RSL COMMUNICATIONS LTD, 424B4, 1998-05-13

RSL COMMUNICATIONS LTD
424B4, 1998-05-13
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

Filed pursuant to Rule 424(b)(4)
Registration File No. 333-49857

PROSPECTUS
OFFERS TO EXCHANGE FOR
ALL OUTSTANDING 9 1/8% SENIOR NOTES DUE 2008
ALL OUTSTANDING 10 1/8% SENIOR DISCOUNT NOTES DUE 2008
ALL OUTSTANDING 10% SENIOR DISCOUNT NOTES DUE 2008

RSL COMMUNICATIONS PLC

GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY
RSL COMMUNICATIONS, LTD.

EACH EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON JUNE 11, 1998, UNLESS EXTENDED

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

RSL Communications PLC (the 'Issuer'), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letters of Transmittal, to exchange (each, an 'Exchange Offer') (i) up to
$200,000,000 aggregate principal amount of the Issuer's 9 1/8% Senior Exchange
Notes due 2008 (the 'New U.S. Dollar Senior Notes') for a like principal amount
of the Issuer's issued and outstanding 9 1/8% Senior Notes due 2008 (the 'Old
U.S. Dollar Senior Notes'), (ii) up to $328,084,000 principal amount at maturity
of the Issuer's 10 1/8% Senior Discount Exchange Notes due 2008 (the 'New U.S.
Dollar Senior Discount Notes' and together with the New U.S. Dollar Senior
Notes, the 'New U.S. Dollar Notes') for a like principal amount at maturity of
the Issuer's issued and outstanding 10 1/8% Senior Discount Notes due 2008 (the
'Old U.S. Dollar Senior Discount Notes' and together with the Old U.S. Dollar
Senior Notes, the 'Old U.S. Dollar Notes') and (iii) up to DM296,000,000
principal amount at maturity of the Issuer's 10% Senior Discount Exchange Notes
due 2008 (the 'New DM Notes' and together with the New U.S. Dollar Notes, the
'New Notes') for a like principal amount at maturity of the Issuer's issued and
outstanding 10% Senior Discount Notes due 2008 (the 'Old DM Notes' and together
with the Old U.S. Dollar Notes, the 'Old Notes'). The New Notes have been
registered under the Securities Act of 1933, as amended (the 'Securities Act').
The terms of the New Notes are identical in all material respects to the terms
of the Old Notes for which they are offered in exchange, except for certain
transfer restrictions and registration rights relating to the Old Notes and
except that if any Exchange Offer is not consummated within the time period set
forth herein, additional interest will be payable with respect to the Old Notes
that are the subject of such Exchange Offer. See 'Registration Rights Agreements
for Old Notes.' The Old U.S. Dollar Notes and the Old DM Notes were issued on
February 27, 1998 and March 16, 1998, respectively (each, an 'Issue Date'),
pursuant to offerings (the 'Offerings') exempt from registration under the
Securities Act.

Interest on the New U.S. Dollar Senior Notes will be payable semiannually on
March 1 and September 1 of each year, commencing on September 1, 1998. Cash
interest will not accrue on the New U.S. Dollar Senior Discount Notes or the New

DM Notes prior to March 1, 2003 and March 15, 2003, respectively. Thereafter,
cash interest on the New U.S. Dollar Senior Discount Notes will accrue at a rate
of 10.125% per annum and be payable on March 1 and September 1 of each year,
commencing September 1, 2003, and cash interest on the New DM Notes will accrue
at a rate of 10.000% per annum and be payable on March 15 and September 15 of
each year, commencing September 15, 2003.

The New Notes will be redeemable at the option of the Issuer, in whole or in
part, at any time on or after March 1, 2003, in the case of the New U.S. Dollar
Notes, or March 15, 2003, in the case of the New DM Notes, at the applicable
redemption price set forth herein, together with accrued interest, if any, to
the date of redemption. In addition, at any time prior to March 1, 2001, in the
case of the New U.S. Dollar Notes, or March 15, 2001, in the case of the New DM
Notes, the Issuer may redeem up to 33 1/3% of the aggregate principal amount at
maturity of the New Notes with an amount equal to the net cash proceeds of one
or more sales of Common Stock of the Guarantor at a price equal to 109.125% of
the principal amount thereof, in the case of the New U.S. Dollar Senior Notes,
110.125% of the Accreted Value (as defined) thereof, in the case of the New U.S.
Dollar Senior Discount Notes, and 110.00% of the Accreted Value (as defined)
thereof, in the case of the New DM Notes, in each case, together with accrued
interest, if any, to the date of redemption, provided that at least 66 2/3% of
the original aggregate principal amount at maturity of the New U.S. Dollar
Senior Notes, the New U.S. Dollar Senior Discount Notes or the New DM Notes, as
applicable, remains outstanding immediately after each such redemption.

(Cover continued on next page)

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

SEE 'RISK FACTORS' BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS
TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW NOTES.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

The date of this Prospectus is May 12, 1998.

<PAGE>

(Continued from previous page)

In the event of certain events or changes affecting withholding taxes, the
Issuer may redeem all, but not less than all, outstanding New Notes of any class
of New Notes at 100% of the principal amount (or Accreted Value in the case of
the New U.S. Dollar Senior Discount Notes and the New DM Notes (collectively,
the 'New Senior Discount Notes')) on the redemption date, together with accrued
interest, if any, to the date of redemption. In addition, upon a Change of
Control, the holders of the New Notes will have the right to require the Issuer
to purchase their New Notes, in whole or in part, at a price equal to 101% of
the principal amount (or Accreted Value in the case of the New Senior Discount
Notes) thereof together with accrued interest, if any, to the date of purchase.
See 'Description of the New Notes and the New Notes Guarantees.'

RSL Communications PLC is a wholly-owned subsidiary of RSL Communications,
Ltd. The New Notes are unconditionally guaranteed as to payment of principal,
interest and any other amounts due thereon (the 'New Notes Guarantees') by RSL
Communications, Ltd. (the 'Guarantor'). The Old Notes are unconditionally
guaranteed as to payment of principal, interest and any other amounts due
thereon by the Guarantor (the 'Old Notes Guarantees,' and, together with the New
Notes Guarantees, the 'Notes Guarantees').

The New Notes and the New Notes Guarantees will be senior unsecured
obligations of the Issuer and the Guarantor, respectively, ranking pari passu in
right of payment with all existing and future unsecured obligations of the
Issuer and the Guarantor, respectively, and will rank senior in right of payment
to all existing and future subordinated obligations of the Issuer and the
Guarantor, respectively. The Guarantor's principal operations are conducted
through its subsidiaries (other than the Issuer) and, 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 prior to claims of holders of the New Notes and the New Notes
Guarantees with respect to the assets securing such other obligations.

The New Notes will be issued initially in the form of global notes in bearer
form deposited with The Chase Manhattan Bank as the book-entry depositary.
Except as described herein, beneficial interests in the global notes will be
shown on, and transfers thereof will be effected only through, records
maintained in book-entry form by The Depositary Trust Company ('DTC') and its
direct and indirect participants with respect to the New U.S. Dollar Notes and
by Euroclear System ('Euroclear') and Cedel Bank ('Cedel') with respect to the
New DM Notes.

Application has been made to list the New Notes on the Luxembourg Stock
Exchange.

<PAGE>

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 in the case of the New Senior Discount Notes) 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, the
applicable Issue Date. Holders of Old Notes whose Old Notes are accepted for
exchange will not receive any payment in respect of interest on such Old Notes
otherwise payable on any interest payment date the record date of which occurs
on or after consummation of the Exchange Offer with respect to such Old Notes.

The New Notes are being offered hereunder in order to satisfy certain
obligations of the Issuer contained in the Registration Rights Agreements (as
defined herein). See 'The Exchange Offers-- Consequences of Exchanging Old
Notes' for a discussion of the Issuer's belief, based on interpretations by the
staff of the Securities and Exchange Commission (the 'Commission') as set forth
in no-action letters issued to third parties, as to the transferability of the
New Notes upon satisfaction of certain conditions. 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. 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. 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 by such broker-dealer as a result
of market-making activities or other trading activities. The Issuer has agreed
that to the extent any broker-dealer participates in the Exchange Offers, the
Issuer will use its best efforts to maintain the effectiveness of the
registration statement on Form S-4 filed in connection with the Exchange Offers
for a period of 90 days following the closing of the Exchange Offers. See 'Plan
of Distribution.'

The Issuer will not receive any proceeds from the Exchange Offers. The
Issuer will pay all the expenses incident to the Exchange Offers. Tenders of Old
Notes pursuant to the Exchange Offers may be withdrawn at any time prior to the
applicable Expiration Date (as defined). In the event the Issuer terminates any
Exchange Offer and does not accept any Old Notes tendered for exchange pursuant
to such Exchange Offer, the Issuer will promptly return such Old Notes to the
holders thereof. See 'The Exchange Offers.'

There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes or the
ability of holders of New Notes to sell their New Notes or the price at which
such holders may be able to sell their New Notes. The Issuer has applied for
listing of the New Notes on the Luxembourg Stock Exchange.
------------------------

CERTAIN REGULATORY ISSUES

Persons in the U.K. 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
falling within an exemption to section 57 of the Financial Services Act 1986, as
amended, as set out in the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or the Financial Services Act 1986
(Investment Advertisements) (Exemptions) (No 2) Order 1995 and, accordingly, by
accepting delivery of this Prospectus the recipient warrants and acknowledges
that it is a person falling within any such exemption.

The New DM Notes will be offered under the 'Euro Securities Exemption'
pursuant to Section 4 Paragraph 1 No. 1 and Section 4 Paragraph 2 of the
Securities Sales Prospectus Act of the Federal Republic of Germany
(Wertpapier-Verkaufsprospektgesetz) of 13 December, 1990 (the 'Securities
Prospectus Act') or under another exemption under the Securities Prospectus Act.
Each holder is aware of the fact that no sales prospectus
(Wertpapier-Verkaufsprospekt) in Germany has been and will be published and each
holder will comply with the Securities Prospectus Act and the restrictions
applying to the offer and distribution of Euro Securities or with another
exemption under the Securities Prospectus Act. In particular, each holder has
undertaken not to engage in public advertisements

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<PAGE>

(offentliche werbung) in the Federal Republic of Germany with respect to the New
DM Notes, or sell any New DM Notes through door-to-door sales or similar
actions.

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

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.

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

AVAILABLE INFORMATION

The Issuer and the Guarantor have filed with the Commission a Registration
Statement on Form S-4 under the Securities Act, with respect to the New Notes
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information included in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein or therein and filed as an exhibit to the
Registration Statement are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in

all respects by such reference. For further information with respect to the
Issuer, the Guarantor and the New Notes, reference is hereby made to the
Registration Statement and the exhibits and schedules thereto.

The Company (as defined) is subject to the informational requirements of
the Securities Exchange Act of 1934 and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, New York, New York 10048
and the Northwestern Atrium Center, 500 West Madison Street, Room 1400, Chicago,
Illinois 60661. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.

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

In this Prospectus, references to 'Deutsche marks' or 'DM' are to German
marks and references to 'dollars' and '$' are to United States dollars. For
purposes of the balance sheet data included in this Prospectus, conversions of
foreign currencies to U.S. dollars have been calculated on the basis of exchange
rates in effect on the balance sheet dates. Conversions of foreign currencies to
U.S. dollars in the pro forma and historical financial information included
herein have been calculated, for purposes of the statements of operations, on
the basis of average exchange rates over the periods presented. Exchange rates
per United States dollar as of certain dates for certain currencies are set
forth below.

<TABLE>
<CAPTION>
RATE AS OF RATE AS OF RATE AS OF RATE AS OF
CURRENCY DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 APRIL 22, 1998
- --------------------- ----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Australian Dollar.... (1) 1.26 1.54 1.53
Belgian Franc........ (1) (1) (1) 37.01
British Pound........ .65 .58 .61 .60
Danish Krone......... (1) (1) 6.85 6.83
Dutch Guilder........ (1) 1.74 2.03 2.02
Finnish Markka....... 4.37 4.60 5.45 5.44
French Franc......... 4.95 5.19 6.01 6.01
German Mark.......... 1.44 1.54 1.80 1.79
Italian Lira......... (1) (1) 1769.91 1772.50
Swedish Krona........ 6.64 6.89 7.94 7.69
Venezuelan Bolivar... (1) (1) 504.29 533.65
</TABLE>

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

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<PAGE>

SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and the Consolidated Financial Statements and the notes
thereto, appearing elsewhere in this Prospectus. Unless the context otherwise
requires, the term 'Company' means RSL Communications, Ltd., a Bermuda
corporation, its predecessors and all of its subsidiaries. Industry data used
throughout this Prospectus was obtained from industry publications and has not
been independently verified by the Company. Certain of the information contained
in this Prospectus, including information with respect to the Company's plans
and strategy for its business and related financing, are forward-looking
statements. For a discussion of important factors that could cause actual
results to differ materially from the forward-looking statements, see 'Risk
Factors.'

