronic book-entry changes in accounts of
such participants. Euroclear and Cedel provide to their participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Euroclear and Cedel interface with domestic securities markets. Euroclear and
Cedel participants are financial institutions such as underwriters, securities
brokers and dealers, banks, trust companies and certain other organizations.
Indirect access to Euroclear or Cedel is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodian
relationship with a Euroclear or Cedel participant, either directly or
indirectly.
GLOBAL CLEARANCE AND SETTLEMENT UNDER BOOK-ENTRY SYSTEM
Initial Settlement. Investors electing to own their Book-Entry Interest
related to New Notes through DTC (other than through accounts at Euroclear or
Cedel) will follow the settlement practices applicable to U.S. corporate debt
obligations. The securities custody accounts of investors will be created with
their holdings against payment in same-day funds on the settlement date.
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Book-Entry Interests owned through Euroclear or Cedel accounts will follow
the settlement procedures applicable to conventional eurobonds in registered
form. Book-Entry Interests will be credited to the securities custody accounts
of Euroclear and Cedel holders on the business day following the settlement date
against payment for value on the settlement date.
Secondary Market Trading. The Book-Entry Interests related to New Notes
will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity in such Book-Entry Interests will therefore settle in same-day
funds.
Since the purchaser determines the place of delivery, it is important to
establish at the time of trading of any Book-Entry Interests where both the
purchaser's and seller's accounts are located to ensure that settlement can be
made on the desired value date.
COVENANTS
The Indentures contain, among others, the following covenants:
LIMITATION ON CONSOLIDATED DEBT
The Guarantor may not, and may not permit any Restricted Subsidiary of the
Guarantor to, incur on or after the respective dates of the applicable
Indentures any Debt, other than the Old Notes issued on the respective dates of
the Indentures and the guarantees in respect thereof (the "Old Notes Guarantees"
and, collectively with the New Notes Guarantees, the "Notes Guarantees") unless
the ratio of (i) the aggregate consolidated principal amount of Debt (which is
defined in the Indentures 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 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 respective dates of the applicable
Indentures (after giving effect to the Equity Clawback) or (y) Incurred pursuant
to the first paragraph of this "Limitation on Consolidated Debt", or
clause (vi) or (viii) of this paragraph or (z) the Notes originally issued on
the respective dates of the applicable Indentures or Notes 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 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 Notes or Debt which is
pari passu to the Notes and the Notes Guarantees or Debt which is
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subordinate in right of payment to the Notes and the Notes Guarantees, shall
only be permitted if (A) in the case of any refinancing of the Notes or Debt
which is pari passu to the Notes and the Notes Guarantees, the refinancing Debt
is made pari passu or subordinated to the Notes and the Notes Guarantees 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 principal amount not
in excess of $50 million at any time outstanding.
For purposes of determining compliance with this "Limitation on
Consolidated Debt" covenant, with respect to any item of Debt (x) in the event
that an 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 covenant) 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. In the case of each class of New Notes, the
limitations on the incurrence of additional Debt is effective from and after the
dates of the related Indenture.
For purposes of determining compliance with the foregoing restriction on
the Incurrence of Debt with respect to Debt denominated in a foreign currency,
the Dollar-equivalent principal amount of such foreign-currency-denominated Debt
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 Closing Date shall be calculated based on the relevant currency exchange
rate in effect on the Closing Date 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 currencies in which such respective Debt is denominated that
is in effect on the date of such refinancing.
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
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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
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 Notes or the Notes Guarantees (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 terms of the
Indentures described in the first paragraph of "Limitation on Consolidated Debt"
above, or (3) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments from the dates of the Indentures 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 dates of the Indentures 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 "Investments"), 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 of the
Indentures, 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 of the
Indentures 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, 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
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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 of the Indentures 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 Restricted Subsidiaries; (iv) 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 Notes or the Notes 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 under "Limitation on
Consolidated Debt"; and (v) the Guarantor and its Restricted 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 such Restricted Subsidiary.
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 of the Indentures; (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) above, contained in any security
agreement (including a Capital Lease Obligation) securing Debt of the Guarantor
or a Restricted Subsidiary otherwise permitted under the Indentures, 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) above, 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 having
jurisdiction over the Guarantor or any Restricted Subsidiary; (h) pursuant to
the Indentures and the Notes; (i) constituting a Lien otherwise permitted
pursuant to "Limitations on Liens"; and (j) other encumbrances or restrictions
that are not materially more restrictive than customary provisions in comparable
financings provided that 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 Issuer's and Guarantor's ability to make scheduled payments of interest and
principal under the Notes.
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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
(other than the Notes) unless such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture providing for a Guarantee by such
Subsidiary of the Notes; any Subsidiary Guarantee by such Subsidiary of the
Notes (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 the Indentures) 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.
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 Notes (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 Notes,
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 of the Indentures and securing Debt outstanding on the date of the
Indentures; (ii) Liens securing Debt outstanding or available under all Credit
Facilities to the extent such Debt is permitted under clause (i) of the
"Limitation in Consolidated Debt"; (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 Notes to secure Purchase Money Debt which is Incurred for the
construction, acquisition and improvement of Telecommunications Assets and is
otherwise permitted under the Indentures, 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 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 "--Limitation on Consolidated Debt" 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.
Limitation on Asset Dispositions
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
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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 or the Issuer (other than Debt that is subordinated to the Notes and
the Notes Guarantees) 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 Closing Date 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 twelve 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 the "Limitation on Issuances of Guarantees by Restricted
Subsidiaries" covenant 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 twelve
months after the date of such agreement), in Telecommunications Assets and
(ii) apply (no later than the end of the twelve-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 following paragraph of this
"Limitation on Asset Dispositions" covenant. The amount of such excess Net
Available Proceeds required to be applied (or to be committed to be applied)
during such twelve-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."
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
"Limitation on Asset Dispositions" covenant totals at least $10 million, the
Issuer shall repay 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 Notes on a pro rata basis an aggregate
principal amount (or with respect to the 12% Notes, the Accreted Value of such
12% Notes) of Notes 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 principal amount (or
with respect to the 12% Notes, the Accreted Value of such 12% Notes) of the
Notes, 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 Notes at a price no greater than 100%
of the principal amount (or 100% of the accreted value in the case of original
issue discount Debt) thereof plus accrued interest to but excluding the date of
purchase. 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 the
Indentures.
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
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the Capital Stock of such Restricted Subsidiary owned by the Guarantor and any
Restricted Subsidiary of the Guarantor that complies with the provisions
described under "Limitation on Asset Dispositions" above to the extent such
provisions apply, (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 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 by such Restricted Subsidiary or (2) to a
Strategic Investor, provided that the Guarantor complies with the provisions
described under "Limitation on Asset Dispositions" above to the extent such
provisions apply.
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 "Limitation on
Transactions with Affiliates and Related Persons" covenant 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.
Change of Control
Unless the Issuer has theretofore exercised its right to redeem all of the
Notes in accordance with the Indentures, within 30 days of the occurrence of a
Change of Control, the Issuer will be required to make an Offer to Purchase all
outstanding Notes at a purchase price equal to 101% of their principal amount
(or with respect to the 12% Notes, the Accreted Value of such 12% Notes) plus
accrued interest to but excluding the date of purchase. A "Change of Control"
will be deemed to have occurred at such time as 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 Closing Date 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 Directors then in office
who either were members of the Board of Directors on the Closing Date or whose
election
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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). (Section 1017)
In the event that the Issuer makes an Offer to Purchase the Notes, the
Issuer and the Guarantor intend to comply with any applicable securities laws
and regulations, including any applicable requirements of Section 14(e) of, and
Rule 14e-1 under, the Exchange Act.
Reports
The Guarantor and the Issuer have agreed that, for so long as any Notes
remain outstanding, each will furnish to the holders of the Notes 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 Notes 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 1018)
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 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 the provisions of the Indenture described under
"Limitation on Liens" above, the Guarantor or the successor entity to the
Guarantor shall have secured the Notes as required by said covenant; (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 the Indenture
with respect to the Issuer or the Guarantor, as the case may be, except that
such "additional amounts" shall relate to any
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withholding tax whatsoever regardless of any change of law (subject to
exceptions substantially similar to those contained in the Indenture and
described under "--Additional Amounts"); (D) the Board of Directors of the
Guarantor determines in good faith that such transaction will have no material
adverse effect on any holder of the Notes 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
Guarantor, the Issuer, their direct and indirect stockholders or the holders of
the Notes and (6) certain other conditions are met.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indentures. Reference is made to the Indentures for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. (Section 101)
"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.
"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.
"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 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.
"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.
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"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 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 non-cash 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 Notes, all of the 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) non-cash 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.
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"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.
"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 Receivables Sale shall be the amount of the unrecovered
capital or principal investment of the purchaser (other than the Guarantor or a
Restricted Subsidiary of the Guarantor) thereof to the extent such Person is
liable therefore, 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.
"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 Notes, 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 Notes shall not constitute Disqualified Stock
if the change of control provisions applicable to such Preferred Stock are no
more favorable to the holders of such Preferred Stock than the provisions
applicable to the Notes contained in the covenant described under "Change of
Control" 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 Notes as are required to be repurchased
pursuant to the covenant described under "Change of Control."
"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)
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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.
"Event of Default" has the meaning set forth under "Events of Default"
below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act) and the rules and regulations thereunder.
"Existing Stockholders" means (A) R.S. Lauder, Gaspar & Co., L.P.,
("RSLAG"), (B) partners in RSLAG and Lauder Gaspar Ventures LLC and their
Affiliates, in each case as of the Closing Date, (C) Itzhak Fisher, Ronald S.
Lauder, Leonard A. 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.
"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.
"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 SEC, 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.
"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, 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
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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 the
"Limitation on Restricted Payments" covenant, (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.
"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).
"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.
"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
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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 twelve months following the consummation of such Asset
Disposition will be treated for all purposes of each Indenture and the Notes 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
Notes at his address appearing in the related note register on the date of the
Offer offering to purchase up to the principal amount (or Accreted Value) of
Notes specified in such Offer at the purchase price specified in such Offer (as
determined pursuant to the related 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 Notes within five Business Days after the Expiration Date. The Issuer shall
notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of 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 the Indentures
(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 Notes pursuant to the Offer to Purchase. The Offer shall also state:
a. the Section of the applicable 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 Notes
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 of the applicable Indenture 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 Notes accepted for payment (as
specified pursuant to the Indenture) (the "Purchase Price");
e. that the holder may tender all or any portion of the Notes
registered in the name of such holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount at maturity;
f. the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
g. that interest on any Note 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 Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
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i. that each holder electing to tender a Note pursuant to the Offer to
Purchase will be required to surrender such Note at the place or places
specified in the Offer prior to the close of business on the Expiration
Date (such Note 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
Notes 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 of the Note the holder tendered, the certificate number of
the Note the holder tendered and a statement that such holder is
withdrawing all or a portion of his tender;
k. that (a) if Notes 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 Notes
and (b) if Notes 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 Notes 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 Notes in
denominations of $1,000 or integral multiples thereof shall be purchased);
and
l. that in the case of any holder whose Note is purchased only in
part, the Issuer shall execute, and the Trustee shall authenticate and
deliver to the holder of such Note without service charge, a new Note or
Notes, 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 Note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"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 the "Limitation on Asset Sales"
covenant 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 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
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
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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.
"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.
"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 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.
"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 the covenant entitled "Transactions with Affiliates and Related
Persons," 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).
"Restricted Subsidiary" means any Subsidiary of the Guarantor other than an
Unrestricted Subsidiary.
"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.
"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
(iv)(2) of "Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries", in excess of $100 million.
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"Subordinated Debt" means Debt of the Guarantor or its Restricted
Subsidiaries 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 Notes 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
Notes 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 Notes, upon notice by 25% or more in principal amount
of the Notes 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 Notes or (y) permit 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 Notes, 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 "Change of Control" (and which shall provide that such
Debt will not be repurchased pursuant to such provisions prior to the
Guarantor's or such Subsidiary's repurchase of the Notes required to be
repurchased by the Guarantor pursuant to the provisions described under "Change
of Control").
"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.
"Subsidiary Guarantor" means a Subsidiary of the Guarantor that has
unconditionally guaranteed, by supplemental indenture substantially in the form
attached to the Indentures and satisfactory to the Trustee, the payment in full
of the principal of (and premium, if any) and interest on the Notes.
"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.
"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;
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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 the "Limitation on Restricted
Payments" covenant described herein and (C) if applicable, the Incurrence of
Debt and the Investment referred to in clause (A) of this proviso would be
permitted under the "Limitation on Consolidated Debt" and "Limitation on
Restricted Payments" covenants described herein. 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 the "Limitation on
Debt" covenant described below 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.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the 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.
DESCRIPTION OF GUARANTEES BY RSL COMMUNICATIONS, LTD.
The Guarantor has unconditionally and irrevocably guaranteed the due and
punctual payment of the principal of and interest on and other amounts payable
under the New 10 1/2% Notes and the New 12% Notes, when and as the same shall
become due and payable, whether at the stated maturity, by declaration of
acceleration, upon redemption or otherwise. The obligations of the Guarantor
under the New 10 1/2% Notes Guarantee and the New 12% Notes Guarantee, as
applicable, will be direct, unsecured and unsubordinated obligations of the
Guarantor and will rank pari passu with other existing and future direct,
unsecured and unsubordinated obligations of the Guarantor. The New 10 1/2% Notes
Guarantee and the New 12% Notes Guarantee, as applicable, will effectively rank
junior to any secured indebtedness of the Guarantor to the extent of the assets
securing such indebtedness.