THE COMPANY

OVERVIEW

The Company is a rapidly growing multinational telecommunications company
which provides a broad array of international and domestic telephone services to
both carrier and commercial accounts. These services include international long
distance calling to over 200 countries and calling card, private line and
value-added telecommunications services. The Company focuses on providing
international long distance voice services to small and medium-sized businesses
in key markets. The Company currently has revenue generating operations in the
United States, the United Kingdom, France, Germany, Sweden, Finland, The
Netherlands, Denmark, Australia, Italy, Switzerland, Venezuela, Austria and
Belgium. The Company is in the process of commencing operations through its
investments in majority-owned entities in Austria, Spain, Luxembourg and Japan,
and through its 39% investment in a Portuguese telecommunications company. In
1996, approximately 66% of all international long distance telecommunications
minutes originated in these markets. The Company plans to expand its operations
and network into additional key markets which account for a significant portion
of the world's remaining international traffic. The Company's consolidated
revenues for the years ended December 31, 1997 and 1996 were $300.8 million and
$113.3 million, respectively.

The Company was formed by Ronald S. Lauder and Itzhak Fisher in 1994 to
capitalize on the opportunities created by the growth, deregulation and
profitability of the international long distance market. The Company has grown
rapidly through acquisitions, strategic investments and joint ventures, as well
as through the start-up of its own operations in key markets. The Company began
its operations in the United States in order to establish a presence in the
largest and one of the most deregulated telecommunications markets in the world,
and has since expanded its presence to key European countries in anticipation of
continued telecommunication deregulation in the European Union (the 'EU'). In
order to pursue opportunities in Latin America, the Company formed in mid-1997 a
joint venture with entities controlled by the Cisneros Group of Companies (the
'Cisneros Group'), a privately held conglomerate with significant interests in,

among other things, the Latin American media and communications industry. The
Company has also established a presence in Asia and the Pacific Rim through its
operations in Australia and the start-up of its operations in Japan. The Company
intends to continue to expand rapidly by establishing or acquiring operations in
additional countries as they deregulate.

The Company's strategic objective is to create a low-cost facilities-based
global network that provides high quality international telecommunications
services to small and medium-sized businesses in key markets. The Company
employs a 'first to market' entry strategy to establish a presence in targeted
markets ahead of full deregulation by (i) investing in new or existing
facilities-based networks (which are then integrated into the Company's existing
network) while (ii) developing multiple marketing and distribution channels for
telecommunications services.

ADVANCED AND LOW COST NETWORK INFRASTRUCTURE

The core of the Company's operations is 'RSL-NET,' its integrated digital
telecommunications network, which is being developed to minimize the overall
transmission costs of carrying telecommunications traffic while maintaining high
('toll') quality. RSL-NET is comprised of (i) the Company's owned facilities,
which consist of international and domestic switches and ownership interests in
international fiber optic cables, (ii) operating agreements to exchange traffic
directly with

5
<PAGE>

telecommunications carriers in other countries and (iii) transmission capacity
leased from other carriers and satellite providers. The connection of the
Company's switching facilities is a critical element of RSL-NET. This connection
allows the Company to bypass the costs associated with transporting the
international portion of a call through a third party carrier, which provides
the Company with an advantage in applying least cost routing for calls which are
originated and terminated utilizing the Company's switches. All of the Company's
switches are directly or indirectly linked. The Company's existing international
gateway switches conform to international signaling and transmission standards
provided for in International Telegraph and Telephone Consultative Committee
('CCITT') recommendations and allow the Company to interconnect its network to
existing government-owned post, telegraph and telephone monopolies ('PTT') and
carrier networks around the world while maintaining quality and dependable
services. The Company presently has 12 international gateway switches, located
in New York, Los Angeles, London, Stockholm, Paris, Frankfurt, Helsinki, Vienna,
Milan, Copenhagen, Lisbon and Sydney, and seven domestic switches, located in
Rotterdam, Amsterdam, New York, London, Melbourne, Brisbane and Caracas. The
Company generally utilizes state-of-the-art Ericsson AXE-10 switches for its
international gateway switches. The Company believes that a single switch
platform allows the Company to develop new services and upgrade network software
on a more efficient basis when compared to other global carriers which may
employ multiple switch technologies. The Company is also utilizing alternative
transmission technologies such as the Internet in order to minimize its
operating costs. See 'Certain Recent Developments--Internet
Telephony/Acquisition of Delta Three' and 'Business--Internet Telephony
Operation.'

DEVELOPMENT OF MARKETING AND DISTRIBUTION CHANNELS

The Company is developing a wide range of marketing and distribution
channels in order to expand its customer base, particularly in its target market
of small to medium-sized businesses. The Company markets its products and
services through (i) its direct sales forces; (ii) networks of independent
agents and distributors; and (iii) telemarketing organizations. The Company's
services are currently marketed independently by the Company's local operations
in each country ('Local Operators'). The Company is in the process of developing
a universal brand name to provide uniformity of image and to create worldwide
name recognition for the Company.

MARKET OPPORTUNITY

The international long distance public switched telecommunications market,
consisting of telephone calls between countries, generated an estimated $61.3
billion in revenue and 70.0 billion minutes of use in 1996 and is currently
recognized as one of the fastest growing and most profitable segments of the
long distance telecommunications industry. The Company currently has
significantly less than a 1% share of this market. International long distance
minutes are projected to grow between approximately 11% and 17% per annum
through the year 2000, with growth spurred by (i) the continued deregulation of
telecommunications markets throughout the world, (ii) increased capacity,
improved quality and lower operating costs attributable to technological
improvements, (iii) the expansion of telecommunications infrastructure and (iv)
the globalization of the world's economies and free trade. International
settlement rates (the rates paid to other carriers to terminate an international
call) have declined over the past five years and, in connection with a recent
U.S. Federal Communications Commission (the 'FCC') initiative to balance the
U.S. settlement deficit, are expected to continue to decline. The costs for
leased transmission capacity have also declined and are expected to continue to
decline. Furthermore, the trend towards deregulation is expected to further
reduce carriers' costs of originating and terminating calls by allowing carriers
in some jurisdictions to interconnect with the domestic public switched
telephone network ('PSTN') in a deregulated market. However, these are
forward-looking statements and there can be no assurances in this regard.

COMPANY OPERATIONS

Each of the Company's operations is at a different stage of development.
The following table shows the Company's principal operations by country, the
principal subsidiary conducting such operations, the percentage of each such
subsidiary owned by the Company, the date of acquisition or start-up of such

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<PAGE>

operations and the date each such operation began (or is anticipated to begin)
generating revenues (which may, in certain circumstances, have been prior to the
Company's acquisition of such operation):

<TABLE>
<CAPTION>
COMPANY'S DATE OF
PERCENTAGE ACQUISITION OR COMMENCEMENT OF
COUNTRY OPERATING ENTITY OWNERSHIP START-UP DATE(1) OPERATIONS(2)
- --------------- ----------------------------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
United States RSL COM U.S.A., Inc................ 97% (3)(4) 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.(5).......... 100% October 1996 October 1995
Australia RSL COM Australia Holdings Pty.
Limited(6)....................... 91.5% (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 June 1998(7)
Portugal Maxitel Servicos e Gestao de
Telecomunicacoes, SA............. 39% April 1997 November 1997
Italy RSL COM Italia S.r.l.(8)........... 85% (4) August 1997 December 1997
Venezuela RSL COM Venezuela C.A.(9).......... 51% (10) August 1997 January 1998
Austria RSL COM Austria AG................. 90% (4) August 1997 March 1998
Spain RSL Communications Spain,
S.A.............................. 90% (4) December 1997 June 1998(7)
Switzerland Callcom AG fur TeleKommu-
nikation(11)..................... 78.5% (4) December 1997 August 1996
Belgium European Telecom S.A./N.V.......... 90% (4) December 1997 April 1995
Luxembourg European Telecom SARL.............. 90% (12) December 1997 June 1998(7)
</TABLE>

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(1) Acquisition date refers to the Company's initial purchase of an interest in
the operating entity.

(2) Such date refers to the date upon which the operating entity began or is
currently expected to begin generating revenues from the sale of its
facilities-based international telecommunications services, although
certain of the operating entities may have been generating revenues from
other activities prior to the date of the Company's investment therein.

(3) The Company owns 100% of International Telecommunications Group, Ltd.
('ITG'), which in turn owns 97% of RSL COM U.S.A., Inc. (formerly known as
International Telecommunications Corporation) ('RSL USA'). In September
1995, the Company gained majority control of ITG and began consolidating
its U.S. operations into RSL USA. The Company acquired a 100% interest in
ITG over a 30-month period commencing March 1995. As of October 1997, RSL
USA acquired 100% of LDM Systems, Inc. ('LDM') and, in connection
therewith, certain shareholders of LDM received approximately 3% of the
outstanding stock of RSL USA.

(4) Upon the occurrence of certain events, the minority shareholders of these
entities have the right, but not the obligation, to exchange their
ownership interests in the applicable entity for shares of Class A Common

Stock or, under certain circumstances, cash, at the Company's option. Any
such exchange would result in an increase in the Company's ownership
interest in the relevant subsidiary to up to 100%. The rights held by the
minority shareholders of RSL COM Italia S.r.l. ('RSL Italy'), European
Telecom S.A./N.V. ('RSL Belgium'), RSL USA, RSL Communications Spain S.A.
('RSL Spain'), RSL COM Australia Holdings Pty. Limited, RSL COM Austria AG
('RSL Austria') and Callcom AG fur TeleKommunikation ('RSL Switzerland')
are not currently exercisable.

(5) A subsidiary of RSL COM Holdings B.V. (formerly known as Belnet Nederland
B.V.).

(6) As of October 1997, RSL COM Australia Holdings Pty. Limited ('RSL
Australia'), acquired 100% of the issued capital of, and the copyrights in
the billing software used by, 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').
In connection with such acquisition, the Company will issue approximately
8.5% of the outstanding stock of RSL COM Asia, Ltd., the parent company of
RSL Australia, to certain shareholders of the Call Australia Group.

(7) Such date refers to the anticipated date of commencement of operations. The
projected dates are forward-looking statements and, in the event the
Company does not timely receive regulatory approvals, switches cannot be
installed or become operational on a timely basis or the Company is unable
to hire necessary personnel, among other reasons, there can be no assurance
that such operations will commence generating revenues on such dates, if at
all.

(8) Formerly known as DECADE Communications S.r.l.

(9) Formerly known as Sprintel de Venezuela C.A.

(10) The Company owns 51% of RSL Communications Latin America, Ltd. ('RSL Latin
America'), which owns 100% of Sundanco S.A., which in turn owns 100% of RSL
COM Venezuela C.A. ('RSL Venezuela'). The minority shareholder of RSL Latin
America has the right to exchange its 49% ownership interest in RSL Latin
America for either shares of Class A Common Stock or cash, at the Company's
option.

(11) The Company intends to change the name of Callcom AG fur TeleKommunikation
to RSL COM Switzerland AG.

(12) The Company owns 90% of RSL Belgium which in turn owns 100% of European
Telecom SARL ('RSL Luxembourg').

<PAGE>

COMPANY STRATEGY

FOCUS ON PROVIDING INTERNATIONAL LONG DISTANCE SERVICES

The international long distance public switched telecommunications market
is currently recognized as one of the fastest growing and most profitable
segments of the long distance industry. The Company provides a broad array of
international and domestic services, but focuses on providing services to end-
users which generate significant calling traffic between countries to capitalize
on (i) the continued growth of international traffic and (ii) the margin
opportunity created by the high end-user rates currently maintained by PTTs and
other dominant carriers.

ESTABLISH OPERATIONS IN KEY MARKETS

ENTER MARKETS EARLY

The Company seeks to enter new markets ahead of full deregulation in an
attempt to gain competitive advantages over carriers which attempt to enter a
market after deregulation is complete. These advantages include (i) the
development of multiple sales channels and the establishment of a customer base
prior to widespread competition, (ii) the early acquisition of scarce
experienced technical and marketing personnel and distribution channels and
(iii) the achievement of name recognition as one of the early competitors to the
incumbent PTTs. The Company employs multiple marketing and distribution
channels, including direct sales forces, telemarketing organizations, agents and
resellers, while also forming marketing alliances with other service providers,
such as Internet service providers and mobile service providers.

TARGET SMALL AND MEDIUM-SIZED BUSINESSES

The Company focuses on offering high quality products and services to small
and medium-sized businesses that originate in excess of $500 in international
telephone calls per month. The Company believes that this segment offers
significant market opportunities because it has traditionally been underserved
by the major global telecommunications carriers and the PTTs. The Company
believes that in most markets, small and medium-sized businesses account for a
significant percentage of international calling traffic and will continue to do
so in the future.

DEVELOP A COST COMPETITIVE GLOBAL NETWORK

Most of the Local Operators have network switching facilities, known as
points of presence ('POPs'), to provide international voice and other
telecommunications services in their markets. By integrating its current and
future POPs into RSL-NET, the Company believes that it will be able to
originate, transport and terminate traffic utilizing its own network, thereby
bypassing the high costs associated with the transport of the international
portion of a call through a third party carrier. This is expected to enable the
Company to reduce significantly its operating costs for calls that originate and
terminate in markets in which the Company has Local Operators, as well as its
overall operating costs.

PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES

The Company intends to enter additional markets and expand its operations
through acquisitions, joint ventures, strategic alliances and the establishment
of net operations. The Company is continuously reviewing acquisition
opportunities, and seeks to acquire control of businesses with an established
customer base, compatible operations, licenses to operate as an international
carrier, experience with additional or emerging telecommunications products and
technologies and/or experienced

8
<PAGE>

management. In addition, the Company seeks to enter into strategic alliances
which the Company believes will enhance its ability to expand and grow its
business. For example, the Company has entered into a joint venture with the
Cisneros Group and a strategic alliance with L.M. Ericsson A.B. ('Ericsson'), a
leading global provider of telecommunications equipment, and has acquired Delta
Three, Inc. ('Delta Three'), a telecommunications provider utilizing the
Internet and networks based on Internet Protocols to provide telecommunications
services. See '--Certain Recent Developments.'

LEVERAGE EXPERTISE OF MANAGEMENT TEAM

The Company has retained a number of experienced management personnel in
the telecommunications industry, many of whom have had significant experience
with incumbent providers, as well as early competitors in deregulating markets.
As a result, the Company believes that it is well positioned to manage the rapid
growth of its customer base and network infrastructure.

MANAGE NETWORK INVESTMENTS

The Company seeks to manage the investment of capital within its network on
an incremental basis in order to maximize the efficiency of its capital
expenditures program. In general, the Company transmits traffic by leasing
capacity on a variable cost per minute basis until it believes that a direct
investment in facilities or a fixed cost lease arrangement between countries or
on a particular route is warranted. When the cost of owning facilities is
justified relative to leasing facilities and the Company invests in such
facilities, the Company generally experiences higher gross margins and lower
overall transmission costs.

CERTAIN RECENT DEVELOPMENTS

NEW OPERATIONS

In the fourth quarter of 1997, the Company entered the Swiss
telecommunications market with the acquisition of 78.5% of Callcom AG fur
TeleKommunikation, a long distance telephone company based in Zurich, and also
established operations in Spain. As of October 1997, the Company acquired 100%
of LDM, a telecommunications provider to small and medium-sized businesses in
the United States, acquired 100% of the issued capital of the members of the
Call Australia Group, leading Australian resellers, and also acquired the
copyright in the billing system of the Call Australia Group. In November 1997,
RSL Australia purchased 85% of EZI Phonecard Holdings Pty. Limited, an
international reseller and prepaid calling card services provider. In December
1997, the Company announced the commencement of operations in Belgium and
Luxembourg through the acquisition of a 90% interest in European Telecom, one of
Belgium's largest telephone carriers. As of January 1998, the Company acquired a
90% interest in Telecenter Oy, an independent sales agent in Finland. In January
1998, the Company was granted a telecommunications license from the Austrian
Telecom Control GmbH to operate as a full service telecommunications provider of
local, long distance and international services in Austria. In February 1998,
Japan's Ministry of Posts and Telecommunications (the 'MPT') awarded to the
Company a Type II license to provide international simple resale services. In
February 1998, the Company entered into a joint venture agreement with PCM
Comunicaciones, S.A. de C.V., a licensed long distance telecommunications
service provider in Mexico, to provide domestic and international long distance
telecommunications services primarily to small and medium-sized businesses in
Mexico. The transaction is subject to regulatory approval in Mexico and other
customary conditions to closing. In March 1998, the Company acquired, in two
separate transactions, the customer base of each of First Direct Communications
Pty., Limited and Link Telecommunications Pty. Ltd., two switchless mobile
telecommunications resellers in Australia.

9
<PAGE>

WARRANT REGISTRATION

The Company has registered 1,152,715 shares of Class A Common Stock to be
issued pursuant to the terms of the warrant agreement governing the Warrants
(defined herein) (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, Vice Chairman of the Company, and members of his family (the 'Selling
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 issuance of the Warrants in October 1996 as
part of the 1996 Units Offering (as defined). The Company is required to
register the Selling Shareholder's shares pursuant to previously granted
registration rights. Mr. Gaspar is not involved in the day-to-day management of
the Company and his sale would represent approximately 8.6% of his deemed
beneficial ownership in the Company.

INITIAL PUBLIC OFFERING

In October 1997, the Company sold 8,280,000 shares of Class A Common Stock
in an initial public offering of shares of Class A Common Stock (the 'Initial
Public Offering'). The shares of Class A Common Stock sold in the Initial Public
Offering were offered both in the United States and internationally. The
aggregate net proceeds of the Initial Public Offering, after deducting
underwriting discounts and commissions and expenses, were approximately $167.5
million. On April 3, 1998, the Company used $101.0 million of such net proceeds
to redeem (the 'Equity Clawback') part of the 1996 Notes (defined herein), as
permitted under the 1996 Indenture (defined herein).

INTERNET TELEPHONY/ACQUISITION OF DELTA THREE

In July 1997, the Company acquired a majority interest in Delta Three.
Thereafter, the Company acquired additional interests from minority stockholders
and, in December 1997, the Company entered into a definitive agreement to
purchase additional interests in Delta Three that would increase its equity
interest in Delta Three to 100%. This transaction closed on April 7, 1998. Delta
Three utilizes the Internet, traditionally a device for data communications, as
a transmission medium for voice communications. One of the services offered by
Delta Three allows customers to place long distance and international phone
calls using standard telephones, without requiring any additional equipment.
Delta Three also provides wholesale call termination services to other
telecommunications service providers.

The Company and Delta Three are also party to a services agreement pursuant
to which, among other things, Delta Three provides the Company with discounted
carrier telephony services, the Company provides Delta Three with termination
services at preferred rates and provides for the co-location of Delta Three's
Internet gateway servers with the Company's facilities. The Company believes
that the acquisition of Delta Three positions the Company at the forefront of
the rapidly emerging Internet telephony industry. See 'Business--Delta Three
Operations.'

PRIVATE PLACEMENT OF 1996 NOTES AND EXCHANGE OFFER

In October 1996, the Guarantor and the Issuer completed a 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 of the Issuer and
(ii) one warrant to purchase 3.975 shares of Class A Common Stock of the
Guarantor (each a 'Warrant'). The Units were sold for an aggregate purchase
price of $300.0 million. In May 1997, in accordance with the indenture governing
the notes included in the Units (the '1996 Indenture'), the Guarantor and the
Issuer consummated an exchange offer (the '1997 Exchange Offer') pursuant to
which such notes were exchanged for substantially identical notes registered
under the Securities Act. The Warrants and the shares of Class A Common Stock
underlying the Warrants were not part of the 1997 Exchange Offer. As required by
the registration rights agreement covering the Warrants, the Company registered
the 1,152,715 shares of Class A Common Stock underlying the

10
<PAGE>

Warrants in the Warrant Registration. The notes issued in the 1996 Units
Offering and in the 1997 Exchange Offer are referred to collectively in this
Prospectus as the '1996 Notes.'

ISSUANCE OF OLD NOTES; OLD NOTES REGISTRATION RIGHTS AGREEMENT

In February 1998, the Issuer consummated concurrent offerings (the 'U.S.
Dollar Notes Offerings') of $200.0 million 9 1/8% Senior Notes due 2008 (the
'Old U.S. Dollar Senior Notes') and $328.1 million ($200.0 million initial
accreted value) 10 1/8% Senior Discount Notes due 2008 (the 'Old U.S. Dollar
Senior Discount Notes').

In March 1998, the Issuer consummated the offering (the 'German Debt
Offering', and together with the U.S. Dollar Notes Offerings, the 'Offerings')
of DM 296.0 million (DM181.8 million initial accreted value) 10% Senior Discount
Notes due 2008 (the 'Old DM Notes'). The Old Notes are unconditionally
guaranteed as to payment of principal, interest and any other amounts thereof by
the Guarantor.

In connection with the Offerings, the Issuer entered into Registration
Rights Agreements for the benefit of the holders of the Old Notes (the
'Registration Rights Agreements'), pursuant to which the Issuer agreed to offer
to exchange the Old Notes for substantially identical notes registered under the
Securities Act. See 'Registration Rights Agreements for Old Notes.'

PENDING ACQUISITIONS

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 million (the 'WestComm Acquisition'). 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 closing
of the WestComm Acquisition, which is subject to the receipt of certain
regulatory and other third party approvals, is expected to occur prior to the
end of the second quarter of 1998.

The Company is currently engaged in negotiations with several parties in
various markets with respect to potential strategic acquisitions and alliances.
There can be no assurance, however, that the Company will successfully complete
any of these transactions.

CERTAIN MINORITY INTERESTHOLDER RIGHTS

The Company has granted to a number of minority shareholders and officers
of certain of its subsidiaries (the 'Minority Interestholders') options which
allow the Minority Interestholders to exchange their shares or interests in the
respective subsidiary for shares of the Class A Common Stock (the 'Roll-Up
Rights'). As of the date of this Prospectus, Minority Interestholders of RSL
Austria, RSL Italy, RSL Latin America, PrimeCall Europe Services B.V.
('PrimeCall Europe'), RSL Spain, RSL Switzerland, RSL Belgium, RSL USA, and RSL
Australia have such Roll-Up Rights.

Additionally, the Company has granted to a number of Minority
Interestholders certain piggyback registration rights with respect to shares of
Class A Common Stock acquired pursuant to an exercise of their Roll-Up Rights.

HEADQUARTERS

The Company's headquarters are located at Clarendon House, Church Street,
Hamilton HM CX Bermuda (telephone number: 441-295-2832). The Company also
maintains executive offices with respect to some of its operations at 767 Fifth
Avenue, Suite 4300, New York, New York 10153 (telephone number: 212-317-1800).

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<PAGE>

THE EXCHANGE OFFERS

The Issuer is making, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letters of Transmittal, the
exchange offers described below for the Old Notes (each, an 'Exchange Offer').
The Exchange Offers are being effected to satisfy the obligation of the Issuer
under the Registration Rights Agreements to offer to exchange for the Old Notes
substantially identical notes registered under the Securities Act. See
'Registration Rights Agreements for Old Notes.'

<TABLE>
<S> <C>
The Exchange Offers
New U.S. Dollar Senior Notes......... Up to $200,000,000 principal amount of 9 1/8% Senior Exchange Notes
due 2008 (the 'New U.S. Dollar Senior Notes') for a like principal
amount of Old U.S. Dollar Senior Notes.
New U.S. Dollar Senior Discount
Notes.............................. Up to $328,084,000 principal amount at maturity of 10 1/8% Senior
Discount Exchange Notes due 2008 (the 'New U.S. Dollar Senior
Discount Notes') for a like principal amount at maturity of Old U.S.
Dollar Senior Discount Notes.
New DM Notes......................... Up to DM296,000,000 principal amount at maturity of 10% Senior
Discount Exchange Notes due 2008 (the 'New DM Notes') for a like
principal amount at maturity of the Old DM Notes.
For procedures for tendering Old Notes in the Exchange Offers, see
'The Exchange Offers.'
Expiration Date; Withdrawal............... Each Exchange Offer will expire at 5:00 p.m. New York City time, on
June 11, 1998, or such later date and time to which it is extended (the
'Expiration Date'). The tender of Old Notes pursuant to an Exchange
Offer may be withdrawn at any time prior to the applicable Expiration
Date. Any Old Note not accepted for exchange for any reason will be
returned without expense to the tendering holder thereof as promptly
as practicable after the expiration or termination of the applicable
Exchange Offer.
Conditions of the Exchange Offers......... The Issuer's obligations to consummate each Exchange Offer will be
subject to certain conditions. See 'The Exchange Offers--Certain
Conditions to the Exchange Offers.' The Issuer reserves the right to
terminate or amend any Exchange Offer at any time prior to the
applicable Expiration Date upon the occurrence of any such condition.
United States Federal Income Tax
Consequences............................ The exchange of Old Notes for New Notes will not constitute a taxable
exchange for U.S. federal income tax purposes. See 'Certain United
States Federal Income Tax Considerations for U.S. Holders of Notes.'
Exchange Agent............................ The Chase Manhattan Bank is serving as exchange agent (the 'Exchange
Agent') in connection with the Exchange Offers.
Use of Proceeds........................... The Issuer will not receive any proceeds from the Exchange Offers.
See 'Use of Proceeds' for a description of the use of proceeds from
the issuance of the Old Notes.
</TABLE>

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<PAGE>

CONSEQUENCES OF EXCHANGING OLD NOTES

Holders of Old Notes who do not exchange their Old Notes pursuant to the
Exchange Offers will continue to be subject to the provisions in the Indentures
(as defined) 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 the 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 holder which 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 Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement 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
designation 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 completion of the Exchange Offers such holder will have
not engaged in, and does not intend to engage in, a distribution of New Notes
and (iii) such holder is not an affiliate of the Issuer or the Guarantor 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. Each broker-dealer that
receives New Notes for its own in exchange for Old Notes must acknowledge that
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and 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 offer and sale of the New Notes to 'qualified
institutional buyers' (as such term is defined under Rule 144A of the Securities
Act) is generally exempt from registration or qualification under state
securities laws. 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. See 'The Exchange Offers--
Consequences of Exchanging Old Notes' and 'Registration Rights Agreement for Old
Notes.'

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<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 for
certain transfer restrictions and registration rights relating to the Old Notes
and except that, in the event that either (a) an Exchange Offer has not been
consummated with respect to any Old Notes within 270 days following the Issue
Date of such Old Notes (or, if applicable, a Resale Registration (as defined)
with respect to such Old Notes is not effective within such period) or (b) any
Resale Registration required by the Registration Rights Agreements with respect
to such Old Notes is filed and declared effective but shall thereafter cease to

be effective without being succeeded promptly by an additional registration
statement filed and declared effective, additional interest will be payable with
respect to such Old Notes. See 'Registration Rights Agreements for Old Notes.'
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. Holders of Old Notes whose Old Notes are accepted for exchange
will not receive any payment in respect of 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 for such Old Notes.