EVENTS OF DEFAULT
The following events are defined as Events of Default with respect to the
10 1/2% Notes or 12% Notes, as the case may be, under each of the Indentures:
(a) failure to pay principal of (or premium, if any, on) any Note when due;
(b) failure to pay any interest on any Note when due, continued for 30 days;
(c) default in the payment of principal and interest on Notes required to be
purchased pursuant to an Offer to Purchase as described under "Change of
Control" when due and payable; (d) failure to perform or comply with the
provisions described under "Merger, Consolidation and Sales of Assets" and
"Limitation on Certain Asset Dispositions"; (e) failure to perform any other
covenant or agreement of the Issuer or Guarantor under the Indenture or the
Notes continued for 60 days after written notice to the Issuer by the Trustee or
holders of at least 25% in aggregate principal amount at maturity of outstanding
Notes; (f) default under the terms of any instrument evidencing or securing Debt
of the Guarantor, the Issuer or any Subsidiary having an outstanding principal
amount of $10.0 million individually or in the aggregate which default results
in the acceleration of the payment of such indebtedness or constitutes the
failure to pay such indebtedness when due; (g) the rendering of a final judgment
or judgments (not subject to appeal) against the Guarantor, the Issuer or any
Subsidiary an amount in excess of $10.0 million (net of indemnities and funds
actually received or to be received within 90 days of such judgement) which
remains undischarged or unstayed for a period of 60 days after
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the date on which the right to appeal has expired; and (h) certain events of
bankruptcy, insolvency or reorganization affecting the Guarantor, the Issuer or
any Significant Subsidiary. (Section 501) Subject to the provisions of the
Indentures relating to the duties of the Trustee in case an Event of Default (as
defined) shall occur and be continuing, the Trustee will be under no obligation
to exercise any of its rights or powers under such Indenture at the request or
direction of any of the holders of Notes, unless such holders shall have offered
to the Trustee reasonable indemnity. (Section 603) Subject to such provisions
for the indemnification of the Trustee, the holders of a majority in aggregate
principal amount at maturity of the outstanding Notes will 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. (Section 512)
If an Event of Default (other than an Event of Default described in clause
(h) above) shall occur and be continuing, either the Trustee or the holders of
at least 25% in aggregate principal amount at maturity of the outstanding
10 1/2% Notes or 12% Notes, as applicable, may accelerate the principal amount
of the 10 1/2% Notes or the Accreted Value of the 12% Notes, as applicable;
provided, however, that after such acceleration, but before a judgment or decree
based on acceleration, the holders of a majority in aggregate principal amount
at maturity of such outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the non-payment
of accelerated principal (or Accreted Value, as applicable) have been cured or
waived as provided in the applicable Indenture. If an Event of Default specified
in clause (h) above occurs, the outstanding 10 1/2% Notes or 12% Notes, as
applicable, will ipso facto become immediately due and payable without any
declaration or other act on the part of the Trustee or any holder. (Section 502)
For information as to waiver of defaults, see "Modification and Waiver".
No holder of any Note will have any right to institute any proceeding with
respect to the applicable Indenture or for any remedy thereunder, unless such
holder shall have previously given to the Trustee written notice of a continuing
Event of Default (as defined) and unless also the holders of at least 25% in
aggregate principal amount at maturity of the outstanding 10 1/2% Notes or 12%
Notes, as applicable, shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as trustee, and the
Trustee shall not have received from the holders of a majority in aggregate
principal amount at maturity of the outstanding 10 1/2% Notes or 12% Notes, as
applicable, a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. (Section 507) However, such
limitations do not apply to a suit instituted by a holder of a Note for
enforcement of payment of the principal (or Accreted Value, in the case of 12%
Notes) of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note. (Section 508)
The Guarantor and the Issuer will be required to furnish to the Trustee
quarterly a statement as to the performance by the Guarantor and the Issuer of
certain of their obligations under the Indentures and as to any default in such
performance. (Section 1019)
DEFEASANCE
Defeasance and Discharge. The Indentures provide that the Issuer will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indentures will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Issuer has irrevocably deposited or caused to be
irrevocably deposited with the Trustee, in trust, money and/or 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 money 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 state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, the principal (or
Accreted Value) of, premium, if any, and accrued interest on the Notes on the
stated maturity of such principal or interest or upon earlier redemption in
accordance with the terms of the Indenture and the Notes, (B) the Issuer has
delivered to the Trustee either (i) a ruling based on relevant law and practice
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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 as a result of the Issuer's exercise, disregarding U.K.
income tax on any amounts that would have been received but for such exercise of
its option under this "Defeasance" provision 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, (C) the
Issuer has delivered to the Trustee (i) either (x) an Opinion of Counsel to the
effect that holders will not recognize income, gain or loss for U.S. federal
income tax as a result of the Issuer's exercise of its option under this
"Defeasance" provision and will be subject to U.S. federal 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, which Opinion of Counsel must be
based upon (and accompanied by a copy of) a ruling published by the Internal
Revenue Service to the same effect unless there has been a change in relevant
U.S. federal income tax law after the Closing Date or (y) a ruling directed to
the Trustee received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect
that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit, the
trust fund 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,
(D) 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 would become a Default or an 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, and such deposit shall
not result in a breach or violation of, or constitute a default under, any other
agreement or instrument to which the Issuer or any of its Subsidiaries is a
party or by which the Issuer or any of its Subsidiaries is bound, (E) if at such
time the Notes are listed on a national securities exchange, the Issuer has
delivered to the Trustee an Opinion of Counsel to the effect that the Notes will
not be delisted as a result of the Issuer's exercise of its option under this
"Defeasance" provision, and (F) the Issuer shall have delivered to the Trustee
an Officer's Certificate and an Opinion of Counsel, in each case stating that
all the above conditions precedent have been complied with.
Defeasance of Certain Covenants and Certain Events of Default. The
Indentures further provide that the provisions of the Indentures will no longer
be in effect with respect to clauses (3) and (4) under "Merger, Consolidation
and Certain Sale of Assets" and all the covenants described herein under
"Covenants" (other than "Merger, Consolidation and Certain Sales of Assets"),
clauses (c), (f) and (g) under "Events of Default" with respect to such clauses
(3) and (4) under "Merger, Consolidation and Sale of Assets" and such covenants
and clauses (c), (f) and (g) under "Events of Default" shall be deemed not to be
Events of Default, upon, among other things, the deposit with the Trustee, in
trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the Notes on the stated maturity of such payments in
accordance with the terms of the Indentures and the Notes, the satisfaction of
the provisions described in clauses (C)(ii) and (D) of the preceding paragraph
and the delivery by the Issuer to the Trustee of an Opinion of Counsel to the
effect that, among other things, the holders will not recognize any income, gain
or loss for U.S. federal income tax purposes as a result of such deposit and
defeasance of certain covenants and Events of Default 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.
Defeasance and Certain Other Events of Default. In the event the Issuer
exercises its option to omit compliance with certain covenants and provisions of
the Indentures with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their stated maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Issuer will
remain liable for such payments and the Notes Guarantee with respect to such
payments will remain in effect.
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MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made 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 outstanding 10 1/2% Notes or 12%
Notes, as applicable; provided, however, that no such modification or amendment
may, without the consent of the holder of each outstanding 10 1/2% or 12% Note
affected thereby, (a) change the due date of any installment of principal or
interest on any 10 1/2% Notes or 12% Notes, as applicable, (b) reduce the
principal amount (or Accreted Value with respect to the 12% Notes) of, or the
premium or interest on, any 10 1/2% Notes or 12% Notes, as applicable,
(c) change the currency of payment of principal of, or premium or interest on,
any 10 1/2% Notes or 12% Notes, as applicable, (d) impair the right to institute
suit for the enforcement of any payment on or with respect to any 10 1/2% Notes
or 12% Notes, as applicable, (e) reduce the above-stated percentage of
outstanding 10 1/2% Notes or 12% Notes, as applicable, necessary to modify or
amend the applicable Indenture, (f) reduce the percentage of aggregate principal
amount of outstanding Notes necessary for waiver of compliance with certain
provisions of the applicable Indenture or for waiver of certain defaults,
(g) modify any provisions of the applicable Indenture relating to the
modification and amendment of the applicable Indenture or the waiver of past
defaults or covenants, except as otherwise specified, or (h) following the
mailing of any Offer to Purchase, modify any Offer to Purchase for the 10 1/2%
Notes or 12% Notes, as applicable, required under the "Limitation on Asset
Dispositions" and the "Change of Control" covenants contained in the applicable
Indenture in a manner materially adverse to the holders thereof. (Section 902)
The holders of a majority in aggregate principal amount at maturity of the
outstanding 10 1/2% Notes or 12% Notes, as applicable, on behalf of all holders
of 10 1/2% Notes or 12% Notes, as applicable, may waive compliance by the
Guarantor with certain restrictive provisions of the related Indenture.
(Section 1020) Subject to certain rights of the Trustee, as provided in the
Indentures, the holders of a majority in aggregate principal amount at maturity
of the outstanding 10 1/2% Notes or 12% Notes, as applicable, on behalf of all
holders of 10 1/2% Notes or 12% Notes, as applicable, may waive any past default
under the related Indenture, except a default in the payment of principal,
premium or interest or a default arising from failure to purchase any 10 1/2%
Notes or 12% Notes, as applicable, tendered pursuant to an Offer to Purchase.
(Section 513)
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Guarantor and the Trustee may amend or supplement the Indentures and the
Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Issuer's obligations to
holders of the Notes in the case of a merger or consolidation or to secure
the Notes;
(d) to make any change that would provide any additional rights or
benefits to the holders of the Notes or that does not adversely affect the
legal rights under the Indenture of any such holder; or
(e) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture
Act. (Section 901).
THE TRUSTEE
The Indentures provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indentures. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under such Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs. (Section
601)
The Indentures and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Issuer or Guarantor, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claim as security or otherwise. The Trustee is permitted to engage in other
transactions with the Issuer,
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the Guarantor or any Affiliate, provided, however, that if it acquires any
conflicting interest (as defined in the Indentures or in the Trust Indenture
Act), it must eliminate such conflict or resign. (Sections 608, 613)
ADDITIONAL AMOUNTS
Payments made by the Issuer or the Guarantor pursuant to the Notes or the
Notes Guarantees will be made without withholding or deduction for taxes unless
required by law. In the event of (i) 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 or any change in the interpretation or
administration thereof or (ii) a failure by the Issuer to list or maintain a
listing of the Notes on a "recognized stock exchange" (within the meaning of
Section 841 of the U.K. Income and Corporation Taxes Act 1988) (a "Listing
Failure"), the effect of which, in each case, is to require the withholding or
deduction by the Issuer or the Guarantor pursuant to the Notes or the Notes
Guarantees, respectively, of any amount for taxes that would not have been
required to be withheld or deducted absent such event, 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 Notes, 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 Notes
to be then due and payable; provided, however, that the foregoing obligation to
pay Additional Amounts shall not apply in respect of:
(a) any tax, withholding, assessment or other governmental charge
which would not have been imposed but for (i) 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 (ii) the presentation of a Note or a Note
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 Note for payment within such 30-day
period;
(b) any estate, inheritance, gift, sale, transfer or personal property
tax;
(c) 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 Note with a request in writing of the Issuer or the Guarantor
(which request shall be furnished to the Trustee) (i) to provide
information concerning the nationality, residence or identity of the holder
or such beneficial owner or (ii) to make any declaration or other similar
claim or satisfy any information or reporting requirement, which, in the
case of (i) or (ii), 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 (c) 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 (i) or the declaration or
other claim described in subclause (ii) 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
(d) any tax, withholding, assessment or other governmental charge
resulting from a Listing Failure with respect to any Note issued in the
form of a Definitive Registered Note pursuant to the terms of the Deposit
Agreement and the relevant Indenture; or
(e) any combination of items (a), (b), (c) and (d) above; nor shall
Additional Amounts be paid with respect to any payment of the principal of,
or any interest on, any Note or Notes Guarantee to any holder who is not
the sole beneficial owner of such Note or Notes 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
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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 Notes 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 the
Indenture or in this Prospectus there is mentioned, in any context, the payment
of principal (and premium, if any), redemption price, interest or any other
amount payable under or with respect to any Note, 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. See "--Optional Redemption."
The Issuer or the Guarantor, as the case may be, will also (i) make (or
cause to be made) such withholding or deduction and (ii) remit (or cause to be
remitted) the full amount deducted or withheld to the relevant authority in
accordance with applicable law. The Issuer or the Guarantor, as the case may be,
will make reasonable efforts to obtain certified copies of tax receipts
evidencing the payment of any taxes so deducted or withheld from each taxing
authority imposing such taxes. The Issuer or the Guarantor, as the case may be,
will furnish to the Trustee as promptly as practicable after the payment of any
taxes so deducted or withheld is due pursuant to applicable law, either
certified copies of tax receipts evidencing such payment or, if the receipts are
not obtainable, other evidence of such payments by the Issuer or the Guarantor.
CONSENT TO JURISDICTION AND SERVICE
Each of the Guarantor and the Issuer will appoint RSL Communications N.
America, Inc. as its agent for service of process in any suit, action or
proceeding with respect to the Indentures or the Notes or the Notes Guarantees
and for actions brought under federal or state securities laws brought in any
federal or state court located in the City of New York and will agree to submit
to such jurisdiction.
GOVERNING LAW
The Indentures, the New Notes and the New Notes Guarantees are governed by,
and construed in accordance with, the laws of the State of New York.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material U.S. federal income tax
consequences of the exchange of Old Notes for New Notes as of the date hereof.
Such opinion is not binding on any taxing authority or the courts, and no U.S.
tax ruling has been or will be sought. The discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations, rulings and judicial decisions as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in U.S. federal
income tax consequences different from those discussed below. Certain Holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below.
The exchange of an Old Note for a corresponding New Note pursuant to the
applicable Exchange Offer will not be a taxable event for U.S. federal income
tax purposes because such New Note will not be considered to differ materially
in kind or extent from the corresponding Old Note. As a result, there should be
no material U.S. federal income tax consequences to a holder exchanging an Old
Note for a corresponding New Note pursuant to the applicable Exchange Offer.
EACH HOLDER OF OLD NOTES SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING OLD NOTES FOR NEW NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
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CERTAIN UNITED KINGDOM TAX CONSIDERATIONS
The following summary describes the material U.K. income tax consequences
expected to result to holders whose Old Notes are exchanged for New Notes in the
Exchange Offers. This summary is based on current U.K. law and U.K. Inland
Revenue practice which may change prospectively or retrospectively. There can be
no assurance that the U.K. Inland Revenue would not take a contrary view and no
ruling from the U.K. Inland Revenue has been or will be sought.
For U.K. tax purposes, the exchange of the Old Notes for the New Notes will
have no U.K. tax consequences for a U.S. holder who is neither resident nor
ordinarily resident in the U.K., nor carries on a trade, profession or vocation
in the U.K. through a branch or agency to which the Notes are attributable.