<TABLE>
<S> <C>
New U.S. Dollar Senior Notes
Principal Amount..................... Up to $200,000,000 principal amount of 9 1/8% Senior Exchange Notes
due 2008.
Maturity............................. March 1, 2008.
Interest............................. 9.125% per annum, payable semiannually on March 1 and September 1 of
each year, commencing September 1, 1998.
New U.S. Dollar Senior Discount Notes
Principal Amount at Maturity......... Up to $328,084,000 principal amount at maturity of 10 1/8% Senior
Discount Exchange Notes due 2008. The New U.S. Dollar Senior Discount
Notes will have an initial accreted value equal to the Accreted Value
(as defined) of the Old U.S. Dollar Senior Discount Notes for which
they are exchanged.
Maturity............................. March 1, 2008.
Yield and Interest................... There will not be any payment of interest on the New U.S. Dollar
Senior Discount Notes prior to September 1, 2003. From and after
March 1, 2003, the New U.S. Dollar Senior Discount Notes will bear
interest, which will be payable semiannually, at a rate of 10.125%
per annum on face value on March 1 and September 1 of each year,
commencing September 1, 2003.
New DM Notes
Principal Amount at Maturity......... Up to DM296,000,000 principal amount at maturity of 10% Senior
Discount Exchange Notes due 2008. The New DM Notes will have an
initial accreted value equal to the Accreted Value (as defined) of
the Old DM Notes for which they are exchanged.
Maturity............................. March 15, 2008.
Yield and Interest................... There will not be any payment of interest on the New DM Notes prior
to September 15, 2003. From and after March 15, 2003, the New DM
Notes will bear interest, which will be payable semiannually, at a
rate of 10.000% per annum on face value on March 15 and September 15
of each year, commencing September 15, 2003.
Notes Guarantees.......................... The New Notes are unconditionally guaranteed by the Guarantor as to
payment of principal, interest and any other amounts owed.
</TABLE>

<PAGE>

<TABLE>
<S> <C>
Ranking................................... The New Notes and the New Notes Guarantees will be senior unsecured
obligations of the Issuer and the Guarantor, respectively, ranking
pari passu in right of payment with all existing and future unsecured
obligations of the Issuer and the Guarantor, respectively, and will
rank senior in right of payment to all existing and future
subordinated obligations of the Issuer and the Guarantor,
respectively. Each of the New U.S. Dollar Senior Notes, the New U.S.
Dollar Senior Discount Notes and the New DM Notes will rank pari
passu in right of payment with each other.
The Guarantor's principal operations are conducted through its
subsidiaries (other than the Issuer) and, 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
'Description of the New Notes and the New Notes Guarantees--Ranking.'
As of December 31, 1997, on a pro forma basis after giving effect to
the Offerings and the Equity Clawback, (i) the total amount of
outstanding liabilities of the Guarantor and the Issuer (excluding
their subsidiaries), including trade payables, would have been
approximately $714.9 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 $161.8 million.
Optional Redemption....................... The New Notes will be redeemable, at the option of the Issuer, in
whole or in part, at any time on or after March 1, 2003, in the case
of the New U.S. Dollar Notes, or March 15, 2003, in the case of the
New DM Notes, at the redemption prices set forth herein plus accrued
interest, if any, to the date of redemption. In addition, at any time
prior to March 1, 2001, in the case of the New U.S. Dollar Notes and
March 15, 2001, in the case of the New DM Notes, the Issuer may
redeem up to 33 1/3% of the original principal amount at maturity of
the New Notes with an amount equal to the net cash proceeds of one or
more public or private sales of the Common Stock (as defined) of the
Guarantor (to the extent the Issuer receives such proceeds) at,
109.125% of the principal amount thereof, in the case of the New U.S.
Dollar Senior Notes, 110.125% of the Accreted Value (as defined)
thereof, in the case of the New U.S. Dollar Senior Discount Notes,
and 110.000% of the Accreted Value (as defined) thereof, in the case
of the New DM Notes, in each case, together with accrued interest, if
any, to the date of redemption; provided, that at least 66 2/3%
original aggregate principal amount at maturity of the New U.S.
Dollar Senior Notes, the New Senior Discount Notes, or the New DM
Notes, as applicable, remains outstanding immediately after each such
redemption. See 'Description of the New Notes and the New Notes
Guarantees--Optional Redemption.'
Additional Amounts; Tax Redemption........ Payments made by the Issuer or the Guarantor pursuant to the New
Notes or the New Notes Guarantees will be made without withholding or

deduction for taxes unless required by law. If Withholding is
required as a result of (i) a change to current law or the
interpretation or administration thereof, or (ii) a Listing Failure
(as defined in 'Description of the New Notes
</TABLE>

15
<PAGE>

<TABLE>
<S> <C>
and the New Notes Guarantees--Additional Amounts'), the Issuer or
Guarantor, as the case may be, 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. In the event that (i) the Issuer or the Guarantor has become
or will become obligated to pay any Additional Amounts as a result of
such change (or, in certain cases, such Listing Failure) and (ii) the
Issuer or the Guarantor, as the case may be, is unable to avoid such
obligation to pay Additional Amounts by taking reasonable measures
available to it, then the Issuer 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 (as defined), in the
case of the New Senior Discount Notes) thereof, together with accrued
interest thereon, if any, to the redemption date. See 'Description of
the New Notes and the New Notes Guarantees--Additional Amounts.'
Change of Control......................... Unless the Issuer has theretofore exercised its rights to redeem all
the New Notes in accordance with the Indentures, upon a Change of
Control (as defined), the holders of the New Notes will have the
right to require the Issuer to purchase their New Notes at a purchase
price equal to 101% of the principal amount (or Accreted Value, in
the case of New Senior Discount Notes) thereof plus accrued interest,
if any, to the date of purchase. There can be no assurance that the
Issuer will have sufficient funds available at the time of any Change
of Control to repurchase the New Notes. See 'Risk Factors-- Change of
Control' and 'Description of the New Notes and the New Notes
Guarantees--Covenants--Change of Control.'
Certain Covenants......................... The Indentures (as defined) contain certain covenants for the benefit
of the holders which, among other things, restrict the ability of the
Guarantor and each Restricted Subsidiary (as defined) to incur
certain additional indebtedness, pay dividends or make distributions
in respect of their capital stock, make investments or certain other
restricted payments, create liens, sell assets, issue or sell capital
stock of Restricted Subsidiaries, enter into transactions with
stockholders or affiliates or effect a consolidation or merger. These
limitations will, however, be subject to important qualifications and
exceptions. See 'Description of the New Notes and the New Notes
Guarantees--Covenants.'
Absence of Public Market for the New
Notes................................... There is no existing trading market for the New Notes, and there can
be no assurance regarding the future development of a market for the
New Notes or the ability of holders of New Notes to sell their New
Notes or the price at which such holders may be able to sell their

New Notes. The Issuer has applied for listing of the New Notes on the
Luxembourg Stock Exchange.
</TABLE>

RISK FACTORS

Holders of the Old Notes should carefully consider all of the information
set forth in this Prospectus and, in particular, should evaluate the specific
factors under 'Risk Factors' beginning on page 19 before tendering their Old
Notes in the Exchange Offers.

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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, which have been derived from the Consolidated Financial Statements and
notes thereto. The information as of and for the year ended December 31, 1994
was derived from the Consolidated Financial Statements of the Company's
predecessor entity, ITG. The Company's Consolidated Financial Statements as of
December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and
1995 have been audited by Deloitte & Touche LLP as stated in their reports
appearing herein.

The Company has experienced rapid growth over the periods set forth below,
which growth may not necessarily continue at such rate. Accordingly, the
financial and operating results set forth below may not be indicative of future
performance.

The summary consolidated financial and operating data presented below
should be read along with 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the Consolidated Financial Statements
and the related notes included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
PREDECESSOR
1994 1995(1) 1996 1997
----------- ---------- ---------- ----------
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues........................... $ 4,702 $ 18,617 $ 113,257 $ 300,796
Cost of services................... (4,923) (17,510) (98,461) (265,321)
----------- ---------- ---------- ----------
Gross profit (loss)................ (221) 1,107 14,796 35,475
Selling, general and administrative
expense.......................... (2,395) (9,639) (38,893) (94,712)
Depreciation and amortization...... (240) (849) (6,655) (21,819)
----------- ---------- ---------- ----------
Loss from operations............... (2,856) (9,381) (30,752) (81,056)
Interest income.................... -- 173 3,976 13,826
Interest expense................... (225) (194) (11,359) (39,373)
Other income....................... -- -- 470 6,595(2)
Minority interest.................. -- -- (180) 210
Income taxes....................... -- -- (395) (401)
----------- ---------- ---------- ----------
Net loss........................... $(3,081) $ (9,402) $ (38,240) $ (100,199)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Loss per share(3).................. $(15.41) $ (1.67) $ (5.13) $ (5.27)
Weighted average number of shares
of Common Stock outstanding(3)... 200 5,641 7,448 19,008

OTHER FINANCIAL DATA:
EBITDA(4).......................... $(2,616) $ (8,532) $ (23,807) $ (52,432)
Capital expenditures(5)............ 1,126 6,074 23,880 49,417
Ratio of earnings to fixed
charges(6)....................... -- -- -- --
Cash (used in) provided by
operating
activities....................... (1,987) 3,554 (10,475) (91,812)
Cash used in investing
activities....................... (478) (16,537) (225,000) (18,821)
Cash provided by financing
activities....................... 2,888 18,143 335,031 152,035
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(7)
------ --------------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $144,894 $541,499(8)
Marketable securities.......................... 13,858 13,858
Restricted marketable securities(9)............ 68,836 48,136
Total assets................................... 605,664 981,569
Short-term debt and current portion of capital
lease obligations(10)........................ 8,033 8,033
Long-term debt and capital lease
obligations(10).............................. 316,608 726,703
Shareholders' equity........................... 126,699 125,654
</TABLE>
(Footnotes on next page)

17
<PAGE>

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

(1) Effective with the acquisition of a majority equity interest in ITG in
September 1995, the Company began to consolidate ITG's operations. From
March 1995 (the date of the Company's initial investment) to September
1995, the Company accounted for its investment in ITG using the equity
method of accounting.

(2) Other income includes the reversal of certain liabilities accrued in
connection with the Company's obligations under an agreement that required
the Company to meet a carrier vendor's minimum usage requirements, which
agreement was entered into by a subsidiary of the Company prior to the
Company's acquisition of such subsidiary. During May 1997, the Company
renegotiated the contract with this carrier vendor resulting in the
elimination of approximately $7.0 million of previously accrued charges.

(3) Loss per share is calculated by dividing the loss attributable to 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, Roll-Up Rights and warrants (including, without limitation, the
Warrants) are not included in the loss per share calculation as their
effect is anti-dilutive.

represent cash flow or results of operations in accordance with U.S. GAAP
for the periods indicated. The Company's use of EBITDA may not be
comparable to similarly titled measures used by other companies due to the
use by other companies of different financial statement components in
calculating EBITDA.

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

(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, earnings were insufficient to cover fixed charges by
approximately $3.1 million, $9.4 million, $37.7 million, and $100.0
million, respectively.

(7) Adjusted to give effect to the issuance of the shares of the Class A Common
Stock issuable upon exercise of the Warrants (assuming all Warrants are
exercised), the application of the estimated net proceeds therefrom, the
proceeds from the issuance of the Notes and the Equity Clawback.

(8) The as adjusted figure reflects the receipt of net proceeds of
approximately $385 million from the sale of the Old U.S. Dollar Notes, the
receipt of net proceeds of approximately $96 million from the sale of the
Old DM Notes (converted to U.S. Dollars at the noon buying rate for U.S.
Dollars on March 11, 1998 of DM 1.8352=$1.00), the use of approximately
$101 million of proceeds from the Initial Public Offering to effect the
Equity Clawback, the payment of $4.1 million of accrued interest payable in
connection with the Equity Clawback and the release of approximately $21
million from the restricted marketable securities account following the
Equity Clawback.

(9) 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 adjusted to reflect the reduction of approximately $21 million
released from the restricted marketable securities account following the
Equity Clawback. See 'Description of Certain Indebtedness--Description of
the 1996 Notes.'

(10) As of December 31, 1997, the Company had approximately $29.7 million of
available (undrawn) borrowing capacity under its current bank and vendor
facilities.

18
<PAGE>

RISK FACTORS

An investment in the New Notes offered hereby is subject to a number of
risks. Holders of Old Notes should carefully consider the following factors as
well as the more detailed descriptions cross-referenced to the body of this
Prospectus and the other matters described in this Prospectus before tendering

their Old Notes in the Exchange Offers.

SHORT OPERATING HISTORY; ENTRANCE INTO NEWLY OPENING MARKETS; MARGINS

The Company acquired its principal operations in the United States in 1995,
in France, Germany and The Netherlands in 1996, in Italy, Belgium, Switzerland,
Venezuela, and a minority interest in its Portuguese operations in 1997, and
commenced start-up operations in the United Kingdom, Sweden and Finland in 1996,
and Denmark and Australia in 1997. Therefore, the Company has limited experience
in operating these businesses. The businesses which now constitute the Company's
principal operations commenced operations on various dates during 1990 through
1997 and, therefore, have limited operating histories. In addition, the Company
has recently made investments in Luxembourg, Austria, Spain, and Japan and the
Company plans to acquire or start-up operations in markets where it currently
does not have operations. Furthermore, in many of its existing and future
markets, the Company plans to offer services that have been provided in the past
only by PTTs and/or services that were not previously available. Accordingly,
the Company may face difficulties in establishing or expanding such businesses,
including difficulties in hiring personnel that have experience in providing
such telecommunications services in such markets. See '--Risks Associated with
Anticipated Growth and Acquisitions.' The Company's prospects must, therefore,
be considered in light of the risks, expenses, problems and delays inherent in
establishing a new business in an evolving industry.

As a new entrant in its markets, the Company may need to grant substantial
discounts in order to attract a significant customer base. The Company has and
will continue to provide services to carrier customers at discounted prices,
resulting in lower gross margins than margins related to sales to other
customers. In addition, the Local Operators may incur significant costs
developing their network infrastructures (including the purchase of minimum
investment units ('MIUs') and indefeasible rights of use ('IRUs') in fiber optic
cable systems, switches and leased capacity) as their business grows. The fixed
costs and expenses incurred under these circumstances has resulted, and may
continue to result, in low or negative operating margins. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview.'

LDM has obtained, and has pending applications for, certificates of
authority to provide local exchange services in many states throughout the U.S.,
and is currently reselling such services in New York State. Because local
exchange services have, until very recently, been provided only by a single
incumbent local exchange carrier ('LEC') in any particular community, the
Company may face difficulties in establishing or expanding its local exchange
business, including difficulties in negotiating service agreements with
incumbent LECs and in hiring personnel that have experience in providing such
services in such markets. See '--Risks Associated with Anticipated Growth and
Acquisitions.' The Company's prospects must, therefore, be considered in light
of the risks, expenses, problems and delays inherent in establishing a new
business in an evolving industry.

HISTORICAL AND FUTURE NET OPERATING LOSSES AND NEGATIVE EBITDA; NEED FOR
ADDITIONAL CAPITAL;
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS

The Company will need to continue to enhance and expand its operations and
meet the increasing demands for service quality, availability of value added
services and competitive pricing in order to establish and maintain a
competitive position in its existing markets and the additional markets it
enters. The Company has incurred, and during the next several years expects to
continue to incur, significant and increasing operating and net losses, negative
EBITDA and negative cash flow from operating activities due to the start-up
nature of the Company's business and the Company's need to expand its
operations, develop RSL-NET and build its customer base and marketing
operations. The Company

19
<PAGE>

may need to raise substantial additional capital in the future to fund its
acquisitions, strategic alliances, start-up operations, capital expenditures and
anticipated substantial operating losses. The net proceeds from the German Debt
Offering, the net proceeds from the U.S. Dollar Notes Offerings, the net
proceeds from the Initial Public Offering (net of the Equity Clawback) and the
remaining net proceeds from the 1996 Units Offering, together with borrowings
under the Company's $7.5 million revolving credit facility with The Chase
Manhattan Bank (the 'Revolving Credit Facility') and vendor financing, are
expected to fund the Company's planned expansion of its existing operations and
operating losses for approximately 12 to 24 months. If the Company's plans or
assumptions change or prove to be inaccurate, if the Company consummates
acquisitions in addition to those currently contemplated, if the Company
experiences unanticipated costs or competitive pressures or if the net proceeds
from the German Debt Offering, the U.S. Dollar Notes Offerings, the Initial
Public Offering (net of the Equity Clawback) and the 1996 Units Offering,
together with the proceeds of the Revolving Credit Facility and such vendor
financing, otherwise prove to be insufficient, the Company may be required to
seek additional capital. The Company may also be required to raise capital to
refinance the Notes at the time they mature. The Company may seek to raise such
additional capital from public or private equity or debt sources. There can be
no assurance that the Company will be able to raise such capital on satisfactory
terms or at all. If the Company decides to raise additional funds through the
incurrence of debt, the Company may become subject to additional or more
restrictive financial covenants. If the Company is unable to obtain such
additional capital or is unable to obtain such additional capital on acceptable
terms, the Company may be required to reduce the scope of its existing
operations and presently anticipated expansion, which could materially adversely
affect the Company's business, results of operations and financial condition and
its ability to pay principal and interest on the Notes.

The Company has a significant level of indebtedness. As of December 31,
1997, the Company had consolidated indebtedness of $304.6 million on an actual
basis, and after giving effect to the German Debt Offering, the U.S. Dollar
Notes Offerings and the Equity Clawback would have had consolidated indebtedness
of $713.6 million. The Existing Indentures limit, but do not prohibit the
incurrence of additional indebtedness by the Company. The Company expects to

incur substantial amounts of additional indebtedness in the future resulting in
substantial and increasing interest expense. In addition, the Company expects to
incur negative EBITDA, negative cash flow from operations, deficiencies of
earnings to fixed charges, operating losses and net losses for future periods.

In 1996, after giving effect to the Company's acquisition of Sprint
Corporation's international voice operations in France and Germany in May 1996
(the 'Sprint Acquisitions'), the Company's acquisition of interests in ITG in
1996 (the 'ITG 1996 Acquisition') and the Company's acquisition of 75% of RSL
Netherlands in October 1996 (the 'RSL Netherlands Acquisition'), the Company
made capital expenditures of approximately $26.2 million. In 1997, the Company
made capital expenditures of approximately $49.4 million. In 1998, the Company
expects to make capital expenditures of approximately $70.0 million. The Company
has also experienced (except for the fiscal quarters during which the 1996 Units
Offering and the Initial Public Offering were closed) a consistently increasing
working capital deficit. The Company's interest expense may exceed its EBITDA
and cash flow from operations. If the Company's EBITDA is insufficient to meet
its future debt service obligations and fund its operating losses, the Company
will face substantial liquidity problems. If the Company is unable to generate
sufficient EBITDA or cash flow from operations, or otherwise obtain funds
necessary to make required payments, or if the Company otherwise fails to comply
with the material terms of its indebtedness, it would be in default thereunder,
which would permit the holders of such indebtedness to accelerate the maturity
thereof. Such defaults could result in a default on the Notes and could delay or
preclude payment of principal of, or interest on, the Notes. The ability of the
Issuer and the Guarantor to meet their obligations under the Notes and the Notes
Guarantees, respectively, is dependent upon the future performance of the
Company, which is subject to prevailing economic conditions (in each market,
country and region in which the Company operates, as well as globally) and to
financial, business and other factors, including factors beyond the Company's
control.

The Company's indebtedness could have important consequences to holders of
the Notes, including the following: (i) the debt service requirements of any
existing and additional indebtedness

20
<PAGE>

could make it more difficult for the Company to make payments on its existing
debt; (ii) the Company's level of indebtedness could limit the ability of the
Company to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes; (iii) a
substantial portion of the Company's future cash flow from operations, if any,
will be dedicated to the payment of principal and interest on the Notes and the
1996 Notes, its other indebtedness and other obligations and will not be
available for the Company's business; (iv) the Company's level of indebtedness
could limit its flexibility in planning for, or reacting to changes in, its
business; (v) the Company is more highly leveraged than certain of its
competitors, which may place it at a competitive disadvantage; and (vi) the
Company's high degree of indebtedness could make it more vulnerable in the event
of a downturn in its business. See 'Selected Consolidated Financial Data' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'

RISKS RELATED TO HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF NOTES TO
LIABILITIES OF SUBSIDIARIES

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 intends to contribute or loan a substantial majority of the net
proceeds from the German Debt Offering and the U.S. Dollar Notes Offerings and
has loaned or contributed a substantial portion of the net proceeds of each of
the Initial Public Offering and the 1996 Units Offering to its subsidiaries and
other affiliates. See 'Use of Proceeds.' The cash flow and the consequent
ability of the Issuer and the Guarantor to service their debt obligations,
including the Notes and the Notes Guarantees, are dependent upon the ability of
the Issuer and the Guarantor to receive cash from such 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 Notes or to make funds available for such payment. These subsidiaries
have no obligation to guarantee the Notes. Accordingly, the Notes and the Notes
Guarantees will be effectively subordinated to all indebtedness and other
liabilities and committments (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/or 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 the subsidiaries upon any liquidation
or reorganization of such subsidiary (and the consequent right of the holders of
the Notes and the Notes Guarantees to participate in 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 such subsidiary. Any recognized claims of the Issuer or the Guarantor 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 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 therein. Although the
Guarantor guarantees the Notes, it is intended that it will receive only a
portion of the net proceeds therefrom. As of December 31, 1997, on a pro forma
basis after giving effect to the German Debt Offering, the U.S. Dollar Notes
Offerings and the Equity Clawback, (i) the total amount of outstanding
liabilities of the Guarantor and the Issuer (excluding their subsidiaries),
including trade payables, would have been approximately $714.9 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 $161.8
million. See 'Description of the New Notes and the New Notes
Guarantees--Ranking.'

21
<PAGE>

REFINANCING RISK

The Company may not be able to repay the Notes with cash from operations.
Accordingly, the Company may need to seek capital from outside sources in order
to repay principal on the Notes. The Company's ability to do so will depend on,
among other things, its financial condition at the time, market conditions and
other factors, including factors beyond the Company's control. If the Company is
unable to effect such refinancings or obtain additional funds, the value of the
Notes would be adversely affected.

RISKS ASSOCIATED WITH ANTICIPATED GROWTH AND ACQUISITIONS

The Company has experienced rapid growth and intends to continue to grow
through further expansion of its existing operations, through acquisitions,
joint ventures, strategic alliances and through the establishment of new
operations. The Company constantly evaluates acquisition and joint venture
opportunities. The Company's ability to manage its anticipated future growth
will depend on its ability to evaluate new markets and investment vehicles,
monitor operations, control costs, maintain effective quality controls, obtain
satisfactory and cost-effective lease rights from, and interconnection
agreements with, competitors that own transmission lines (in many cases
intra-national and local transmission lines may be available from only one
dominant competitor) and significantly expand the Company's internal management,
technical and accounting systems. The Company's growth will also depend on its
ability to purchase successfully MIUs and IRUs, which ability may be adversely
affected by, among other factors, competition to purchase such rights and
regulatory restrictions on ownership. The Company's rapid growth has placed, and
its planned future growth will continue to place, a significant and increasing
strain on the Company's financial, management and operational resources,
including the identification of acquisition targets and joint venture partners,
the negotiation of acquisition and joint venture agreements and the maintenance
of satisfactory relations, including, when necessary, the resolution of disputes
with its joint venture partners and minority investors in acquired entities. In
addition, acquisitions and the establishment of new operations will entail
considerable expenses in advance of anticipated revenues and may cause
substantial fluctuations in the Company's operating results.

The Company may, as a result of legal restrictions or other reasons,
acquire a minority interest in strategic targets, in which case the Company
would lack control over the target company's operations and strategies. There
can be no assurance that such lack of control will not interfere with the
Company's growth and integration of its operations.

The Company may also acquire interests in operations for strategic reasons,
despite the fact that such operations have operational or managerial problems or
are incurring losses. In such cases, there can be no assurance that such
operational or managerial problems or losses will not cause the Company

significant problems or consume substantial monetary, management and other
resources of the Company.

The Company's planned new businesses will need to be integrated with its
existing operations. For acquired businesses, this will entail, among other
things, integration of switching, transmission, technical, sales, marketing,
billing, accounting, quality control, management, personnel, payroll, regulatory
compliance and other systems and operating hardware and software, some or all of
which may be incompatible. For example, the Company's U.S. operations only began
to utilize RSL-NET in the fourth quarter of 1996. Furthermore, acquired
businesses generally suffer from employee and customer attrition and turnover at
higher rates during the period commencing when employees and customers learn of
a proposed transaction and ending after the transaction has been completed. The
Company has experienced high levels of customer attrition and turnover in
certain acquired businesses in the United States, Australia, France and Germany.
In countries where the Company expands by establishing a new business, it must,
among other things, recruit, hire and train personnel, establish offices, obtain
regulatory authorization, lease transmission lines from, and obtain
interconnection agreements with, competitors that own intra-national
transmission lines, and install hardware and software. See '--Competition.' In
addition, since the Company operates businesses in several

22
<PAGE>

countries and intends to expand into additional countries and regions, including
Europe, Asia, the Pacific Rim and Latin America, the Company must manage the
problems associated with integrating a culturally and linguistically diverse
workforce. The Company has limited experience dealing with these problems.

RISKS ASSOCIATED WITH RAPIDLY CHANGING INDUSTRY

The international telecommunications industry is changing rapidly due to,
among other things, deregulation, privatization of PTTs, technological
improvements, expansion of telecommunications infrastructure and the
globalization of the world's economies and free trade. There can be no assurance
that one or more of these factors will not vary unpredictably, which could have
a material adverse effect on the Company. There can also be no assurance, even
if these factors turn out as anticipated, that the Company will be able to
implement its strategy or that its strategy will be successful in this rapidly
evolving market. Furthermore, there can be no assurance that the Company will be
able to compete effectively or adjust its contemplated plan of development to
meet changing market conditions.

Much of the Company's planned growth is predicated upon the deregulation of
telecommunications markets. There can be no assurance that such deregulation
will occur when or as anticipated, if at all, or that the Company will be able
to grow in the manner or at the rates currently contemplated.

The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings and
increased satellite and fiber optic cable transmission capacity for services
similar to those provided by the Company, including utilization of the Internet
for international voice and data communications. The Company cannot predict

which of the many possible future product and service offerings will be
important in order to establish and maintain a competitive position or what
expenditures will be required to develop and provide such products and services.
The Company's profitability will depend, in part, on its ability to anticipate
and adapt to rapid technological changes occurring in the telecommunications
industry and on its ability to offer, on a timely basis, services that meet
evolving industry standards and customer preferences. There can be no assurance
that the Company will be able to adapt to such technological changes or offer
such services on a timely basis or establish or maintain a competitive position.