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of Old Notes that were acquired for the
account of such broker-dealer as a result of market-making or other trading
activities (other than Old Notes acquired directly from the Issuer or any
affiliate of the Issuer) may exchange such Old Notes for New Notes pursuant to
the Exchange Offers, provided, that each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offers must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Issuer has agreed to keep the
Registration Statement effective for a period of 90 days following the closing
of the Exchange Offers.
The Issuer will not receive any proceeds from any sale of New Notes by
broker-dealers or any holder of New Notes. New Notes received by broker-dealers
for their own account pursuant to the Exchange Offers may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offers and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be an
underwriting compensation under the Securities Act. The Letters of Transmittal
state that by acknowledging that it will deliver and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The Issuer has agreed to pay all expenses incident to the Exchange Offers
and to the Issuer's performance of, or compliance with, the Registration Rights
Agreements (other than commissions or concessions of any brokers or dealers) and
will indemnify the holders of the Notes (including any broker-dealers) against
any liabilities under the Securities Act.
Following consummation of the Exchange Offers, the Issuer may, in its sole
discretion, commence one or more additional exchange offers to holders of Old
Notes who did not exchange their Old Notes for New Notes in the Exchange Offers
on terms which may differ from those contained in the Registration Rights
Agreements. This Prospectus, as it may be amended or supplemented from time to
time, may be used by the Issuer in connection with any such additional exchange
offers. Such additional exchange offers will take place from time to time until
all outstanding Old Notes have been exchanged for New Notes pursuant to the
terms and conditions contained herein.
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LEGAL MATTERS
Certain matters relating to the New Notes are being passed upon for the
Company by Debevoise & Plimpton, New York, New York and by Levinson Gray,
London, United Kingdom.
Certain matters relating to the New Notes and the New Notes Guarantees are
being passed upon for the Company by Conyers, Dill & Pearman, Hamilton, Bermuda.
GENERAL INFORMATION
1. The Issuer, a wholly-owned subsidiary of the Company, was incorporated
under the laws of the United Kingdom on July 25, 1996. The Issuer's primary
purpose is to carry on business as a holding company. The purposes of the Issuer
are set forth in paragraph 4 of the Issuer's Memorandum of Association. For
certain summary financial information regarding the Issuer, see Note 17 of the
Notes to the Consolidated Financial Statements of the Guarantor included
elsewhere in this Prospectus.
2. The directors of the Issuer are Ronald S. Lauder, Itzhak Fisher, Jacob
Z. Schuster, Nir Tarlovsky, Nesim Bildirici and Eugene Sekulow. The executive
officers are: Mr. Fisher, President and Chief Executive Officer; Messrs.
Tarlovsky and Bildirici, Vice Presidents; Mr. Schuster, co-Secretary; and Mr.
Hirschhorn, Global Controller and co-Secretary.
3. The Guarantor was incorporated under the laws of Bermuda on March 14,
1996. The Guarantor is the successor in interest to RSL Communications Inc., a
British Virgin Islands corporation ("RSL BVI"), which was amalgamated into the
Company on July 23, 1996. RSL BVI is the successor in interest to RSL
Communications Inc., a Delaware corporation ("RSL Delaware"), which was merged
into RSL BVI on August 4, 1995. RSL Delaware and RSL BVI were incorporated on
July 26, 1994 and February 27, 1995, respectively.
4. The issuance of the New Notes was authorized by unanimous written
consent of the Board of Directors of the Issuer dated December 1, 1998, in the
case of the New 10 1/2% Notes, and dated November 2, 1998, in the case of the
New 12% Notes. The Notes Guarantees were authorized by unanimous written consent
of the Executive Committee of the Board of Directors of the Guarantor dated
December 1, 1998, in the case of the New 10 1/2% Notes Guarantee, and dated
November 2, 1998 in the case of the New 12% Notes Guarantee.
5. Application will be made to list the New Notes on the Luxembourg Stock
Exchange. This Prospectus has been prepared for, among other things, the purpose
of listing the New Notes on the Luxembourg Stock Exchange. A legal notice
relating to the issue and the Memorandum of Association of each of the Issuer
and the Guarantor will be registered with the Greffier en Chef du Tribunal
D'Arrondissement de et a Luxembourg, where such documents may be examined and
copies obtained.
6. Copies of the Memorandum of Association of the Issuer and the Guarantor
and copies of the Purchase Agreement, Registration Rights Agreement and the
Indenture (which includes the terms and conditions of the Notes Guarantee) with
respect to each of the New 10 1/2% Notes and the New 12% Notes will, so long as
such New Notes are listed on the Luxembourg Stock Exchange, be available for
inspection during normal business hours on any weekday (except Saturdays and
public holidays) at the office of the paying agent in Luxembourg.
7. The purchasers of the New Notes will not be subject to any stamp duty
under the laws of the United Kingdom but, save as aforesaid, purchasers of the
New Notes may be required to pay stamp duties and other charges in accordance
with the laws and practices of the country of purchase.
8. Save as disclosed herein, the Company (which includes the Issuer and the
Guarantor) is not involved in and, to the knowledge of the Company, has not been
threatened with any litigation, arbitration or other administrative or other
legal proceeding (whether as defendant or otherwise) the result of which would
have a material adverse effect on the financial position of the Company.
9. Save as disclosed herein, there has been no adverse change in the
financial position of the Company or the Company's consolidated subsidiaries
since December 31, 1997 (the date of the latest
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audited consolidated financial statements of the Company and the date as of
which the consolidated cash position and capitalization of the Company is
presented under "Capitalization") which is material in the context of the issue
of the New Notes. Save as disclosed herein, there has been no adverse change in
the financial position of the Issuer since December 31, 1996 (the date of the
latest audited consolidated financial statements of the Issuer) which is
material in the context of the issue of the New Notes.
10. So long as the New Notes are listed on the Luxembourg Stock Exchange,
the Company will make available its quarterly unaudited financial statements and
copies of its annual audited consolidated financial statements, in each case
prepared in accordance with generally accepted accounting principles in the
United States of America, or its Annual Reports including financial statements,
at the offices of the Trustee and the paying agent.
11. So long as the New Notes are listed on the Luxembourg Stock Exchange,
the Issuer will make available copies of any financial statements prepared by
it, whether required by law or otherwise, at the offices of the Trustee and the
paying agent. The audited consolidated financial statements of the Issuer for
each calendar year will generally be available on or prior to October 31 of the
succeeding year in accordance with the laws of the United Kingdom. Such
financial statements will be made available for the holders of the New Notes at
the offices of the Trustee and the paying agent as soon as reasonably
practicable after their date of issuance. Deloitte & Touche, which has been
retained by the Issuer as its auditor, maintains an office in the United Kingdom
at Hill House, 1 Little New Street, London EC4A 3TR, England. The Issuer is not
required by law and does not intend to issue interim financial statements.
12. The Issuer and the Guarantor have taken all reasonable care to confirm
that the information contained in the Prospectus in relation to the Company and
the New Notes is true and the accurate in all material respects. This Prospectus
does not omit to state a material fact necessary in order to make the statements
contained herein, in light of the circumstances in which they are made, not
misleading. No person has been authorized by either the Issuer or the Guarantor
to provide any information other than as contained in this Prospectus. Neither
the delivery of this Prospectus nor any sale of the New Notes shall under any
circumstances create any implication that there has not been any 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 the date of such information.
EXPERTS
The Consolidated Financial Statements of RSL Communications, Ltd. as of
December 31, 1996 and 1997 and for each of the three years in the period ended
December 31, 1997, and International Telecommunications Group, Ltd. as of and
for the nine months ended September 30, 1995, included in this Prospectus and
the related financial statement schedules of RSL Communications, Ltd. included
in the Registration Statement, 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 Company is a Bermuda corporation and the Issuer is a United Kingdom
corporation. Certain of their directors and officers, and certain of the experts
named herein, are not residents of the United States. All or a substantial
portion of the assets of such persons are or may be located outside the United
States. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons or to enforce against them
judgments obtained in the United States courts. The Company has been advised by
its legal counsel in Bermuda, Conyers, Dill & Pearman, that there is doubt as to
the enforcement in Bermuda, in original actions or in actions for enforcement of
judgments of United States courts, of liabilities predicated upon U.S. Federal
securities laws, although Bermuda courts will enforce foreign judgments for
liquidated amounts in civil matters, subject to certain conditions and
exceptions. The Issuer has been advised by its legal counsel in the United
Kingdom that
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there is doubt as to the enforceability of certain civil liabilities under U.S.
Federal securities laws in original actions of English courts, but that, subject
to certain exceptions and time limitations, English courts may treat a final and
conclusive judgment of a U.S. court for a liquidated amount as a debt
enforceable by fresh proceedings in the English courts. Such counsel has
expressed no opinion, however, as to whether an enforcement by an English court
of any judgment would be in pounds sterling or as of which date, if any, the
determination of the applicable exchange rate from U.S. dollars to pounds
sterling may be made.
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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 (unaudited).......................................................................... F-27
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 1997 (unaudited)
and September 30, 1998 (unaudited)...................................................................... F-28
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 (unaudited)
and September 30, 1998 (unaudited)...................................................................... 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. 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 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.
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") using the equity method. 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
--------- -------------- ----------
--------- -------------- ----------
</TABLE>
<TABLE>
<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
</TABLE>
<TABLE>
<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)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997 FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
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
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
<S> <C> <C> <C> <C>
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 85,379
-------- -----------
Total Current Assets............................................................. 245,435 353,319
-------- -----------
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.............................................. 214,983 516,856
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......................................................................... $ (68,059) $(156,251)
--------- ---------
--------- ---------
Loss per share of common stock before extraordinary item......................... $ (2.16) $ (3.17)
Net loss per share............................................................... $ (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 (the "Pending Registration").
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 has not yet determined the impact on its financial statements of the
adoption of SFAS 133.
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>
Diluted income (loss) per share amounts are not presented because the
inclusion of these amounts would be anti-dilutive.
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 (such assets were purchased in the Westel
acquisition). 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.
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
in April 1998 a 12.5% equity interest in RSL Europe. In June 1998, Metro Holding
converted all of its interest in RSL Europe into 1,607,142 shares of Class A
Common Stock (based on value for value) 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. The Company
has recorded in the financial statements the issuance of such equity at fair
market value, $45 million, based on the quoted market value of the Company's
stock at the time of the transaction, 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
F-33
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998--(CONTINUED)
6. ACQUISITIONS--(CONTINUED)
valuation of the Company at the time notice to exercise is presented to the
Company. The value of this option is not material.
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
</TABLE>
<TABLE>
<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 November 1998, RSL PLC issued (the "12% Notes Offering") $100 million
aggregate principal amount at maturity of 12% Senior Notes due 2008 (the "12%
Notes"). The 12% Notes generated proceeds to the Company of approximately $90.5
million. The 12% Notes are fully and unconditionally guaranteed as to payment of
principal, interest and any other amounts thereof by RSL.
In December 1998, RSL PLC issued (the "10 1/2% Notes Offering") $200
million aggregate principal amount of 10 1/2% Senior Notes due 2008 (the "10
1/2% Notes"). The 10 1/2% Notes generated proceeds to the Company of
approximately $196.1 million. The 10 1/2% Notes are fully and unconditionally
guaranteed as to payment of principal, interest and any other amounts thereof
RSL.
On December 1, 1998, the Company issued 7,000,000 shares of Class A Common
Stock in a registered offering under the Securities Act. The net proceeds to the
Company were approximately $156.6 million after deducting the underwriting
discount and estimated expenses.
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>
PRINCIPAL OFFICE OF THE COMPANY AND THE ISSUER
HEADQUARTERS
CLARENDON HOUSE
CHURCH STREET
HAMILTON HM CX
EXECUTIVE OFFICES
767 FIFTH AVENUE
SUITE 4300
NEW YORK, NEW YORK 10153
LEGAL ADVISORS TO THE COMPANY
AS TO UNITED STATES LAW
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
AUDITORS OF THE COMPANY
DELOITTE & TOUCHE LLP
TWO WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10281
TRUSTEE AND EXCHANGE AGENT
THE CHASE MANHATTAN BANK
450 W. 33RD STREET
NEW YORK, NEW YORK 10001
PAYING AGENT
THE CHASE MANHATTAN BANK LUXEMBOURG S.A.
5 RUE PLAETIS
L-2338 LUXEMBOURG
LISTING AGENT
BANQUE INTERNATIONALE A LUXEMBOURG
69, ROUTE D'ESCHE
L-1470 LUXEMBOURG
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this Prospectus and
the information to which we have referred you. We have not authorized any person
to provide you with information different from the information contained in this
Prospectus. This Prospectus is not an offer to sell and it does not seek an
offer to buy these securities in any jurisdiction where an offer or sale is not
permitted. The information contained in this Prospectus is correct only as of
the date of this Prospectus, regardless of the time of the delivery of this
Prospectus or any sale of these securities.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary......................................................... 5
Risk Factors.................................................... 12
Use of Proceeds................................................. 24
Capitalization.................................................. 24
Selected Consolidated Financial Data............................ 26
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 28
Business........................................................ 42
Management...................................................... 91
Certain Relationships and Related Transactions.................. 102
Principal Shareholders.......................................... 103
Description of Certain Indebtedness............................. 105
Registration Rights Agreements for
Old Notes..................................................... 111
The Exchange Offers............................................. 113
Description of the New Notes and the New Notes Guarantees....... 119
Certain United States Federal Income Tax Considerations......... 151
Certain United Kingdom Tax Considerations For U.S. Holders of
Notes......................................................... 152
Plan of Distribution............................................ 152
Legal Matters................................................... 153
General Information............................................. 153
Experts......................................................... 154
Service of Process and Enforcement of Liabilities............... 154
Index to Consolidated Financial Statements...................... F-1
</TABLE>
RSL COMMUNICATIONS PLC
$200,000,000
10 1/2% SENIOR EXCHANGE NOTES
DUE 2008
$100,000,000
12% SENIOR EXCHANGE NOTES
DUE 2008
GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY
RSL COMMUNICATIONS, LTD.
------------------
[LOGO]
------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
*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.
******5.2 -- Opinion of Debevoise & Plimpton.
******5.3 -- Opinion of Levinson Gray.
*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.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
++++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.
*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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
*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.
*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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
*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.
*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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
**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.
**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>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <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.
10.105 -- Note Deposit Agreement, dated December 8, 1998, among RSL
Communications PLC, RSL Communications, Ltd., and The Chase
Manhattan Bank as Book-Entry Depository.
10.106 -- Indenture, dated December 8, 1998, by RSL Communications PLC
and RSL Communications, Ltd. to The Chase Manhattan Bank as
Trustee.
10.107 -- Exchange and Registration Rights Agreement, dated December
8, 1998, among RSL Communications, Ltd. and the Purchasers
named therein.
12 -- Ratio of Earnings to Fixed Charges.
***21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP (included on page II-10).
23.2 -- Consent of Conyers, Dill & Pearman (included in Exhibit 5.1
hereto).
23.3 -- Consent of Debevoise & Plimpton (included in Exhibit 5.2
hereto).
23.4 -- Consent of Levinson Gray (included in Exhibit 5.3 hereto).
24.1 -- Powers of Attorney (included in the signature pages to the
Registration Statement).
******25.1 -- Statement of Eligibility and Qualification under the U.S.
Trust Indenture Act of 1939 (Form T-1) of The Chase
Manhattan Bank as trustee with respect to the 10 1/2% Senior
Exchange Notes due 2008 of RSL Communications PLC.
******25.2 -- Statement of Eligibility and Qualification under the U.S.
Trust Indenture Act of 1939 (Form T-1) of The Chase
Manhattan Bank as trustee with respect to the 12% Senior
Exchange Notes due 2008 of RSL Communications PLC.
****27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal with respect to the 10 1/2%
Senior Exchange Notes due 2008 of RSL Communications PLC.
99.2 -- Form of Letter of Transmittal with respect to the 12% Senior
Exchange Notes due 2008 of RSL Communications PLC.
99.3 -- Form of Notice of Guaranteed Delivery with respect to the
10 1/2% Senior Exchange Notes due 2008 of RSL Communications
PLC.
99.4 -- Form of Notice of Guaranteed Delivery with respect to the
12% Senior Exchange Notes due 2008 of RSL Communications
PLC.
99.5 -- Form of Letter to Beneficial Holders with respect to the 10 1/2%
Senior Exchange Notes due 2008 of RSL Communications PLC.
99.6 -- Form of Letter to Beneficial Holders with respect to the 12%
Senior Exchange Notes due 2008 of RSL Communications PLC.
</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).
(Footnotes continued on next page)
II-6
<PAGE>
(Footnotes continued from previous page)
***** Incorporated by reference to the Registrant's report on Form 8-K dated
August 14, 1998.
****** To be filed by amendment.
+ 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).
(b) Financial Statement Schedules:
For the years ended December 31, 1995, 1996 and 1997.
Schedule I - Condensed Financial Information of RSL Communications PLC
(included at page S-1).
Scheduled II - Schedule of Valuation Allowances (included at page S-4).
ITEM 22. UNDERTAKINGS
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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on the 30th day of December, 1998.
RSL COMMUNICATIONS, LTD.
By: /s/ Itzhak Fisher
----------------------------------
Itzhak Fisher
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Itzhak Fisher his true and lawful
attorney-in-fact and agent, acting alone, with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and reform each and every act and thing requisite or necessary
to be done in and about the premises, as person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ---------------------------- ------------------
<S> <C> <C>
DIRECTOR AND CHAIRMAN OF THE DECEMBER 30, 1998
/S/ RONALD S. LAUDER BOARD OF DIRECTORS
- ----------------------------
(RONALD S. LAUDER)
/S/ ITZHAK FISHER DIRECTOR, PRESIDENT AND DECEMBER 30, 1998
- ---------------------------- CHIEF EXECUTIVE OFFICER
(ITZHAK FISHER) (PRINCIPAL EXECUTIVE
OFFICER)
DIRECTOR, EXECUTIVE VICE DECEMBER 30, 1998
/S/ JACOB Z. SCHUSTER PRESIDENT, CHIEF FINANCIAL
- ---------------------------- OFFICER, ASSISTANT SECRETARY
(JACOB Z. SCHUSTER) AND TREASURER
(PRINCIPAL FINANCIAL
OFFICER)
</TABLE>
II-8
<PAGE>
SIGNATURE TITLE DATE
- ---------------------------- ---------------------------- ------------------
/S/ MARK J. HIRSCHHORN
- ---------------------------- Vice President-Finance, December 30, 1998
(Mark J. Hirschhorn) Global Controller and
Assistant Secretary
(Controller and Principal
Accounting Officer)
DIRECTOR DECEMBER 30, 1998
- ----------------------------
(GUSTAVO A. CISNEROS)
DIRECTOR DECEMBER 30, 1998
- ----------------------------
(FRED H. LANGHAMMER)
/S/ LEONARD A. LAUDER DIRECTOR DECEMBER 30, 1998
- ----------------------------
(LEONARD A. LAUDER)
/S/ EUGENE SEKULOW DIRECTOR DECEMBER 30, 1998
- ----------------------------
(EUGENE SEKULOW)
/S/ NICOLAS G. TROLLOPE DIRECTOR DECEMBER 30, 1998
- ----------------------------
(NICOLAS G. TROLLOPE)
II-9
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of RSL Communications, Ltd.
on Form S-4 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, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
December 30, 1998
II-10
<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
Current Assets.......................... $ 201,734 $ 212,568
Marketable Securities--Held to
maturity.............................. 104,370 68,836
Property and Equipment.................. 31,941 64,649
Other Assets............................ 88,820 190,633
--------- ---------
Total................................. $ 426,865 $ 536,686
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current Liabilities..................... $ 74,948 $ 122,672
Long Term Debt.......................... 94,556 257,448
Senior Notes, 12 1/4% Due 2006.......... 300,000 300,000
Shareholders' Deficiency................ (42,639) (143,434)
--------- ---------
Total................................. $ 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
Cost of Services............................. 98,461 235,150
-------- --------
Gross Profit............................ 14,796 30,992
Expenses..................................... 41,619 100,118
-------- --------
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 Sales of Marketable
Securities................................. 14,701 41,038
(Purchase) Proceeds 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
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER 31,
1996 EXPENSES ACCOUNTS DEDUCTIONS 1996
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Bad debt provision... $ 1,596 $ 2,829 $ -- $ (544) $ 3,881
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, COSTS AND OTHER DECEMBER 31,
1995 EXPENSES ACCOUNTS(1) DEDUCTIONS 1995
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Bad debt provision... $ -- $ 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. ("ITG"). The Company began consolidating ITG
effective with its acquisition of interests in ITG in September 1995.
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- -------- ----------- ----------
<S> <C> <C>
*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.
******5.2 -- Opinion of Debevoise & Plimpton.
******5.3 -- Opinion of Levinson Gray.
*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.
10.105 -- Note Deposit Agreement, dated December 8, 1998, among RSL
Communications PLC, RSL Communications, Ltd., and The Chase
Manhattan Bank as Book-Entry Depository.
10.106 -- Indenture, dated December 8, 1998, by RSL Communications PLC
and RSL Communications, Ltd. to The Chase Manhattan Bank as
Trustee.
10.107 -- Exchange and Registration Rights Agreement, dated December
8, 1998, among RSL Communications, Ltd. and the Purchasers
named therein.
12 -- Ratio of Earnings to Fixed Charges.
***21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Deloitte & Touche LLP (included on page II-10).
23.2 -- Consent of Conyers, Dill & Pearman (included in Exhibit 5.1
hereto).
23.3 -- Consent of Debevoise & Plimpton (included in Exhibit 5.2 hereto).
23.4 -- Consent of Levinson Gray (included in Exhibit 5.3 hereto).
24.1 -- Powers of Attorney (included in the signature pages to the
Registration Statement).
******25.1 -- Statement of Eligibility and Qualification under the U.S.
Trust Indenture Act of 1939 (Form T-1) of The Chase
Manhattan Bank as trustee with respect to the 10 1/2% Senior
Exchange Notes due 2008 of RSL Communications PLC.
******25.2 -- Statement of Eligibility and Qualification under the U.S.
Trust Indenture Act of 1939 (Form T-1) of The Chase
Manhattan Bank as trustee with respect to the 12% Senior
Exchange Notes due 2008 of RSL Communications PLC.
****27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal with respect to the 10 1/2%
Senior Exchange Notes due 2008 of RSL Communications PLC.
99.2 -- Form of Letter of Transmittal with respect to the 12% Senior
Exchange Notes due 2008 of RSL Communications PLC.
99.3 -- Form of Notice of Guaranteed Delivery with respect to the
10 1/2% Senior Exchange Notes due 2008 of RSL Communications
PLC.
99.4 -- Form of Notice of Guaranteed Delivery with respect to the
12% Senior Exchange Notes due 2008 of RSL Communications
PLC.
99.5 -- Form of Letter to Beneficial Holders with respect to the 10 1/2%
Senior Exchange Notes due 2008 of RSL Communications PLC.
99.6 -- Form of Letter to Beneficial Holders with respect to the 12%
Senior Exchange Notes due 2008 of RSL Communications PLC.
</TABLE>
- ------------------
<TABLE>
<S> <C>
* 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.
</TABLE>
(Footnotes continued on next page)
<PAGE>
(Footnotes continued from previous page)
<TABLE>
<S> <C>
**** 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.
****** To be filed by amendment.
+ 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).
</TABLE>
- ------------------
<PAGE>
================================================================================
RSL COMMUNICATIONS PLC
as Issuer, with RSL Communications, Ltd. of
$200,000,000, 10 1/2% Senior Discount Notes Due 2008
of RSL Communications PLC
and
THE CHASE MANHATTAN BANK
as Book-Entry Depositary
NOTE DEPOSIT AGREEMENT
Dated as of December 8, 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>
THIS NOTE DEPOSIT AGREEMENT is made as of this 8th day of December, 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 December 8, 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 December 8, 1998 from the Issuer, the Trustee and the Book-Entry
Depositary.
"Notes" means the $200,000,000 aggregate principal amount at maturity of
the Issuer's 10 1/2% 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.
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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 accor dance with the Letter of
Representations.
SECTION 2.2 Book-Entry System. (a) Upon acceptance by DTC of the Depositary
Interests for entry into
<PAGE>
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
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,
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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 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
<PAGE>
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 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.
<PAGE>
(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.
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
<PAGE>
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
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.
<PAGE>
(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-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).
<PAGE>
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.
(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
<PAGE>
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 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.
<PAGE>
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;
(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;
<PAGE>
(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 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
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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, 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.
<PAGE>
(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 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,
<PAGE>
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
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
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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;
(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
<PAGE>
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
creditors' rights generally and general equitable principles.
[signature page follows]
<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:___________________________
Name:
Title:
THE CHASE MANHATTAN BANK
as Book-Entry Depositary
By:___________________________
Name:
Title:
With respect to the provisions of Section 3.6 only
RSL COMMUNICATIONS, LTD.
By:_____________________________
Name:
Title:
<PAGE>
================================================================================
RSL COMMUNICATIONS PLC
As Issuer
RSL COMMUNICATIONS, LTD.
As Guarantor
TO
THE CHASE MANHATTAN BANK
As Trustee
------------------------------------
Indenture
Dated as of December 8, 1998
------------------------------------
10 1/2% 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
Page
----
Parties........................................................................1
Recitals of the Issuer ........................................................1
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.01. Definitions .................................................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
Debt..................................................................9
- ---------------
Note: This table of contents shall not, for any purpose, be deemed to be
part of the Indenture.
-iii-
<PAGE>
Page
----
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 Purchasers...................................................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
Outstanding..........................................................20
- ---------------
Note: This table of contents shall not, for any purpose, be deemed to be
part of the Indenture.
-iv-
<PAGE>
Page
----
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
Special Interest.....................................................26
- ---------------
Note: This table of contents shall not, for any purpose, be deemed to be
part of the Indenture.
-v-
<PAGE>
Page
----
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
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Note: This table of contents shall not, for any purpose, be deemed to be
part of the Indenture.
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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
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part of the Indenture.
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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
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Note: This table of contents shall not, for any purpose, be deemed to be
part of the Indenture.
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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
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Note: This table of contents shall not, for any purpose, be deemed to be
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
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part of the Indenture.
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SECTION 10.21. Paying Agent ...............................................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
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
part of the Indenture.
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INDENTURE, dated as of December 8, 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 $200,000,000 aggregate
principal amount at maturity of the Issuer's 10 1/2% 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
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
Definitions and Other Provisions
of General Application
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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.
"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
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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 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.
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"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.
"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
-4-
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(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 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.
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"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 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
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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.
"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
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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 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
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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 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).
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"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 December 8, 1998 among the Issuer,
the Guarantor and the Initial Purchasers, as purchasers, 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 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
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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.
"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
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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 Purchasers" means Morgan Stanley & Co. Incorporated and Lehman
Brothers Inc.
"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, 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
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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 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
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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.
"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,
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(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 up to the principal amount 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
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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 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;
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(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;
(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
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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 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;
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(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 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
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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 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,
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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 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 December 1,
1998, between the Issuer, the Guarantor and the Initial Purchasers, 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
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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 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.
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"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 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
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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.
"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.
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"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 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.
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"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 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
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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.
"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.
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"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 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
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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 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
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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.
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
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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 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.
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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, 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.
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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 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.
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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, 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
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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 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.
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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 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
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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 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 Purchasers 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 &
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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.
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
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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.]
10 1/2% SENIOR NOTES DUE 2008
[IF RESTRICTED GLOBAL SECURITY - CUSIP NO. 74972E AF 5] [IF REGULATION S GLOBAL
SECURITY - CUSIP NO. G7703A AF 2; ISIN NO. - USG7703A AF 24]
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 15, 2008,
and to pay cash interest
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<PAGE>
thereon from December 8, 1998 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually on May 15 and
November 15, in each year, at the rate of 10 1/2% 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 Registration Rights Agreement (the "Exchange and Registration
Rights Agreement"), by and between the Issuer, the Guarantor, as defined in the
Indenture, the Purchasers (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 15 and November 15
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
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<PAGE>
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 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 May 1 or November 1 (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 the case of a default in payment of principal of and premium, if any, on
this Security upon acceleration or redemption, interest shall be payable
pursuant to the preceding paragraph on such overdue principal 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 12 1/2% per annum (to
the extent that the payment of such interest shall be legally enforceable), and
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<PAGE>
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
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 10 1/2% Senior
Notes due 2008 (the "Securities") issued under an Indenture, dated as of
December 8, 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 15, 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 principal amount)
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 15, of each of the years indicated
below:
Redemption
Year Price
---- -----
2003 105.250%
2004 103.500%
2005 101.750%
2006 and 100.000%
thereafter
and thereafter at a Redemption Price equal to 100% of the principal amount,
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
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<PAGE>
Predecessor Securities [If this Security is not a Global Security issued in
bearer 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 15, 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 110.500% of the principal amount 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 principal amount 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
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<PAGE>
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.