As a result of existing excess international transmission capacity, the
marginal cost of carrying an additional international call is often very low for
carriers that own MIUs or IRUs. Industry observers have predicted that these low
marginal costs may result in significant pricing pressures and that, within a
few years after the end of this century, there may be no charges based on the
distance a call is carried. Certain of the Company's competitors have introduced
calling plans that provide for flat rates on calls within the U.S. and Canada,
regardless of time of day or distance of the call. If this type of pricing were
to become prevalent, it would likely have a material adverse effect on the
Company's prospects, financial condition and results of operations and its
ability to make payments on its indebtedness. See '--Dependence on Other
Carriers.'

INABILITY TO PREDICT TRAFFIC VOLUME

The Company may enter into long-term agreements for leased capacity in
anticipation of traffic volumes which do not reach expected levels and,
therefore, be obligated to pay for transmission capacity without adequate
corresponding revenues. Conversely, the Company may underestimate its need for
leased capacity and, therefore, be required to obtain transmission capacity
through more expensive means. The Company's U.S. operations have, in the past,
both overestimated and underestimated their need for leased capacity and,
therefore, have been forced to obtain capacity for overflow traffic at a higher
cost and have also leased capacity which was under-utilized and, in some
instances, led to under-utilization charges. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.' If the Company is
unable to accurately project its needs for leased capacity in the future, such
inability may have a material adverse effect on the Company's business and
profitability. Additionally, the Company has in the past acquired, and may in
the future

23
<PAGE>

acquire, operations that have entered into long-term agreements for leased
capacity with under-utilization charge provisions. These agreements present the
same risks.

DEPENDENCE ON OTHER CARRIERS

The Company does not own any intra-national or local exchange transmission
facilities in any country in which it provides services (and does not intend to
construct or acquire any of its own transmission facilities unless required to
do so in order to receive regulatory approval to operate). Consequently, the

Company must continue to rely on providers of intra-national and local exchange
transmission facilities. All of the telephone calls made by the Company's
customers are and will continue to be connected, at least in part, through
transmission facilities that the Company leases. In all of the jurisdictions in
which the Company conducts business (other than the U.S. and the United Kingdom)
or plans to conduct business, the current provider of significant intra-national
transmission facilities is the PTT. Similarly, in the U.S., the current
providers of local exchange transmission facilities are generally only the
incumbent LECs, including the regional Bell operating companies ('RBOCs').
Accordingly, prior to full deregulation, there may be only one source of
intra-national and/or local exchange transmission facilities in these countries,
and the Company may be required to lease transmission capacity at artificially
high rates from a provider that occupies a monopoly or near monopoly position.
In fact, Deutsche Telekom AG ('Deutsche Telekom'), the German PTT, in 1997
raised the rates charged to the Company and other carriers with respect to
intra-national transmissions, and there can be no assurance that other PTTs will
not also do so. Such rates may be too high to allow the Company to generate
gross profit on intra-national calls or international calls routed to a Company
switch by means of such intra-national lines. In addition, PTTs will not
necessarily be required by law to allow the Company to lease transmission lines
upon which the Company depends. To the extent that applicable law requires PTTs
to lease transmission lines to the Company, delays may nevertheless be
encountered with respect to the commencement of operations and extensive delays
can be expected with respect to the negotiation of leases and interconnection
agreements. See '--Government Regulatory Restrictions.' In addition, disputes
can be expected with respect to pricing terms and billing. Similarly, to the
extent that the Company leases local exchange facilities in the U.S., there is
currently some uncertainty involving the prices and nature of such facilities
that LECs may offer to competitors in the local exchange market, which could
include the Company. Currently, the U.S. Court of Appeals for the Eighth Circuit
has held that 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 Offering Circular, this
case was before the U.S. Supreme Court and, if the lower court decision is
upheld, the need to address different pricing regimes in different states could
make it more burdensome or expensive for the Company to enter a local exchange
market.

Many of the international telephone calls made by the Company's customers
are and will continue to be transported through transmission facilities that the
Company leases. The lessors of such facilities are competitors of the Company,
including American Telephone & Telegraph, Inc. ('AT&T'), MCI Communications
Corporation ('MCI'), Teleglobe Canada, Inc. ('Teleglobe'), British
Telecommunications PLC ('British Telecom'), France Telecom S.A. ('France
Telecom'), Deutsche Telekom and Cable and Wireless Communications PLC
('Mercury'). Similarly, to the extent the Company provides local exchange
services in the U.S., it will have to lease facilities from LECs that will be
competitors of the Company, such as the RBOCs. The Company generally leases
lines on a short-term basis. These include leases on a per-minute basis (some
with minimum volume commitments) and, where the Company anticipates higher
volumes of traffic, leases of transmission capacity for point-to-point circuits
on a monthly or longer-term fixed cost basis. The negotiation of lease
agreements involves estimates regarding future supply and demand for
transmission capacity as well as estimates of the calling patterns and traffic

levels of the Company's existing and future customers. When there has been
excess transmission capacity, as was the case for many years in the United
States, lease rates have declined and short term leases have been advantageous.
Recently, capacity has been somewhat

24
<PAGE>

constrained in the United States and the decline in lease rates has slowed. As a
result, longer term leases may become more attractive. Should the Company fail
to meet its minimum volume commitments pursuant to long-term leases, it will be
obligated to pay 'under-utilization' charges. See '--Inability to Predict
Traffic Volume.' For these reasons, the Company would suffer competitive
disadvantages if it entered into leases with inappropriate durations or leases
based on per-minute charges for high volume routes (or leases with fixed monthly
rates for low volume routes), or if it failed to meet its minimum volume
requirements. The Company is also vulnerable to service interruptions and poor
transmission quality from leased lines. The deterioration or termination of the
Company's relationships with one or more of its carrier vendors could have a
material adverse effect upon the Company's business, financial condition and
results of operations.

DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS; YEAR 2000 TECHNOLOGY RISKS

Sophisticated information systems are vital to the Company's growth and its
ability to monitor costs, bill and receive payments from customers, reduce
credit exposure, effect least cost routing and achieve operating efficiencies.
The Company currently operates separate network management information systems
for its U.S. and European operations. The Company intends to integrate and
operate the information services for all of its Local Operators from a central
location. A failure of any of the Company's current systems, the failure of the
Company to implement or integrate new systems without difficulty, if at all, the
failure of any new systems or the failure to upgrade systems as necessary could
have a material adverse effect on the Company, its financial condition and the
results of operations.

The Company is in the process of reviewing its computer systems and
operations to identify and determine the extent to which any systems will be
vulnerable to potential errors and failures as a result of the 'Year 2000'
problem. The Year 2000 problem is the result of computer programs being written
using 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.

The Company is upgrading its computer system in an effort to prevent major
system failures which could result upon the transition from 1999 to the year
2000. There can be no assurance that any such upgrades will be successfully
implemented or that additional steps will not be necessary. A failure of the
Company's computer systems or the failure of the Company's vendors or customers
to effectively upgrade their software and systems for transition to the year
2000 could have a material adverse effect on the Company's business and
financial condition or results of operations. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Technology

Risks,' 'Business--U.S. Operations' and '--European Operations--General.'

COMPETITION

The provision of telecommunications services is and will continue to be
extremely competitive. Prices for long distance calls have decreased
substantially over the last few years in most of the markets in which the
Company does business and prices are expected to decline substantially over the
next several years in all of the markets where the Company does business or
expects to do business. In addition, all of the Company's markets and expected
future markets have deregulated or are in the process of deregulating telephone
services. Customers in most of these markets are not familiar with obtaining
services from competitors to the PTTs and incumbent LECs and may be reluctant to
use new providers, such as the Company. In particular, the Company's target
customers, small and medium-sized businesses, may be reluctant to entrust their
telecommunications needs to new and unproven operators or may switch to other
service providers as a result of price competition. The Company has experienced,
and expects to continue to experience, high levels of customer attrition and
turnover as a result of the highly competitive nature of most of its markets.

25
<PAGE>

The Company's success will depend upon the Company's ability to compete
with a variety of other telecommunications providers in each of its markets,
including (i) the PTTs, (ii) alliances such as AT&T's alliance with Unisource
(itself an alliance currently among PTT Telecom Netherlands, Telia AB and Swiss
Telecom PTT) and the corresponding alliance with WorldPartners, the entity
resulting from the proposed merger of MCI and WorldCom, Inc. ('WorldCom'), and
Sprint Corporation's ('Sprint') alliance with Deutsche Telekom and France
Telecom, known as 'Global One,' (iii) companies offering resold international
telecommunications services, (iv) companies such as GTE and WorldCom offering
local exchange service in conjunction with domestic long distance and
international long distance services, (v) LECs such as the RBOCs, and (vi) other
companies with business plans similar to that of the Company. The Company
expects that competition will increase in the future as the deregulation of
telecommunications markets worldwide accelerates. Many of the Company's
competitors have significantly greater financial, management and operational
resources and more experience than the Company. If any of the Company's
competitors were to devote additional resources to the provision of
international long distance voice telecommunication services to the Company's
target customer base of small and medium-sized businesses, there could be an
adverse effect on the Company's business. In addition, certain of the Company's
competitors may target discounts in one market to gain an advantage in another
market or with a particular customer. The Company may be unable to compete with
such discounts on an economically feasible basis.

Each of the Company's Local Operators is expected to separately compete
within their respective countries. There can be no assurance that any of the
Local Operators will be able to do so effectively and the success of the
Company's strategy in any one market is not necessarily indicative of its
ability to succeed in any other market.

Competition for customers is primarily on the basis of price and, to a

lesser extent, on the type and quality of services offered and customer service.
The Company attempts to price its services at a discount to the prices charged
by the PTT or major carriers in each of its markets. The Company has no control
over the prices set by its competitors and some of the Company's larger
competitors may be able to use their substantial financial resources to cause
severe price competition in the countries in which the Company operates. There
can be no assurance that severe price competition will not occur. Any price
competition could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, certain of the
Company's competitors will provide potential customers with a broader range of
services than the Company currently offers or can offer due to regulatory
restrictions. See 'Business--Industry Overview' and '--European
Operations--General.'

In addition to these competitive factors, recent and pending deregulation
in each of the Company's markets may encourage new entrants. For example, as a
result of the enactment of the Telecommunications Act of 1996 and regulatory
initiatives taken by the FCC, the RBOCs may provide international
telecommunications services, are allowed to offer domestic long distance service
through an affiliate outside their service areas as 'non-dominant' carriers and
are allowed to provide long distance service within their service areas,
provided certain competition related conditions are met. AT&T, MCI and other
long distance carriers are allowed to enter the local telephone services market,
and any entity, including cable television companies and utilities, may enter
the United States domestic long distance telecommunications market. As of the
date of this Prospectus, no RBOC has been granted authority by the FCC to
provide long distance service within its service area. However, the U.S.
District Court for the Northern District of Texas has recently ruled that
restrictions placed by the Telecommunications Act of 1996 on the RBOCs regarding
their ability to provide long distance service within their respective service
areas are unconstitutional. Moreover, certain of the RBOCs have filed with the
FCC applications for 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.

26
<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 'GBT Agreement') executed in February 1997. In its decision,
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 foreign carriers with less than 50%
market share in each relevant market on the foreign end should be treated as
non-dominant. In addition, the FCC had, on several occasions since 1984,
approved or required price reductions by AT&T because it was a 'dominant'
carrier. However, the FCC reclassified AT&T as a 'non-dominant' carrier for
domestic purposes in October 1995 and for international purposes in May 1996.
These FCC actions substantially reduced the regulatory constraints on AT&T and
affiliates of foreign carriers. As the Company expands its geographic coverage,
it will encounter additional regional competitors and increased competition.

Moreover, the Company believes that competition in non-U.S. markets will
increase and begin to resemble the competitive landscape in the United States.

The PTTs and incumbent LECs generally have certain competitive advantages
that the Company and its other competitors do not have, due to their control
over the intra-national and local exchange transmission facilities and
connection to them, their ability to delay access to lines and the reluctance of
some regulators to adopt policies and grant regulatory approvals that will
result in increased competition for the PTTs and incumbent LECs. If the PTT or
incumbent LEC in any jurisdiction uses its competitive advantages to their
fullest extent, the Local Operator in such jurisdiction would be adversely
affected.

GOVERNMENT REGULATORY RESTRICTIONS

National and local laws and regulations differ significantly among the
countries in which the Company currently operates and plans to operate. The
interpretation and enforcement of such laws and regulations vary and could limit
the Company's ability to provide certain telecommunications services, including
Internet telephony services. Furthermore, there can be no assurance that changes
in current or future laws or regulations or future judicial intervention in the
United States or in any other country would not have a material adverse effect
on the Company or that FCC or other regulatory investigation or intervention
would not have a material adverse effect on the Company. In addition, the
Company's strategy is based in large part upon the expected deregulation of the
EU and other foreign markets based on European Commission directives and the GBT
Agreement. Such deregulation of the EU and other foreign markets has already
experienced some delays. While legislation has been passed by a number of EU
member countries implementing European Commission ('EC') directives, the EC has
instituted infringement proceedings for non-compliance with EC Directives
against eight member countries, and has stated its intention to institute
additional proceedings against non-compliant member countries. Such proceedings
may encourage member countries to comply with EC Directives. However, there can
be no assurance that this will be the case or that other foreign markets will
proceed with the expected deregulation in the immediate future, if at all, or
that the trend towards deregulation will be effective. 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 to deregulate the markets within their countries. The national
governments may not necessarily pass such legislation in the form required, if
at all, or may pass such legislation only after a significant delay. In the EU,
even if a national legislature enacts appropriate regulations within the time
frame established by the EC, there may be significant resistance to the
implementation of such legislation from PTTs, regulators, trade unions and other
sources. For example, in the United Kingdom, Mercury took legal action against
the Post Office Engineering Union because the union refused to connect Mercury's
customers. In Germany, Deutsche Telecom has proposed that a fee be charged to
any customer who changes long distance service providers. These and other
potential obstacles to deregulation would have a material adverse effect on the
Company's operations by preventing the Company from expanding its operations as
currently anticipated.