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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<PAGE>
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 at maturity
of Securities which may be authenticated and delivered under this Indenture is
limited to $200,000,000 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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<PAGE>
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 $200,000,000.
The Securities shall be known and designated as the "10 1/2% Senior Notes
due 2008" of the Issuer. The Stated Maturity of the Securities shall be November
15, 2008. The Securities shall bear cash interest at the rate of 10 1/2% per
annum on the principal amount at maturity of the Notes, from December 8, 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 15
and November 15, commencing May 15, 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 15 and November 15 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 principal
amount 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 principal
amount 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 principal 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 principal
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 November 1 of
each year, commencing with the first November 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 November 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 November 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 principal amount 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. 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 or any
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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.
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 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
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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, 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
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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.
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
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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 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
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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.
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
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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 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 principal amount
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 principal amount 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
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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 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
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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 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
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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 Purchase all
Outstanding Securities at a purchase price equal to 101% of their principal
amount 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
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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 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
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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.
(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.
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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.
ARTICLE XI
Redemption of Securities
SECTION 11.01. Right of Redemption. (a) At any time prior to November 15,
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 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 110.500% of the principal amount 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
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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 principal
amount 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.
(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 15, 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
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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
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
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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 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
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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 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
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(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 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
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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 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 (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;
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(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 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
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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
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
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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 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
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<PAGE>
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
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
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<PAGE>
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 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
_________________________
Name:
Title:
by
_________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
by
_________________________
Name:
Title:
RSL COMMUNICATIONS, LTD.,
by
_________________________
Name:
Title:
<PAGE>
ANNEX A -- Form of
Regulation S Certificate
REGULATION S CERTIFICATE
(For transfers pursuant to ss. 3.05(b)(i) and (iii)
of the Indenture)
The Chase Manhattan Bank,
as Trustee
450 West 33rd Street, 15th Floor
New York, NY 10001
Attention: Global Trust Services
Re: 10 1/2% Senior Notes due 2008 of
RSL Communications PLC (the "Securities")
Reference is made to the Indenture, dated as of December 8, 1998 (the
"Indenture"), between RSL Communications PLC (the "Issuer"), RSL Communications,
Ltd. (the "Guarantor") and The Chase Manhattan Bank, as Trustee. Terms used
herein and defined in the Indenture or in Regulation S or Rule 144 under the
U.S. Securities Act of 1933, as amended (the "Securities Act") are used herein
as so defined.
This certificate relates to U.S. $____________ principal amount at maturity
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Book-Entry Depositary who issued a Depositary Interest to the
Depositary (or its nominee) who holds such interest in the name of the
Undersigned. If the Specified Securities are not represented by a Global
Security, they are registered in the name of the Undersigned, as or on behalf of
the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Regulation S
Security. In connection with such transfer, the Owner hereby certifies that,
unless such transfer is being effected pursuant to an effective registration
statement under the Securities Act, it is being effected in accordance with Rule
904 or Rule 144
A-1
<PAGE>
under the Securities Act and with all applicable securities laws of the states
of the United States and other jurisdictions. Accordingly, the Owner hereby
further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being effected in
accordance with Rule 904:
(A) the Owner is not a distributor of the Securities, an
affiliate of the Issuer or any such distributor or a person acting on
behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to a
person in the United States;
(C) either:
(i) at the time the buy order was originated, the Transferee
was outside the United States or the Owner and any person acting
on its behalf reasonably believed that the Transferee was outside
the United States, or
(ii) the transaction is being executed in, on or through the
facilities of the Eurobond market, as regulated by the
Association of International Bond Dealers, or another designated
offshore securities market and neither the Owner nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof;
(E) if the Owner is a dealer in securities or has received a
selling concession, fee or other remuneration in respect of the
Specified Securities, and the transfer is to occur during the
Restricted Period, then the requirements of Rule 904(c)(1) have been
satisfied; and
(F) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
A-2
<PAGE>
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Securities were last acquired from the
Issuer or from an affiliate of the Issuer, whichever is later, and is
being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Securities were last acquired from the
Issuer or from an affiliate of the Issuer, whichever is later, and the
Owner is not, and during the preceding three months has not been, an
affiliate of the Issuer.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the Purchasers.
Dated: ____________________________________
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this
certificate.)
by: ____________________________
Name:
Title:
(If the Undersigned is a
corporation, partnership or
fiduciary, the title of the person
signing on behalf of the Undersigned
must be stated.)
A-3
<PAGE>
ANNEX B -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to ss. 3.05(b)(ii) and (iii)
of the Indenture)
The Chase Manhattan Bank,
as Trustee
450 West 33rd Street, 15th Floor
New York, NY 10001
Attention: Global Trust Services
Re: 10 1/2% Senior Notes due 2008 of
RSL Communications PLC (the "Securities")
Reference is made to the Indenture, dated as of December 8, 1998 (the
"Indenture"), between RSL Communications PLC (the "Issuer"), RSL Communications,
Ltd. (the "Guarantor") and The Chase Manhattan Bank, as Trustee. Terms used
herein and defined in the Indenture or in Regulation S or Rule 144 under the
U.S. Securities Act of 1933, as amended (the "Securities Act") are used herein
as so defined.
This certificate relates to U.S. $_____________ principal amount at
maturity of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Book-Entry Depositary who issued a Depositary Interest to the
Depositary (or its nominee) who holds such interest in the name of the
Undersigned. If the Specified Securities are not represented by a Global
Security, they are registered in the name of the Undersigned, as or on behalf of
the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Restricted
Security. In connection with such transfer, the Owner hereby certifies that,
unless such transfer is being effected pursuant to an
B-1
<PAGE>
effective registration statement under the Securities Act, it is being effected
in accordance with Rule 144A or Rule 144 under the Securities Act and all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe
is a "qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(A) the transfer is occurring after a holding period of at least
one year (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Securities were last acquired from the
Issuer or from an affiliate of the Issuer, whichever is later, and is
being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after a holding period of at least
two years (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Securities were last acquired from the
Issuer or from an affiliate of the Issuer, whichever is later, and the
Owner is not, and during the preceding three months has not been, an
affiliate of the Issuer.
B-2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the Purchasers.
Dated: ____________________________________
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this
certificate.)
by:_________________________________
Name:
Title:
(If the Undersigned is a
corporation, partnership or
fiduciary, the title of the person
signing on behalf of the Undersigned
must be stated.)
B-3
<PAGE>
ANNEX C -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to ss. 3.05(c))
The Chase Manhattan Bank,
as Trustee
450 West 33rd Street, 15th Floor
New York, NY 10001
Attention: Global Trust Services
Re: 10 1/2% Senior Notes due 2008 of
RSL Communications PLC (the "Securities")
Reference is made to the Indenture, dated as of December 8, 1998 (the
"Indenture"), between RSL Communications PLC (the "Issuer"), RSL Communications,
Ltd. (the "Guarantor") and The Chase Manhattan Bank, as Trustee. Terms used
herein and defined in the Indenture or in Regulation S or Rule 144 under the
U.S. Securities Act of 1933, as amended (the "Securities Act") are used herein
as so defined.
This certificate relates to U.S. $_____________ principal amount at
maturity of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Book-Entry Depositary who issued a Depositary Interest to the
Depositary (or its nominee) who holds such interest in the name of the
Undersigned, as or on behalf of the Owner. If the Specified Securities are not
represented by a Global Security, they are registered in the name of the
Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged for
Securities bearing no Securities Act Legend pursuant to Section 305(c) of the
Indenture. In connection with such exchange, the Owner hereby certifies that the
exchange is occurring after a holding period of at
C-1
<PAGE>
least two years (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the Specified Securities were last acquired from the Issuer or
from an affiliate of the Issuer, whichever is later, and the Owner is not, and
during the preceding three months has not been, an affiliate of the Issuer. The
Owner also acknowledges that any future transfers of the Specified Securities
must comply with all applicable securities laws of the states of the United
States and other jurisdictions.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer and the Purchasers.
Dated: ____________________________________
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this
certificate.)
by:_________________________________
Name:
Title:
(If the Undersigned is a
corporation, partnership or
fiduciary, the title of the person
signing on behalf of the Undersigned
must be stated.)
C-2
<PAGE>
EXECUTION COPY
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of December 8, 1998,
among RSL Communications PLC, a United Kingdom corporation (the "Issuer"), RSL
Communications, Ltd. (the "Guarantor") and Morgan Stanley & Co. Incorporated and
Lehman Brothers Inc. (together the "Purchasers"), identified on Schedule I to
the Purchase Agreement (as defined herein) as the purchasers of the 10 1/2%
Senior Notes due 2008 (the "Notes") of the Issuer.
The Issuer proposes to issue and sell to the Purchasers upon the terms set
forth in the Purchase Agreement the Securities (as defined herein). As an
inducement to the Purchasers to enter into the Purchase Agreement and in
satisfaction of a condition to the obligations of the Purchasers thereunder, the
Issuer agrees with the Purchasers 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 December 8, 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>
"Exchange Securities" shall have the meaning assigned thereto in
Section 2(a) hereof.
The term "holder" shall mean each of the Purchasers 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 December 8, 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
December 1, 1998, between the Purchasers, 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
-2-
<PAGE>
and (iv) a holder that is a broker-dealer, but only with respect to
Exchange Securities 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
Purchasers, 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)
-3-
<PAGE>
below (such new debt securities hereinafter called "Exchange Securities"). The
Issuer 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
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providing for the registration of, and the sale on a continuous or delayed basis
by the 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 Purchasers shall not have resold
all of the Securities initially purchased by them 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 15 and November 15. 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
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<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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(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 Purchasers and their 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
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<PAGE>
in any jurisdiction or the initiation or 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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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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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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(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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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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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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5. Representations and Warranties.
The Issuer and the Guarantor, jointly and severally, represents and
warrants to, and agrees with, each 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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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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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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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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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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(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 Purchasers 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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(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.
-23-
<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:
----------------------------------
Name:
Title:
RSL COMMUNICATIONS, LTD.
By:
----------------------------------
Name:
Title:
MORGAN STANLEY & CO.
INCORPORATED and LEHMAN
BROTHERS INC.
On behalf of each of the Purchasers,
By:
----------------------------------
(Morgan Stanley & Co. Incorporated)
-24-
<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") $200,000,000 aggregate principal amount at maturity 10 1/2% 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.
-25-
<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
Purchasers 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
$200,000,000 aggregate principal amount at maturity 10 1/2% 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.
-26-
<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:
-27-
<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")
10 1/2% 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>
Ratio of Earnings to Fixed Charges
Rider A
The ratio of earnings to fixed charges is computed by dividing the loss from
operations before fixed charges by fixed charges. Fixed charges consist of
interest charges and amortization of debt issuance costs, whether expensed or
capitalized and that portion of rental expense deemed to be representative of
interest. For the years ended December 31, 1994, 1995, 1996 and 1997 and the
nine months ended September 30, 1997 and 1998, earnings were insufficient to
cover fixed charges.
<PAGE>
RSL COMMUNICATIONS PLC
OFFER FOR ALL OUTSTANDING
10 1/2% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
10 1/2% SENIOR EXCHANGE NOTES DUE 2008
PURSUANT TO THE PROSPECTUS, DATED , 1999
GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY
RSL COMMUNICATIONS, LTD.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery To: The Chase Manhattan Bank, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission By Hand:
Number:
The Chase Manhattan Bank (212) 946-8161/62 The Chase Manhattan Bank
Global Trust Services Confirm by Telephone: Global Trust Services
450 West 33rd Street (212) 946-3084 450 West 33rd Street
15th Floor 15th Floor
New York, NY 10001 New York, NY 10001
Attn: Robert S. Peschler, Attn: Robert S. Peschler,
Assistant Vice President Assistant Vice President
</TABLE>
By Overnight Courier:
The Chase Manhattan Bank
Global Trust Services
450 West 33rd Street
15th Floor
New York, NY 10001
Attn: Robert S. Peschler,
Assistant Vice President
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1999 (the "Prospectus"), of RSL Communications
PLC (the "Issuer"), and this Letter of Transmittal (the "Letter"), which
together constitute the Issuer's offer (the "Exchange Offer") to exchange an
aggregate principal amount of up to US$200,000,000 of its 10 1/2% Senior
Exchange Notes Due 2008 (the "New 10 1/2% Notes") of the Issuer for a like
principal amount of the issued and outstanding 10 1/2% Senior Notes Due 2008
(the "Old 10 1/2% Notes") of the Issuer from the holders thereof.
For each Old 10 1/2% Note accepted for exchange, the holder of such Old
10 1/2% Note will receive a New 10 1/2% Note having a principal amount equal to
that of the surrendered Old 10 1/2% Note. The New 10 1/2% Notes will bear
interest from the most recent date to which interest has been paid on the Old
10 1/2% Notes, or, if no interest has been paid on the Old 10 1/2% Notes, from
, 1999. Accordingly, registered holders of New 10 1/2% Notes on
the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from , 1999. Old 10 1/2% Notes accepted for exchange use will
cease to accrue interest
<PAGE>
from and after the date of consummation of the Exchange Offer. Holders of Old
10 1/2% Notes whose Old 10 1/2% Notes are accepted for exchange will not receive
any payment in respect of accrued interest on such Old 10 1/2% Notes.