27
<PAGE>

In addition, the telecommunications services provided by the Company in the
United Kingdom are subject to and affected by regulations introduced by the
Office of Telecommunications ('Oftel'). Oftel has imposed mandatory rate
reductions on British Telecom in the past and is expected to continue to do so
for the foreseeable future. This will have the effect of reducing the prices the
Company can charge its U.K. customers.

Also, the Internet telephony services provided by the Company through Delta
Three may be subject to and affected by regulations introduced by the
authorities in each country where Delta Three has or will have operations. The
regulation of Delta Three's activities may have a material adverse effect on
Delta Three's and the Company's financial condition and results of operations.

The Company is currently authorized or otherwise allowed to provide
intrastate, interexchange service in 48 states and the District of Columbia in
the United States and relies on third party carriers to originate traffic in the
other states.

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

Although the Company has 18 operating agreements, the Company presently
only utilizes six such agreements. These agreements are with carriers in the
Dominican Republic, the United Kingdom, Denmark, The Netherlands, Russia and
Norway. In order to utilize the remaining operating agreements, the Company
would have to make an investment in transmission facilities to each of these
countries, which the Company is unlikely to do unless and until it originates
sufficient calling volume to such countries to justify an investment. The
Company's failure to utilize these operating agreements may result in these
foreign carriers terminating such agreements in order to secure more profitable
agreements with carriers other than the Company and may limit the Company's
ability to secure operating agreements with additional foreign carriers. The
loss of the Company's operating agreements could have a material adverse effect
on its business, and the failure to enter into additional operating agreements
or other favorable arrangements in the future could limit the Company's ability
to increase its revenues on a positive gross margin basis. There can be no
assurance that the Company will be able to enter into additional operating and
other interconnection agreements or other favorable arrangements in the future.

In addition, the Company's operating agreements may become less valuable to
the Company. As increasing numbers of international carriers emerge, operating
agreements may become more available. Moreover, as telecommunications markets
deregulate, particularly in Europe, an increasing proportion of international
traffic is being carried outside of the traditional operating agreement/
settlement rate system.

DEPENDENCE ON CARRIER CUSTOMERS

In the United States, a substantial portion of the Company's revenues are
generated by the telecommunication services it provides to carrier customers.
Revenues derived from the provision of such services accounted for 38% of the
Company's revenues for the year ended December 31, 1997. Accordingly, the loss
of revenue from carrier customers could have a material adverse effect upon the
Company's business, financial condition and results of operations. Carrier

customers are extremely price sensitive, generate very low margin business and
frequently choose to move their business based solely on small price changes. In
addition, certain of the Company's carrier customers are unprofitable or are
only marginally profitable, resulting in a higher risk of delinquency or
non-payment than in the case of more creditworthy customers. In February 1996,
the Company terminated service to a carrier customer that accounted for 11% of
ITG's 1995 U.S. revenues for failure to pay for past services. As a result,
although the Company is attempting to recover the amounts owed by such customer,
the Company booked a $4.9 million write-off for bad debt on its 1995 financial
statements. While the Company instituted revised credit criteria to enable the
Company to reduce its exposure to the higher

28
<PAGE>

risks associated with carrier customers, no assurance can be given that such
criteria and methods will afford adequate protection against such risks.

DEPENDENCE UPON KEY PERSONNEL

The success of the Company is dependent, in part, upon its key management.
In particular, the Company is highly dependent upon certain of its personnel,
including Ronald S. Lauder, Chairman of the Board of the Company and its largest
and controlling shareholder, and Itzhak Fisher, the President and Chief
Executive Officer of the Company. The loss of services of Mr. Lauder, Mr. Fisher
or any of the other members of the Company's senior management team could have a
material adverse effect on the Company. The degree of Mr. Lauder's involvement
in the activities of the Company varies from time to time based on the needs of
the Company. Mr. Lauder's involvement with the Company, in addition to his
activities as Chairman of its Board of Directors and Executive Committee,
includes identifying potential local strategic partners, capital allocation,
corporate governance, setting compensation policy and recruiting top management.
However, he is not an employee of the Company and he spends a majority of his
business time on other matters. While Mr. Fisher has an employment agreement
with the Company, the Company does not have employment agreements with many of
the other members of its senior management team.

The Company believes its future success will depend in large part upon its
ability to attract, retain and motivate highly skilled employees. Such employees
are in great demand and are often subject to offers for competitive employment.
There can be no assurance that the Company can retain its key managerial
employees or that it can attract, integrate or retain such employees in the
future.

DEPENDENCE ON EQUIPMENT SUPPLIER

The Company purchases most of its switches from Ericsson, which has granted
the Company volume discounts and also provides lease financing for, and
maintenance of, this equipment. Although switches of comparable quality may be
obtained from several alternative suppliers, the failure of the Company to
acquire compatible switches from an alternative source, or the failure to
acquire additional switches (regardless of the vendor) on a timely basis or on a
similar price basis, could result in delays, operational problems or increased
expenses, which could have a material adverse effect on the Company's business,

results of operations and financial condition.

CONTROLLING SHAREHOLDERS; NEGATIVE EFFECTS OF ANTI-TAKEOVER PROVISIONS

Certain of the executive officers and directors of the Company, companies
and partnerships they control and members of their immediate families control,
in the aggregate, approximately 95.1% (94.8% after giving effect to the Warrant
Registration) of the voting power and approximately 77.5% (75.5% after giving
effect to the Warrant Registration) of the outstanding capital stock of the
Company. As a result, the existing shareholders are able to control the election
of all of the directors and the results of other shareholder votes. Ronald S.
Lauder, Chairman of the Board of Directors of the Company, beneficially owns, in
the aggregate, approximately 59.7% (59.5% after giving effect to the Warrant
Registration) of the voting power and approximately 42.5% (41.4% after giving
effect to the Warrant Registration) of the outstanding capital stock of the
Company. As a result, Mr. Lauder has majority control of the Company, the
ability to approve certain fundamental corporate transactions and to elect all
members of the Company's Board of Directors. The exercise of the voting power by
Mr. Lauder and such other persons may present conflicts of interest between
them, the other owners of the Company's capital shares and the holders of the
Notes. For example, if the Company encounters financial difficulties, or is
unable to pay its debts as they mature, the Company's equity investors may have
an interest in pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance their equity investment,
even though such transactions might involve risk to the holders of the Notes.
See 'Principal Shareholders.'

29
<PAGE>

ORIGINAL ISSUE DISCOUNT CONSEQUENCES

The New Senior Discount Notes will be treated as having been issued at a
discount for U.S. federal income tax purposes. Consequently, a U.S. holder of a
New Senior Discount Note generally will be required to include amounts in such
holder's gross income for U.S. federal income tax purposes in advance of the
receipt of the cash payments to which the income is attributable. See 'Certain
United Kingdom Tax Considerations for U.S. Holders of Notes' and 'Certain United
States Federal Income Tax Considerations for U.S. Holders of Notes' for a more
detailed discussion of the tax consequences to U.S. holders of New Notes with
respect to the purchase, ownership and disposition of the Notes.

If the Issuer is liquidated under the laws of the United Kingdom after the
issuance of the New Notes, the claim of a holder of the New Notes with respect
to amounts owing in respect thereof may be limited to an amount equal to the sum
of (i) the issue price of the New Notes and (ii) interest accrued in respect of
the period before the Issuer goes into liquidation. Any original issue discount
that was not accreted as of the date on which the Issuer goes into liquidation,
and any cash interest accruing under the New Notes in respect of any period
after the Issuer goes into liquidation, would not be claimable by holders of the
New Notes in the liquidation of the Issuer (although U.K. insolvency law
provides that any surplus amounts remaining after payment of all other debts in
connection with the liquidation of the Issuer shall be available to pay interest
accrued on debts in respect of any period after the commencement of the

liquidation).

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 aspects from laws generally applicable to United States corporations and
shareholders, including with respect to the provisions relating to interested
directors, mergers and similar arrangements, takeovers, shareholders suits,
indemnification of directors and inspection of corporate records.

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, indemnification
of directors and inspection of corporate records. United Kingdom company law
does include requirements for the protection of investors who suffer abuse and
legal requirements relating to the disclosure of information.

CHANGE OF CONTROL

Upon the occurrence of a Change of Control (as defined in the 1996
Indenture), the Company may be required to purchase all of the outstanding 1996
Notes at a price equal to 101% of the principal amount thereof at the date of
purchase plus accrued and unpaid interest. Upon the occurrence of a Change of
Control (as defined in the Indentures), the Company may be required to purchase
all of the outstanding Notes at a price equal to 101% of the principal amount
(or accreted value) thereof at the date of purchase plus accrued and unpaid
interest. There can be no assurance that the Company will have sufficient funds
to purchase the 1996 Notes and/or the Notes. See 'Description of the New Notes
and the New Notes Guarantees--Change of Control.'

DEVALUATION AND CURRENCY RISKS

An increasing portion of the Company's revenues and expenses (notably
interest and principal on the DM Notes) will be denominated in non-U.S.
currencies, although a disproportionate portion of the Company's expenses,
including interest and principal on the 1996 Notes and the U.S. Dollar Notes,
will

30
<PAGE>

be denominated in U.S. dollars. In addition, the Company, in the future, may
acquire interests in entities that operate in countries where the expatriation
or conversion of currency is restricted. The Company currently does not hedge
against foreign currency exchange risks but may in the future commence such
hedging against specific foreign currency transaction risks including currency
exchange risks relating to the German Debt Offering. There can be no assurance
that the Company will be able to hedge all its exchange rate exposure at
satisfactory cost, and there can be no assurance that exchange rate fluctuations
will not have a material adverse effect on the ability of the Issuer or the

Guarantor to meet their respective obligations under the Notes. Because of the
number of currencies involved, the Company's constantly changing currency
exposure and the fact that all foreign currencies do not fluctuate in the same
manner against the United States dollar, the Company cannot quantify the effect
of exchange rate fluctuations on its future financial condition or results of
operations.

Modifications to the Company's computer systems and programs are also being
made in order to prepare for the upcoming replacement of certain European
currencies with the Euro. Costs associated with the modifications necessary to
prepare for the Euro are being expensed by the Company during the period in
which they are incurred.

LACK OF PUBLIC MARKET

The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued to a small number of institutional investors. The Old U.S.
Dollar Notes are eligible for trading in the Private Offerings, Resale and
Trading through Automated Linkages (PORTAL) Market, the National Association of
Securities Dealers' screen-based, automated market for trading of securities
eligible for resale under Rule 144A. To the extent that Old Notes are tendered
and accepted in the Exchange Offers, the trading market for the remaining
untendered Old Notes could be adversely affected. Although the Issuer intends to
obtain the listing of the New Notes on the Luxembourg Stock Exchange, there can
be no assurance regarding the future development of a market for the New Notes,
or the ability of holders of the New Notes to sell their New Notes at a price at
which such holders may be able to sell such New Notes.

CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW 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 the Old Notes under the Securities Act. 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

31
<PAGE>

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 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 Exchange Offers such holder will have not engaged in, and does not intend to
engage in, a distribution of New Notes and 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
pursuant to the Exchange Offers must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. 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. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resale of New Notes received 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. See 'Plan of Distribution.' However, 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 offer and sale of the New Notes to 'qualified institutional buyers' (as such
term is defined under Rule 144A of the Securities Act) is generally exempt from
registration or qualification under state securities laws. 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. See 'The Exchange Offers--Consequences of Exchanging Old Notes.'

<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 are estimated to be
approximately $481 million, after deducting the underwriting discount and
estimated expenses of the U.S. Dollar Notes Offerings and the German Debt
Offering. The proceeds from the issuance of the Old Notes will be used by the
Company for (i) working capital purposes relating to the expansion of the
Company's operations, (ii) strategic merger and acquisition activities,
including certain potential acquisitions which the Company is currently
pursuing, (iii) the purchase of additional interests in international cable
systems and additional transmission and switching equipment, (iv) the funding of
the Company's operating losses and (v) in the case of the Old DM Notes, the
repayment or repurchase of debt. See 'Risk Factors--Risks Associated with
Anticipated Growth and Acquisitions.'