This Letter is to be completed by a holder of Old 10 1/2% Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
10 1/2% Notes, if available, is to be made by book-entry transfer to the account
maintained by the Book-Entry Depositary at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus and an Agent's
Message is not delivered. Tenders by book-entry transfer may also be made by
delivering an Agent's Message in lieu of this Letter. The term "Agent's Message"
means a message, transmitted by the Book-Entry Transfer Facility to and received
by the Exchange Agent and forming a part of a Book-Entry Confirmation (as
defined below), which states that the Book-Entry Transfer Facility has received
an express acknowledgment from the tendering participant, which acknowledgment
states that such participant has received and agrees to be bound by, and makes
the representations and warranties contained in, this Letter and that the Issuer
may enforce this Letter against such participant. Holders of Old 10 1/2% Notes
whose certificates are not immediately available, or who are unable to deliver
their certificates or confirmation of the book-entry tender of their Old 10 1/2%
Notes into the Book-Entry Depositary's account at the Book-Entry Transfer
Facility (the "Book-Entry Confirmation") and all other documents required by
this Letter to the Exchange Agent on or prior to the Expiration Date, must
tender their Old 10 1/2% Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old 10 1/2% Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
the Old 10 1/2% Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
- -------------------------------------------------------------------------------
DESCRIPTION OF OLD 12% NOTES
- -------------------------------------------------------------------------------
1 2 3
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGREGATE
PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED AMOUNT PRINCIPAL
HOLDER(S) CERTIFICATE OF OLD 12% AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* NOTE(S) TENDERED
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old 10 1/2% Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old 10 1/2% Notes represented by the Old 10 1/2% Notes
indicated in column 2. See Instruction 2. Old 10 1/2% Notes tendered hereby
must be in denominations of principal amount of US$1,000 and any integral
multiple thereof. See Instruction 1.
/ / CHECK HERE IF TENDERED OLD 10 1/2% NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number _____________________________________________________________
Transaction Code Name ______________________________________________________
<PAGE>
By crediting the Old 10 1/2% Notes to the Book-Entry Depositary's
account at the Book-Entry Transfer Facility's Automated Tender Offer Program
("ATOP") and by complying with applicable ATOP procedures with respect to
the Exchange Offer, including transmitting to the Book-Entry Depositary a
computer-generated message (an "Agent's Message") in which the holder of the
Old U.S. Dollar Senior Notes acknowledges and agrees to be bound by the
terms of, and makes the representations and warranties contained in, this
Letter, the participant in the Book-Entry Transfer Facility confirms on
behalf of itself and the beneficial owners of such Old U.S. 10 1/2% Notes
all provisions of this Letter (including all representations and warranties)
applicable to it and such beneficial owner as fully as if it had completed
the information required herein and executed and transmitted this Letter to
the Exchange Agent.
/ / CHECK HERE IF TENDERED OLD 10 1/2% NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution that Guaranteed Delivery _______________________________
If delivered by Book-Entry Transfer, Complete the Following:
Account Number _____________________________________________________________
Transaction Code Name ______________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
NAME: ______________________________________________________________________
ADDRESS: ___________________________________________________________________
___________________________________________________________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuer the aggregate principal amount of Old
10 1/2% Notes indicated above. Subject to, and effective upon, the acceptance of
exchange of the Old 10 1/2% Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Issuer all rights, title and
interest in and to such Old 10 1/2% Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old 10 1/2%
Notes tendered hereby and that the Issuer will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim where the same are accepted by
the Issuer. The undersigned hereby further represents that any New 10 1/2% Notes
acquired in exchange for Old 10 1/2% Notes tendered hereby will have been
acquired in the ordinary course of business of the person receiving such New
10 1/2% Notes, whether or not such person is the undersigned, that neither the
holder of such Old 10 1/2% Notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
10 1/2% Notes and that neither the holder of such Old 10 1/2% Notes nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities Act
of 1933, as amended (the "Securities Act"), of the Issuer or RSL Communications,
Ltd. (the "Guarantor").
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") that the New 10 1/2% Notes issued in exchange for
the Old 10 1/2% Notes pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof (other than any such holder
that is an "affiliate" of the Issuer or the Guarantor within the meaning of
Rule 405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
10 1/2% Notes are acquired in the ordinary course of such holders' business and
such holders have no arrangements with any person to participate in the
distribution of such New 10 1/2% Notes. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of New 10 1/2% Notes. If the undersigned
is a broker-dealer that will receive New 10 1/2% Notes for its own account in
exchange for Old 10 1/2% Notes, it represents that the Old 10 1/2% Notes to be
exchanged for the New 10 1/2% Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such New 10 1/2%
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Issuer to be necessary or desirable to complete the
sale, assignment and transfer of the Old 10 1/2% Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer -- Withdrawal Rights" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New 10 1/2% Notes (and, if applicable,
substitute certificates representing Old 10 1/2% Notes for any Old 10 1/2% Notes
not exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old 10 1/2% Notes, please credit the account indicated above
maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions" below, please
send the New 10 1/2% Notes (and, if applicable, substitute certificates
representing Old 10 1/2% Notes for any Old 10 1/2% Notes not exchanged) to the
undersigned at the address shown above in the box entitled "Description of Old
10 1/2% Notes."
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD 10 1/2%
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
10 1/2% NOTES AS SET FORTH IN SUCH BOX ABOVE.
<TABLE>
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old To be completed ONLY if certificates for Old 10 1/2%
10 1/2% Notes not exchanged and/or New 10 1/2% Notes are Notes not exchanged and/or New 10 1/2% Notes are to be
to be issued in the name of and sent to someone other sent to someone other than the person or persons whose
than the person or persons whose signature(s) appear(s) signature(s) appear(s) on this letter above or to such
on this Letter above, or if Old 10 1/2% Notes delivered person or persons at an address other than shown in the
by book-entry transfer which are not accepted for box entitled "Description of Old 10 1/2% Notes" on this
exchange are to be returned by credit to an account Letter above. Mail: New 10 1/2% Notes and/or Old 10 1/2%
maintained at the Book-Entry Transfer Facility other Notes to:
than the account indicated above.
Issue: New 10 1/2% Notes and/or Old 10 1/2% Name(s)
Notes to: -----------------------------------------------
(PLEASE TYPE OR PRINT)
Name(s)
------------------------------------------ ------------------------------------------------------
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
Address
- ------------------------------------------------- -----------------------------------------------
(PLEASE TYPE OR PRINT)
------------------------------------------------------
(ZIP CODE)
Address
------------------------------------------
- -------------------------------------------------
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
/ / Credit unexchanged Old 10 1/2% Notes delivered by
book-entry transfer to the Book-Entry Transfer
Facility account set forth below.
- --------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
</TABLE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OLD 10 1/2% NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS
OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated: _________________________, 1999
<TABLE>
<S> <C>
x , 1999
-------------------------------------------------- ----------------------------------------
x , 1999
-------------------------------------------------- ----------------------------------------
SIGNATURE(S) OF OWNER DATE
</TABLE>
Area Code and Telephone Number
---------------------------------------
If a holder is tendering any Old 12% Notes, this Letter must be signed
by the registered holder(s) as the name(s) appear(s) on the certificate(s) for
the Old 12% Notes or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If signature is by
a trustee, executor, administrator, guardian, officer or other person acting in
a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s):
---------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
--------------------------------------------------------------------
Address:
---------------------------------------------------------------------
- -----------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
-----------------------------------------------------
(AUTHORIZED SIGNATURE)
- -----------------------------------------------------------------------------
(TITLE)
- -----------------------------------------------------------------------------
(NAME AND FIRM)
Dated: ________________________, 1999
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE 10 1/2%
SENIOR EXCHANGE NOTES
DUE 2008 IN EXCHANGE FOR THE 10 1/2% SENIOR NOTES DUE 2008 OF RSL COMMUNICATIONS
PLC
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This letter is to be completed by noteholders either if certificates are to
be forwarded herewith or if tenders are to be made pursuant to the procedures
for delivery by book-entry transfer set forth in "The Exchange Offer --
Book-Entry Transfer" section of the Prospectus and an Agent's Message is not
delivered. Tenders by book-entry transfer may also be made by delivering an
Agent's Message in lieu of this Letter of Transmittal. The term "Agent's
Message" means a message, transmitted by the Book-Entry Transfer Facility to and
received by the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that the Book-Entry Transfer Facility has received an express
acknowledgement from the tendering participant, which acknowledgement states
that such participant has received and agrees to be bound by, and makes the
representations and warranties contained in, the Letter of Transmittal and that
the Issuer may enforce the Letter of Transmittal against such participant.
Certificates for all physically tendered Old 10 1/2% Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter (or manually signed facsimile hereof or Agent's Message in lieu
thereof) and any other documents required by this Letter, must be received by
the Exchange Agent at the address set forth herein or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedures set forth below. Old 10 1/2% Notes tendered hereby must be in
denominations of principal amount of US$1,000 and any integral multiple thereof.
Noteholders whose certificates for Old 10 1/2% Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old 10 1/2% Notes pursuant to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of
the Prospectus. Pursuant to such procedures, (i) such tender must be made
through an Eligible institution, (ii) prior to 5:00 p.m., New York City time, on
the Expiration Date, the Exchange Agent must receive from such Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Issuer (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old 10 1/2% Notes and the amount of Old 10 1/2% Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old 10 1/2% Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, together with a properly completed
and duly executed Letter (or facsimile thereof or Agent's Message in lieu
thereof) with any required signature guarantees and any other documents required
by this Letter will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Old 10 1/2% Notes,
in proper form for transfer, or Book-Entry Confirmation, as the case may be,
together with a properly completed and duly executed Letter (or facsimile
thereof or Agent's Message in lieu thereof) with any required signature
guarantees and all other documents required by this Letter, are received by the
Exchange Agent within three NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old 10 1/2% Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old 10 1/2% Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old 10 1/2% Notes evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of Old 10 1/2% Notes to be tendered in the box above
entitled "Description of Old 10 1/2% Notes -- Principal Amount Tendered." A
reissued certificate representing the balance of nontendered Old 10 1/2% Notes
will be sent to such tendering holder, unless otherwise provided in the
appropriate box on this Letter, promptly after the Expiration Date. ALL OF THE
OLD 10 1/2% NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN
TENDERED UNLESS OTHERWISE INDICATED.
<PAGE>
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old 10 1/2% Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificate without any change whatsoever.
If any tendered Old 10 1/2% Notes are owned of record by two or more joint
owners, all of such owners must sign this Letter.
If any tendered Old 10 1/2% Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder or holders of the Old
10 1/2% Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the New 10 1/2%
Notes are to be issued, or any untendered Old 10 1/2% Notes are to be reissued,
to a person other than the registered holder, then endorsements of any
certificates transmitted hereby or separate bond powers are required. Signatures
on such certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and, unless waived by the Issuer, proper
evidence satisfactory to the Issuer of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD 10 1/2% NOTES OR SIGNATURES ON BOND
POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A
MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICER OR CORRESPONDENT IN THE UNITED STATES (AN "ELIGIBLE
INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD 10 1/2% NOTES ARE TENDERED: (I) BY A REGISTERED
HOLDER OF OLD 10 1/2% NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER,
INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME
APPEARS ON A SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD 10 1/2% NOTES)
WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR
"SPECIAL DELIVERY INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN
ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old 10 1/2% Notes should indicate in the applicable
box the name and address to which New 10 1/2% Notes issued pursuant to the
Exchange Offer and/or substitute certificates evidencing Old 10 1/2% Notes not
exchanged are to be issued or sent, if different from the name or address of the
person signing this Letter. In the case of issuance in a different name, the
employer identification or social security number of the person named must also
be indicated. Noteholders tendering Old 10 1/2% Notes by book-entry transfer may
request that Old 10 1/2% Notes not exchanged be credited to such account
maintained at the Book-Entry Transfer Facility as such noteholder may designate
hereon. If no such instructions are given, such Old 10 1/2% Notes not exchanged
will be returned to the name or address of the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
U.S. Federal income tax law generally requires that a tendering holder
whose Old 10 1/2% Notes are accepted for exchange must provide the Issuer (as
payer) with such holder's correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 below, which in the case of a tendering holder who is an
individual, is his or her social security number. If the Issuer is not provided
with the current TIN or an adequate basis for an exemption, such tendering
holder may be subject to a US$50 penalty imposed by the Internal Revenue
Service. In addition, delivery to such tendering holder of New 10 1/2% Notes may
result in backup withholding in an amount equal to 31% of all reportable
payments made after the exchange. If withholding results in an overpayment of
taxes, a refund may be obtained.
<PAGE>
Exempt holders of Old 10 1/2% Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed Guidelines of
Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9
Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of Old 10 1/2% Notes
must provide its correct TIN by completing the Substitute Form W-9 set forth
below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, or
(ii) the holder has not been notified by the Internal Revenue Service that such
holder is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Old 10 1/2% Notes is a nonresident alien or foreign entity
not subject to backup withholding, such holder must give the Issuer a completed
Form W-8, Certificate of Foreign Status. These forms may be obtained from the
Exchange Agent. If the Old 10 1/2% Notes are in more than one name or are not in
the name of the actual owner, such holder should consult the W-9 Guidelines for
information on which TIN to report. If such holder does not have a TIN, such
holder should consult the W-9 Guidelines for instructions on applying for a TIN,
check the box in Part 2 of the Substitute Form W-9 and write "applied for" in
lieu of its TIN. Note: Checking this box and writing "applied for" on the form
means that such holder has already applied for a TIN or that such holder intends
to apply for one in the near future. If such holder does not provide its TIN to
the Issuer within 60 days, backup withholding will begin and continue until such
holder furnishes its TIN to the Issuer.
6. TRANSFER TAXES.
The Issuer will pay all transfer taxes, if any, applicable to the transfer
of Old 10 1/2% Notes to it or its order pursuant to the Exchange Offer. If
however, New 10 1/2% Notes and/or substitute Old 10 1/2% Notes not exchanged are
to be delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old 10 1/2% Notes tendered hereby, or if
tendered Old 10 1/2% Notes are registered in the name of any person other than
the person signing this Letter, or if a transfer tax is imposed for any reason
other than the transfer of Old 10 1/2% Notes to the Issuer or its order pursuant
to the Exchange Offer, the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted herewith, the amount of such transfer taxes will be billed
directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD 10 1/2% NOTES SPECIFIED IN THIS
LETTER.
7. WAIVER OF CONDITIONS.
The Issuer reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old 10 1/2% Notes, by execution of this
Letter or an Agent's Message in lieu thereof, shall waive any right to receive
notice of the acceptance of their Old 10 1/2% Notes for exchange.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD 10 1/2% NOTES.
Any holder whose Old 10 1/2% Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: THE CHASE MANHATTAN BANK
<TABLE>
<S> <C>
PART I -- Please provide the Taxpayer
SUBSTITUTE Identification Number ("TIN") of the person TIN:_____________________________
FORM W-9 submitting this Letter of Transmittal in the Social Security Number
box. or Employer Identification Number
DEPARTMENT OF THE TREASURY PART II -- TIN applied for / /
INTERNAL REVENUE SERVICE
Certification -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am
PAYER'S REQUEST FOR waiting for a number to be issued to me).
TAXPAYER IDENTIFICATION
NUMBER ("TIN") (2) I am not subject to backup withholding either because: (a) I am exempt from backup
AND CERTIFICATION withholding, or (b) I have not been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding, and
(3) Any other information provided on this form is true and correct.
Signature Date:
------------------------------ -----------------------------
</TABLE>
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are not longer subject to backup withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
- ------------------------------------- -------------------------------------
Signature Date
<PAGE>
RSL COMMUNICATIONS PLC
OFFER FOR ALL OUTSTANDING
12% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
12% SENIOR EXCHANGE NOTES DUE 2008
PURSUANT TO THE PROSPECTUS, DATED , 1999
GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY
RSL COMMUNICATIONS, LTD.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
, 199 , UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery To: The Chase Manhattan Bank, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission By Hand:
Number:
The Chase Manhattan Bank (212) 946-8161/62 The Chase Manhattan Bank
Global Trust Services Confirm by Telephone: Global Trust Services
450 West 33rd Street (212) 946-3084 450 West 33rd Street
15th Floor 15th Floor
New York, NY 10001 New York, NY 10001
Attn: Robert S. Peschler Attn: Robert S. Peschler
Assistant Vice President Assistant Vice President
By Overnight Courier:
The Chase Manhattan Bank
Global Trust Services
450 West 33rd Street
15th Floor
New York, NY 10001
Attn: Robert S. Peschler
Assistant Vice President
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1999 (the "Prospectus"), of RSL Communications
PLC (the "Issuer"), and this Letter of Transmittal (the "Letter"), which
together constitute the Issuer's offer (the "Exchange Offer") to exchange an
aggregate principal amount at maturity of up to US$100,000,000 of its 12% Senior
Exchange Notes Due 2008 (the "New 12% Notes") of the Issuer for a like principal
amount of the issued and outstanding 12% Senior Notes Due 2008 (the "Old 12%
Notes") of the Issuer from the holders thereof.
For each Old 12% Note accepted for exchange, the holder of such Old 12%
Note will receive a New 12% Note having a principal amount at maturity equal to
that of the surrendered Old 12% Note. The New 12% Notes will bear interest from
the most recent date to which interest has been paid on the Old 12% Notes, or,
if no interest has been paid on the Old 12% Notes, from , 1999.
Accordingly, registered holders of New 12% Notes on the relevant record date for
the first interest payment date following the consummation of the Exchange Offer
will receive interest accruing from the most recent date to which interest has
been paid or, if no interest has been paid, from , 1999. Old
12% Notes accepted for exchange use will cease to accrue interest from and after
<PAGE>
the date of consummation of the Exchange Offer. Holders of Old 12% Notes whose
Old 12% Notes are accepted for exchange will not receive any payment in respect
of accrued interest on such Old 12% Notes.
This Letter is to be completed by a holder of Old 12% Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
12% Notes, if available, is to be made by book-entry transfer to the account
maintained by the Book-Entry Depositary at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus and an Agent's
Message is not delivered. Tenders by book-entry transfer may also be made by
delivering an Agent's Message in lieu of this Letter. The term "Agent's Message"
means a message, transmitted by the Book-Entry Transfer Facility to and received
by the Exchange Agent and forming a part of a Book-Entry Confirmation (as
defined below), which states that the Book-Entry Transfer Facility has received
an express acknowledgment from the tendering participant, which acknowledgment
states that such participant has received and agrees to be bound by, and makes
the representations and warranties contained in, this Letter and that the Issuer
may enforce this Letter against such participant. Holders of Old 12% Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Old 12% Notes
into the Book-Entry Depositary's account at the Book-Entry Transfer Facility
(the "Book-Entry Confirmation") and all other documents required by this Letter
to the Exchange Agent on or prior to the Expiration Date, must tender their Old
12% Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old 12% Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
the Old 12% Notes should be listed on a separate signed schedule affixed hereto.
<TABLE>
- -------------------------------------------------------------------------------
DESCRIPTION OF OLD 12% NOTES
- -------------------------------------------------------------------------------
1 2 3
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGREGATE
PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED AMOUNT PRINCIPAL
HOLDER(S) CERTIFICATE OF OLD 12% AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* NOTE(S) TENDERED
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old 12% Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemd to have
tendered ALL of the Old 12% Notes represented by the Old 12% Notes
indicated in column 2. See Instruction 2. Old 12% Notes tendered hereby
must be in denominations of principal amount of US$1,000 and any integral
multiple thereof. See Instruction 1.
<PAGE>
/ / CHECK HERE IF TENDERED OLD 12% NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------------
Account Number
-------------------------------------------------------------
Transaction Code Name
------------------------------------------------------
By crediting the Old 12% Notes to the Book-Entry Depositary's account at
the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") and
by complying with applicable ATOP procedures with respect to the Exchange Offer,
including transmitting to the Book-Entry Depositary a computer-generated message
(an "Agent's Message") in which the holder of the Old 12% Notes acknowledges and
agrees to be bound by the terms of, and makes the representations and warranties
contained in, this Letter, the participant in the Book-Entry Transfer Facility
confirms on behalf of itself and the beneficial owners of such Old 12% Notes all
provisions of this Letter (including all representations and warranties)
applicable to it and such beneficial owner as fully as if it had completed the
information required herein and executed and transmitted this Letter to the
Exchange Agent.
/ / CHECK HERE IF TENDERED OLD 12% NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
--------------------------------------------
Window Ticket Number (if any)
----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------------
Name of Institution that Guaranteed Delivery
-------------------------------
If delivered by Book-Entry Transfer, Complete the Following:
Account Number
-------------------------------------------------------------
Transaction Code Name
------------------------------------------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
----------------------------------------------------------------------
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuer the aggregate principal amount of Old
12% Notes indicated above. Subject to, and effective upon, the acceptance of
exchange of the Old 12% Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Issuer all rights, title and
interest in and to such Old 12% Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old 12% Notes
tendered hereby and that the Issuer will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim where the same are accepted by the Issuer. The
undersigned hereby further represents that any New 12% Notes acquired in
exchange for Old 12% Notes tendered hereby will have been acquired in the
ordinary course of business of the person receiving such New 12% Notes, whether
or not such person is the undersigned, that neither the holder of such Old 12%
Notes nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such New 12% Notes and that neither
the holder of such Old 12% Notes nor any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act"), of the Issuer or RSL Communications, Ltd. (the "Guarantor").
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") that the New 12% Notes issued in exchange for the
Old 12% Notes pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder that is
an "affiliate" of the Issuer or the Guarantor within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New 12%
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangements with any person to participate in the distribution
of such New 12% Notes. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of New 12% Notes. If the undersigned is a broker-dealer that
will receive New 12% Notes for its own account in exchange for Old 12% Notes, it
represents that the 12% Notes to be exchanged for the New 12% Notes were
acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus in connection with
any resale of such New 12% Notes; however, by so acknowledging and by delivering
a prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Issuer to be necessary or desirable to complete the
sale, assignment and transfer of the Old 12% Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer -- Withdrawal Rights" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New 12% Notes (and, if applicable,
substitute certificates representing Old 12% Notes for any Old 12% Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old 12% Notes, please credit the account indicated above maintained
at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the New 12%
Notes (and, if applicable, substitute certificates representing Old 12% Notes
for any Old 12% Notes not exchanged) to the undersigned at the address shown
above in the box entitled "Description of Old 12% Notes."
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD 12%
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
12% NOTES AS SET FORTH IN SUCH BOX ABOVE.
<TABLE>
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old 12% To be completed ONLY if certificates for Old 12% Notes
Notes not exchanged and/or New 12% Notes are to be not exchanged and/or New 12% Notes are to be sent to
issued in the name of and sent to someone other than the someone other than the person or persons whose
person or persons whose signature(s) appear(s) on this signature(s) appear(s) on this letter above or to such
Letter above, or if Old 12% Notes delivered by person or persons at an address other than shown in the
book-entry transfer which are not accepted for exchange box entitled "Description of Old 12% Notes" on this
are to be returned by credit to an account maintained at Letter above. Mail: New 12% Notes and/or Old 12% Notes
the Book-Entry Transfer Facility other than the account to:
indicated above.
Issue: New 12% Notes and/or Old 12% Name(s)
Notes to: ------------------------------------------------
(PLEASE TYPE OR PRINT)
Name(s)
------------------------------------------ ------------------------------------------------------
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
Address
- ------------------------------------------------- -----------------------------------------------
(PLEASE TYPE OR PRINT)
------------------------------------------------------
(ZIP CODE)
Address
------------------------------------------
- -------------------------------------------------
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
/ / Credit unexchanged Old 12% Notes delivered by
book-entry transfer to the Book-Entry Transfer
Facility account set forth below.
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
</TABLE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OLD 12% NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated: _________________________, 1999
<TABLE>
<S> <C>
x , 1999
-------------------------------------------------- ----------------------------------------
x , 1999
-------------------------------------------------- ----------------------------------------
SIGNATURE(S) OF OWNER DATE
</TABLE>
Area Code and Telephone Number
---------------------------------------
If a holder is tendering any Old 10 1/2% Notes, this Letter must be signed
by the registered holder(s) as the name(s) appear(s) on the certificate(s) for
the Old 10 1/2% Notes or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If signature is by
a trustee, executor, administrator, guardian, officer or other person acting in
a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s):
---------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
--------------------------------------------------------------------
Address:
---------------------------------------------------------------------
- -----------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
-----------------------------------------------------
(AUTHORIZED SIGNATURE)
- -----------------------------------------------------------------------------
(TITLE)
- -----------------------------------------------------------------------------
(NAME AND FIRM)
Dated: ________________________, 1999
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE 12%
SENIOR EXCHANGE NOTES
DUE 2008 IN EXCHANGE FOR THE 12% SENIOR NOTES DUE 2008 OF RSL COMMUNICATIONS PLC
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This letter is to be completed by noteholders either if certificates are to
be forwarded herewith or if tenders are to be made pursuant to the procedures
for delivery by book-entry transfer set forth in "The Exchange Offer --
Book-Entry Transfer" section of the Prospectus and an Agent's Message is not
delivered. Tenders by book-entry transfer may also be made by delivering an
Agent's Message in lieu of this Letter of Transmittal. The term "Agent's
Message" means a message, transmitted by the Book-Entry Transfer Facility to and
received by the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that the Book-Entry Transfer Facility has received an express
acknowledgement from the tendering participant, which acknowledgement states
that such participant has received and agrees to be bound by, and makes the
representations and warranties contained in, the Letter of Transmittal and that
the Issuer may enforce the Letter of Transmittal against such participant.
Certificates for all physically tendered Old 12% Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter (or manually signed facsimile hereof or Agent's Message in lieu
thereof) and any other documents required by this Letter, must be received by
the Exchange Agent at the address set forth herein or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedures set forth below. Old 12% Notes tendered hereby must be in
denominations of principal amount of US$1,000 and any integral multiple thereof.
Noteholders whose certificates for Old 12% Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old 12% Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution, (ii) prior to 5:00 p.m., New York City time, on the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Issuer (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old 12% Notes and the amount of Old 12% Notes tendered, stating that
the tender is being made thereby and guaranteeing that within three New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old 12%
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, together with a properly completed and duly executed Letter (or
facsimile thereof or Agent's Message in lieu thereof) with any required
signature guarantees and any other documents required by this Letter will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old 12% Notes, in proper form for
transfer, or Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed Letter (or facsimile thereof or Agent's
Message in lieu thereof) with any required signature guarantees and all other
documents required by this Letter, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
The method of delivery of this Letter, the Old 12% Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old 12% Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old 12% Notes evidenced by a submitted certificate
are to be tendered, the tendering holder(s) should fill in the aggregate
principal amount of Old 12% Notes to be tendered in the box above entitled
"Description of Old 12% Notes -- Principal Amount Tendered." A reissued
certificate representing the balance of nontendered Old 12% Notes will be sent
to such tendering holder, unless otherwise provided in the appropriate box on
this Letter, promptly after the Expiration Date. ALL OF THE OLD 12% NOTES
DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS
OTHERWISE INDICATED.
<PAGE>
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old 12% Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificate without any change whatsoever.
If any tendered Old 12% Notes are owned of record by two or more joint
owners, all of such owners must sign this Letter.
If any tendered Old 12% Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
12% Notes specified herein and tendered hereby, no endorsements of certificates
or separate bond powers are required. If, however, the New 12% Notes are to be
issued, or any untendered Old 12% Notes are to be reissued, to a person other
than the registered holder, then endorsements of any certificates transmitted
hereby or separate bond powers are required. Signatures on such certificate(s)
must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and, unless waived by the Issuer, proper
evidence satisfactory to the Issuer of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD 12% NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF
A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICER OR CORRESPONDENT IN THE UNITED STATES (AN "ELIGIBLE
INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD 12% NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER
OF OLD 12% NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD 12% NOTES) WHO HAS NOT
COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old 12% Notes should indicate in the applicable box
the name and address to which New 12% Notes issued pursuant to the Exchange
Offer and/or substitute certificates evidencing Old 12% Notes not exchanged are
to be issued or sent, if different from the name or address of the person
signing this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Noteholders tendering Old 12% Notes by book-entry transfer may
request that Old 12% Notes not exchanged be credited to such account maintained
at the Book-Entry Transfer Facility as such noteholder may designate hereon. If
no such instructions are given, such Old 12% Notes not exchanged will be
returned to the name or address of the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
U.S. Federal income tax law generally requires that a tendering holder
whose Old 12% Notes are accepted for exchange must provide the Issuer (as payer)
with such holder's correct Taxpayer Identification Number ("TIN") on Substitute
Form W-9 below, which in the case of a tendering holder who is an individual, is
his or her social security number. If the Issuer is not provided with the
current TIN or an adequate basis for an exemption, such tendering holder may be
subject to a US$50 penalty imposed by the Internal Revenue Service. In addition,
delivery to such tendering holder of New 12% Notes may result in backup
withholding in an amount equal to 31% of all reportable payments made after the
exchange. If withholding results in an overpayment of taxes, a refund may be
obtained.
<PAGE>
Exempt holders of Old 12% Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old 12% Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old 12% Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Issuer a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old 12% Senior Notes are in more than one name or are not in the name of the
actual owner, such holder should consult the W-9 Guidelines for information on
which TIN to report. If such holder does not have a TIN, such holder should
consult the W-9 Guidelines for instructions on applying for a TIN, check the box
in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN.
Note: Checking this box and writing "applied for" on the form means that such
holder has already applied for a TIN or that such holder intends to apply for
one in the near future. If such holder does not provide its TIN to the Issuer
within 60 days, backup withholding will begin and continue until such holder
furnishes its TIN to the Issuer.
6. TRANSFER TAXES.
The Issuer will pay all transfer taxes, if any, applicable to the transfer
of Old 12% Notes to it or its order pursuant to the Exchange Offer. If however,
New 12% Notes and/or substitute Old 12% Notes not exchanged are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the Old 12% Notes tendered hereby, or if tendered Old 12%
Notes are registered in the name of any person other than the person signing
this Letter, or if a transfer tax is imposed for any reason other than the
transfer of Old 12% Notes to the Issuer or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD 12% NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
The Issuer reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old 12% Notes, by execution of this Letter or
an Agent's Message in lieu thereof, shall waive any right to receive notice of
the acceptance of their Old 12% Notes for exchange.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD 12% NOTES.
Any holder whose Old 12% Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: THE CHASE MANHATTAN BANK
<TABLE>
<S> <C>
PART I -- Please provide the Taxpayer
SUBSTITUTE Identification Number ("TIN") of the person TIN:____________________________
FORM W-9 submitting this Letter of Transmittal in the Social Security Number
box. or Employer Identification Number
PART II -- TIN applied for / /
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE Certification -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me).
PAYER'S REQUEST FOR (2) I am not subject to backup withholding either because: (a) I am exempt from backup
TAXPAYER IDENTIFICATION withholding, or (b) I have not been notified by the Internal Revenue Service (the
NUMBER ("TIN") "IRS") that I am subject to backup withholding as a result of a failure to report
AND CERTIFICATION all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding, and
(3) Any other information provided on this form is true and correct.
Signature Date:
</TABLE>
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are not longer subject to backup withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
- ------------------------------------ --------------------------------------
Signature Date
<PAGE>
NOTICE OF GUARANTEED DELIVERY FOR
RSL COMMUNICATIONS PLC
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of RSL Communications PLC (the "Issuer") made pursuant to the
Prospectus, dated , 199 (the "Prospectus"), if certificates for Old
10 1/2% Notes of the Company are not immediately available or if the procedure
for book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Company prior to 5:00 p.m., New York
City time, on the Expiration Date of the Exchange Offer. Such form may be
delivered or transmitted by telegram, telex, facsimile transmission, mail or
hand delivery to The Chase Manhattan Bank (the "Exchange Agent") as set forth
below. Capitalized terms not defined herein are defined in the Prospectus.
Delivery To: The Chase Manhattan Bank, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission By Hand:
The Chase Manhattan Bank Number: The Chase Manhattan Bank
Global Trust Services (212) 946-8161/62 Global Trust Services
450 West 33rd Street 450 West 33rd Street
15th Floor 15th Floor
New York, NY 10001 Confirm by Telephone: New York, NY 10001
Attn: Robert S. Peschler (212) 946-3084 Attn: Robert S. Peschler
Assistant Vice President Assistant Vice President
</TABLE>
By Overnight Courier:
The Chase Manhattan Bank
Global Trust Services
450 West 33rd Street
15th Floor
New York, NY 10001
Attn: Robert S. Peschler
Assistant Vice President
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old 10 1/2% Notes set forth below, pursuant to
the guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
<TABLE>
<S> <C>
Principal Amount of Old 10 1/2% Notes Tendered:*
US$
----------------------------------------------
Certificate Nos. (if available): If Old 10 1/2% Notes will be delivered by book-entry
transfer to The Depository Trust Company provide
account number.
- -------------------------------------------------
Total Principal Amount Represented by
Old 10 1/2% Notes Certificate(s):
US$ Account Number
---------------------------------------------- ---------------------------------------
</TABLE>
- ------------------
* Must be in denominations of principal amount of US$1,000 and any integral
multiple thereof.
1
<PAGE>
PLEASE SIGN HERE
X
------------------------------------------------------ ---------------
Signature(s) of Owner(s) or Authorized Signatory Date
Area Code and Telephone Number:
---------------------------------------------
Must be signed by the holder(s) of Old 10 1/2% Notes as their name(s)
appear(s) on certificates for Old 10 1/2% Notes or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
<TABLE>
<S> <C>
Name(s):
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
Capacity:
----------------------------------------------------------------
Address(es):
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program, hereby guarantees
that the certificates representing the principal amount of Old 10 1/2% Notes
tendered hereby in proper form for transfer, or timely confirmation of the
book-entry transfer of such Old 10 1/2% Notes into the Exchange Agent's account
at The Depository Trust Company pursuant to the procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures" section of the Prospectus,
together with one or more properly completed and duly executed Letters of
Transmittal (or facsimile thereof or Agent's Message in lieu thereof) and any
required signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than three New York Stock Exchange trading days after the
Expiration Date.
</TABLE>
<TABLE>
<S> <C>
- ------------------------------------------------------ ------------------------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------------------ ------------------------------------------------------
Address Title
Name:
- ------------------------------------------------------ ------------------------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
-------------------------------- -----------------------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD 10 1/2% NOTES WITH THIS FORM.
CERTIFICATES FOR OLD 10 1/2% NOTES SHOULD BE SENT ONLY WITH A COPY OF
YOUR EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
NOTICE OF GUARANTEED DELIVERY FOR
RSL COMMUNICATIONS PLC
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of RSL Communications PLC (the "Issuer") made pursuant to the
Prospectus, dated May 12, 1998 (the "Prospectus"), if certificates for Old 12%
Notes of the Company are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Company prior to 5:00 p.m., New York
City time, on the Expiration Date of the Exchange Offer. Such form may be
delivered or transmitted by telegram, telex, facsimile transmission, mail or
hand delivery to The Chase Manhattan Bank (the "Exchange Agent") as set forth
below. Capitalized terms not defined herein are defined in the Prospectus.
Delivery To: The Chase Manhattan Bank, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission By Hand:
The Chase Manhattan Bank Number: The Chase Manhattan Bank
Global Trust Services (212) 946-8161/62 Global Trust Services
450 West 33rd Street 450 West 33rd Street
15th Floor 15th Floor
New York, New York 10001 Confirm by Telephone: New York, New York 10001
Att: Robert S. Peschler (212) 946-3084 Att: Robert S. Peschler
Assistant Vice President Assistant Vice President
</TABLE>
By Overnight Courier:
The Chase Manhattan Bank
Global Trust Services
450 West 33rd Street
15th Floor
New York, New York 10001
Att: Robert S. Peschler
Assistant Vice President
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old 12% Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Old 12% Notes Tendered:*
<TABLE>
<S> <C>
US$
----------------------------------------
Certificate Nos. (if available):
If Old 12% Notes will be delivered by book-entry
transfer to The Depository Trust Company provide
- ------------------------------------------- account number.
Total Principal Amount Represented by
Old 12% Notes
Certificate(s):
US$ Account Number
----------------------------------------- -----------------------------------------
</TABLE>
- ------------------
* Must be in denominations of principal amount of US$1,000 and any integral
multiple thereof.
<PAGE>
PLEASE SIGN HERE
X
------------------------------------------------------ -------------------
Signature(s) of Owner(s) or Authorized Signatory Date
Area Code and Telephone Number:
------------------------------------------------
Must be signed by the holder(s) of Old 12% Notes as their name(s) appear(s)
on certificates for Old 12% Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
<TABLE>
<S> <C>
Name(s):
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
Capacity:
----------------------------------------------------------------
Address(es):
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program, hereby guarantees
that the certificates representing the principal amount of Old 12% Notes
tendered hereby in proper form for transfer, or timely confirmation of the
book-entry transfer of such Old 12% Notes into the Exchange Agent's account at
The Depository Trust Company pursuant to the procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures" section of the Prospectus,
together with one or more properly completed and duly executed Letters of
Transmittal (or facsimile thereof or Agent's Message in lieu thereof) and any
required signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than three New York Stock Exchange trading days after the
Expiration Date.
</TABLE>
<TABLE>
<S> <C>
- ------------------------------------------------------ ------------------------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------------------ ------------------------------------------------------
Address Title
Name:
- ------------------------------------------------------ ------------------------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
-------------------------------- -----------------------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD 12% NOTES WITH THIS FORM. CERTIFICATES
FOR OLD 12% NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR EXECUTED LETTER
OF TRANSMITTAL.
<PAGE>
RSL COMMUNICATIONS PLC
OFFER FOR ALL OUTSTANDING
10 1/2% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
10 1/2% SENIOR EXCHANGE NOTES DUE 2008
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated , 1999
(the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the Offer (the "Exchange Offer") of RSL
Communications PLC (the "Issuer") to exchange its 10 1/2% Senior Exchange Notes
due 2008 (the "New 10 1/2% Notes") for its outstanding 10 1/2% Senior Notes due
2008 (the "Old 10 1/2% Notes"), upon the terms and subject to the conditions
described in the Prospectus and the Letter of Transmittal. The Exchange Offer is
being made in order to satisfy certain obligations of the Issuer contained in
the Registration Rights Agreement dated December 8, 1998, by and among the
Issuer and the other signatories thereto.
This material is being forwarded to you as the beneficial owner of the Old
10 1/2% Notes carried by us in your account but not registered in your name. A
TENDER OF SUCH OLD 10 1/2% NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD
AND PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old 10 1/2% Notes held by us for your account, pursuant to the
terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old 10 1/2% Notes on your behalf in accordance
with the provisions of the Exchange Offer. The Exchange Offer will expire at
5:00 p.m., New York City time, on , 1999, unless extended by the
Issuer. Any Old 10 1/2% Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old 10 1/2% Notes.
2. The Exchange Offer is subject to certain conditions set forth in
the Prospectus in the section captioned "The Exchange Offer--Certain
Conditions of the Exchange Offer".
3. Any transfer taxes incident to the transfer of Old 10 1/2% Notes
from the holder to the Issuer will be paid by the Issuer, except as
otherwise provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
, 1999, unless extended by the Issuer.
If you wish to have us tender your Old U.S. 10 1/2% Notes, please so
instruct us by completing, executing and returning to us the instruction form on
the back of this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR
INFORMATION ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD 10 1/2%
NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by RSL
Communications PLC with respect to its Old 10 1/2% Notes.
This will instruct you to tender the Old 10 1/2% Notes held by you for the
account of the undersigned, upon and subject to the terms and conditions set
forth in the Prospectus and the related Letter of Transmittal.
Please tender the Old 10 1/2% Notes held by you for my account as indicated
below:
<TABLE>
<S> <C>
AGGREGATE PRINCIPAL AMOUNT OF OLD SECURED NOTES
-----------------------------------------------
10 1/2% Senior Notes due 2008.................................
-----------------------------------------------------------------
/ / Please do not tender any Old 10 1/2% Notes held by you for
my account.
Dated: , 1999
------------------------------------------------ -----------------------------------------------------------------
-----------------------------------------------------------------
Signature(s)
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Please print name(s) here
-----------------------------------------------------------------
-----------------------------------------------------------------
Address(es)
-----------------------------------------------------------------
Area Code and Telephone Number
-----------------------------------------------------------------
Tax Identification or Social Security No(s).
</TABLE>
None of the Old 10 1/2% Notes held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Old 10 1/2% Notes held
by us for your account.
<PAGE>
RSL COMMUNICATIONS PLC
OFFER FOR ALL OUTSTANDING
12% SENIOR NOTES DUE 2008
IN EXCHANGE FOR
12% SENIOR EXCHANGE NOTES DUE 2008
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated , 1999
(the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the Offer (the "Exchange Offer") of RSL
Communications PLC (the "Issuer") to exchange its 12% Senior Exchange Notes due
2008 (the "New 12% Notes") for its outstanding 12% Senior Notes due 2008 (the
"Old 12% Notes"), upon the terms and subject to the conditions described in the
Prospectus and the Letter of Transmittal. The Exchange Offer is being made in
order to satisfy certain obligations of the Issuer contained in the Registration
Rights Agreement dated November 9, 1998, by and among the Issuer and the other
signatories thereto.
This material is being forwarded to you as the beneficial owner of the Old
12% Notes carried by us in your account but not registered in your name. A
TENDER OF SUCH OLD 12% NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND
PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old 12% Notes held by us for your account, pursuant to the terms
and conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old 12% Notes on your behalf in accordance with
the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00
p.m., New York City time, on , 1999, unless extended by the Issuer.
Any Old 12% Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old 12% Notes.
2. The Exchange Offer is subject to certain conditions set forth in
the Prospectus in the section captioned "The Exchange Offer--Certain
Conditions of the Exchange Offer".
3. Any transfer taxes incident to the transfer of Old 12% Notes from
the holder to the Issuer will be paid by the Issuer, except as otherwise
provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
, 1999, unless extended by the Issuer.
If you wish to have us tender your Old 12% Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD 12% NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by RSL
Communications PLC, with respect to its Old 12% Notes.
This will instruct you to tender the Old 12% Notes held by you for the
account of the undersigned, upon and subject to the terms and conditions set
forth in the Prospectus and the related Letter of Transmittal.
Please tender the Old 12% Notes held by you for my account as indicated
below:
<TABLE>
<S> <C>
AGGREGATE PRINCIPAL AMOUNT OF
OLD 12% NOTES
-------------
12% Senior Discount Notes due 2008............................
------------------------------------------------------------------
/ / Please do not tender any Old 12% Notes held by you for my
account.
Dated: , 1999
------------------------------------------------ ------------------------------------------------------------------
Signature(s)
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Please print name(s) here
------------------------------------------------------------------
------------------------------------------------------------------
Address(es)
------------------------------------------------------------------
Area Code and Telephone Number
------------------------------------------------------------------
Tax Identification or Social Security No(s).
</TABLE>
None of the Old 12% Notes held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Old 12% Notes held by us
for your account.