CAPITALIZATION

The following table sets forth the consolidated cash and cash equivalents,
marketable securities, restricted marketable securities and capitalization of
the Company as of December 31, 1997 and as adjusted to give effect to the
issuance of the shares of Class A Common Stock issuable upon conversion of the
Warrants (assuming all Warrants are exercised), the Equity Clawback, the U.S.
Dollar Notes Offerings, and the German Debt Offering. The table should be read
in conjunction with the Consolidated Financial Statements and the related notes
thereto and the other information included elsewhere in this Prospectus. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
-----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
--------------------------
<S> <C> <C>
Cash and cash equivalents......................... $ 144,894 $ 541,499(1)
----------- -----------
----------- -----------
Marketable securities............................. $ 13,858 $ 13,858
----------- -----------
----------- -----------
Restricted marketable securities(2)............... $ 68,836 $ 48,136
----------- -----------
----------- -----------

Short-term debt and current portion of long-term
debt and current portion of capital lease
obligations..................................... $ 8,033 $ 8,033
Long-term debt and capital lease obligations:
Capital leases.................................. 20,108 20,108
12 1/4% Senior Notes due 2006 (net of
unamortized discount of $3.5 million and $2.5
million as adjusted)(3)....................... 296,500 207,550
9 1/8% Senior Notes due 2008.................... -- 200,000
10 1/8% Senior Discount Notes due 2008.......... -- 200,000
10% Senior Discount Notes due 2008.............. -- 99,045
----------- -----------
Total long-term debt, short-term debt and
capital lease obligations(4)................ 324,641 734,736
----------- -----------
Shareholders' equity:
Common Stock, $.00457 par value; 438,000,000
authorized; 10,872,569 shares of Class A
Common Stock outstanding and 12,065,024 shares
outstanding as adjusted(5)(6)................. 49 54
30,760,722 shares of Class B Common Stock
outstanding(6).............................. 141 141
Preferred Stock, $.00457 par value; 65,700,000
shares authorized; no shares outstanding...... -- --
Warrants--Common Stock.......................... 5,544 5,544
Additional paid-in capital...................... 274,192 274,192
Accumulated deficit............................. (147,939) (148,989)
Foreign currency translation adjustment......... (5,288) (5,288)
----------- -----------
Total shareholders' equity.................... 126,699 125,654
----------- -----------
Total capitalization.......................... $ 451,340 $ 860,390
----------- -----------
----------- -----------
</TABLE>

- ------------------
(1) The as adjusted figure reflects the receipt of net proceeds of approximately
$385 million from the sale of the U.S. Dollar Notes, the use of
approximately $101 million of proceeds from the Initial Public Offering to
effect the Equity Clawback, the payment of $4.1 million of accrued interest
payable in connection with the Equity Clawback, the release of approximately
$21 million from the restricted marketable securities account following the
Equity Clawback and the receipt of net proceeds of approximately $96 million
from the sale of the DM Notes (converted to U.S. Dollars at the noon buying
rate for U.S. Dollars on March 11, 1998 of DM1.8352=$1.00).
(2) 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 adjusted to reflect the reduction of approximately $21 million
released from the restricted marketable securities account following the
Equity Clawback. See 'Description of Certain Indebtedness--Description of
the 1996 Notes.'
(3) The as adjusted figure gives effect to the $90 million Equity Clawback,
amounting to approximately $101 million, inclusive of $11 million of

redemption premium.
(4) As of December 31, 1997, the Company had approximately $29.7 million of
available (undrawn) borrowing capacity under its current bank and vendor
facilities.
(5) Does not include (i) 2,004,475 shares of Class A Common Stock issuable upon
exercise of outstanding stock options (including 459,607 shares issuable
upon the exercise of currently exercisable options), (ii) 3,750,000 shares
of Class A Common Stock reserved for issuance pursuant to option grants
under the Guarantor's stock option and compensation plan (including options
to purchase 437,856 shares of Class A Common Stock granted to Itzhak Fisher
and others under the 1997 Plan (as defined) and options to purchase 2,273
shares of Class A Common Stock granted to each of Leonard A. Lauder, Fred H.
Langhammer and Gustavo A. Cisneros and options to purchase 6,818 and 3,409
shares of Class A Common Stock granted to Ronald S. Lauder and Andrew
Gaspar, respectively, under the Directors' Plan, (as defined) or (iii)
31,220,622 shares of Class A Common Stock issuable upon the conversion of
the shares of Class B Common Stock (including 459,900 shares of Class B
Common Stock issuable upon the exercise of Lauder Warrants (as defined)).
(6) Does not give effect to the conversion of Class B Common Stock to Class A
Common Stock by the Selling Shareholder.

33
<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. 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, ITG. The information set forth below is qualified
by reference to and should be read in conjunction with the Consolidated
Financial Statements and the notes thereto and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
PREDECESSOR
1994 1995(1) 1996 1997
----------- -------- -------- ---------
($ IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................... $ 4,702 $ 18,617 $113,257 $ 300,796
Cost of services........................... (4,923) (17,510) (98,461) (265,321)
----------- -------- -------- ---------
Gross profit (loss)........................ (221) 1,107 14,796 35,475
Selling, general and administrative
expenses................................. (2,395) (9,639) (38,893) (94,712)
Depreciation and amortization.............. (240) (849) (6,655) (21,819)
----------- -------- -------- ---------
Loss from operations....................... (2,856) (9,381) (30,752) (81,056)
Interest income............................ -- 173 3,976 13,826
Interest expense........................... (225) (194) (11,359) (39,373)
Other income............................... -- -- 470 6,595(2)
Minority interest.......................... -- -- (180) 210
Income taxes............................... -- -- (395) (401)
----------- -------- -------- ---------
Net loss................................... $(3,081) $ (9,402) $(38,240) $(100,199)
----------- -------- -------- ---------
----------- -------- -------- ---------

Loss per share(3).......................... $(15.41) $ (1.67) $ (5.13) $ (5.27)
Weighted average number of shares of Common
Stock outstanding(3)..................... 200 5,641 7,448 19,008
</TABLE>

34
<PAGE>

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
PREDECESSOR
1994 1995 1996 1997
----------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(4).................................. $(2,616) $ (8,532) $ (23,807) $(52,432)
Capital expenditures(5).................... 1,126 6,074 23,880 49,417
Cash (used in) provided by operating
activities............................... (1,987) 3,554 (10,475) (91,812)
Cash used in investing activities.......... (478) (16,537) (225,000) (18,821)
Cash provided by financing activities...... 2,888 18,143 335,031 152,035
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------
PREDECESSOR
1994 1995 1996 1997
----------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 452 $ 5,163 $104,068 $144,894
Marketable securities...................... -- -- 67,828 13,858
Restricted marketable securities........... -- -- 104,370 68,836
Total assets............................... 3,682 53,072 427,969 605,664
Short-term debt, current portion of
long-term debt and current portion of
capital lease obligations................ 2,645 5,506 6,974 8,033
Long-term debt and capital lease
obligations.............................. 1,404 6,648 314,425 316,608
Shareholders' (deficiency) equity.......... (3,651) 5,705 20,843 126,699
</TABLE>

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

(1) Effective with the acquisition of a majority equity interest in ITG in
September 1995, the Company began to consolidate ITG's operations. From
March 1995 (the date of the Company's initial investment) to September 1995,
the Company accounted for its investment in ITG using the equity method of
accounting.

(3) Loss per share is calculated by dividing the loss attributable to Common
Stock by the weighted average number of shares of Common Stock outstanding,
and has been retroactively restated to reflect the 2.19-for-one stock split.
Outstanding stock options, Roll-up Rights and warrants (including, without
limitation, the Warrants) are not included in the loss per common share
calculation as their effect is anti-dilutive.

(4) EBITDA consists of loss before interest, income taxes, depreciation and
amortization. EBITDA is provided because it is a measure commonly used in
the telecommunications industry. It is presented to enhance an understanding
of the Company's operating results and is not intended to represent cash
flow or results of operations in accordance with U.S. GAAP for the periods
indicated. The Company's use of EBITDA may not be comparable to similarly
titled measures used by other companies due to the use by other companies of
different financial statement components in calculating EBITDA.

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

35
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus. The following contains statements which constitute
forward-looking statements regarding the intent, belief or current expectations
of the Company or its officers with respect to, among other things, the
Company's financing plans, trends affecting the Company's financial condition or
results of operations, the impact of competition, the start-up of certain
operations and acquisition opportunities. The Company's actual future results
could differ materially from those discussed herein. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward-looking statements as a result of
various factors. Information contained in this Prospectus, including, without
limitation, information contained in this section of this Prospectus and
information under 'Risk Factors' and 'Business,' identifies important factors
that could cause such differences.

OVERVIEW

GENERAL

The Company is a rapidly growing multinational telecommunications company
which provides a broad array of international and domestic telephone services to
both carrier and commercial (including business and residential) accounts. These
services include international long distance calling to over 200 countries and
calling card, private line and value-added telecommunications services. The
Company focuses on providing international long distance voice services to small
and medium-sized businesses in key markets. The Company currently has revenue
generating operations in the United States, the United Kingdom, France, Germany,
Sweden, Finland, The Netherlands, Denmark, Australia, Italy, Switzerland,
Venezuela and Belgium. The Company is in the process of commencing start-up
operations through its investments in majority-owned entities in Austria, Spain,
Luxembourg and Japan, and through its 39% investment in a Portuguese
telecommunications company. In 1996, approximately 66% of all international long
distance telecommunications minutes originated in these markets. The Company
plans to expand its operations and network into additional key markets which
account for a significant portion of the world's remaining international
traffic. The Company's consolidated revenues for the years ended December 31,
1997 and 1996 were $300.8 million and $113.3 million, respectively.

This Prospectus contains forward-looking statements. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from those anticipated by these

forward-looking statements, including as a result of the factors described in
the section entitled 'Risk Factors.' In light of these risks and uncertainties,
there can be no assurance that events anticipated by the forward-looking
statements contained in this Prospectus will in fact transpire.

THE UNITED STATES. The Company's initial operations were established in
the United States through the acquisition of interests in ITG in March 1995 and
Cyberlink, Inc. ('Cyberlink') in September 1995. ITG and Cyberlink had growing
businesses in New York and California, respectively, each with an established
customer base and sales channels, but both had operational problems which
prevented these entities from realizing their profit potential. These problems
included costly transmission capacity arrangements, vendor disputes and
inadequate credit and pricing policies. Each of ITG and Cyberlink was also
unable to obtain funding for working capital which limited their ability to
purchase transmission capacity on a cost-efficient basis which, coupled with the
foregoing problems, limited their operating performance.

Following the Company's acquisition of interests in ITG in 1996, which
brought the Company's ownership in ITG to 87%, the Company took steps to
streamline and improve operations, including finance, network provisioning,
pricing and selling functions. During the first quarter of 1997, the Company
completed the consolidation of its U.S. operations under one entity, RSL USA.
The Company's U.S. operations, other than its operations with respect to LDM,
remain consolidated with RSL USA.

36
<PAGE>

The Company has implemented solutions designed to improve RSL USA's
operations. For example, the Company added key members to its management and
purchased and developed additional management software systems which provide
current traffic provisioning and an enhanced ability to predict future traffic
volume. The Company also successfully negotiated and continues to negotiate rate
reductions and more appropriate transmission capacity arrangements based on the
Company's current and anticipated capacity requirements. In addition, the
Company's U.S. operations began to utilize the Company's own facilities in the
fourth quarter of 1996. The Company anticipates that expanded utilization of its
own facilities (as such component of RSL-NET continues to grow) will result in
more cost-efficient methods of transport for its U.S. business. The Company also
improved vendor relations by paying bills on a more timely basis and has
implemented stricter financial controls, including ongoing customer credit
reviews and managerial procedures to reduce credit exposure, and settled certain
disputes and claims with certain of its vendors.

Although the Company's U.S. gross margin decreased for the year ended
December 31, 1997 as compared to the year ended December 31, 1996 due to the
rapid expansion of its operations, the Company expects that its gross margin in
1998 will improve as a result of the operational efficiencies implemented to
date and to be derived from continued growth, the continued development of
RSL-NET and the resulting economies of scale. However, the foregoing is a
forward-looking statement and there can be no assurances in this regard. See
'Risk Factors--Short Operating History; Entrance into Newly Opening Markets;
Margins', '--Inability to Predict Traffic Volume' and '--Risks Associated with
Rapidly Changing Industry.' Although the Company anticipated U.S. gross margin

improvements during 1997, rapid growth in excess of the Company's expectations
continued to cause traffic overflow and gross margin pressure.

As of December 31, 1997, the Company had recorded approximately $135.7
million of goodwill in connection with its U.S. acquisitions (including ITG,
Cyberlink, LDM and Delta Three). Goodwill represents the excess of cost over the
fair value of the net assets of acquired entities. The Company's component cost
and purchase price allocation for U.S. acquisitions are as follows:

<TABLE>
<CAPTION>
COMPONENT COST AND
PURCHASE PRICE ALLOCATION
-------------------------
($ IN MILLIONS)
<S> <C>
ASSETS ACQUIRED:
Cash and cash equivalents.......................... $12.4
Accounts receivable................................ 13.9
Telecommunications equipment....................... 5.3
Deposits and others................................ 2.8
Intangible assets--goodwill........................ 135.7
LIABILITIES ASSUMED:
Accounts payable and other long-term liabilities... 64.8
Long-term debt..................................... 4.7
EQUITY:
Acquisition of minority interest................... 22.4
Increase to shareholders' equity................... 32.6
</TABLE>

EUROPE. RSL COM Europe, Ltd. ('RSL Europe') is a wholly-owned subsidiary
of the Company. RSL Europe was formed in March 1995 to implement the Company's
pan-European strategy. In November 1995, RSL Europe acquired a 51% interest in
Cyberlink Communications Europe Limited ('Cyberlink Europe') which, through its
wholly-owned subsidiaries, RSL COM Finland OY ('RSL Finland') and RSL COM Sweden
AB ('RSL Sweden'), commenced operations in May 1996. In May 1996, the Company
acquired Sprint's international long distance voice businesses in France and
Germany. In October 1996, RSL Europe acquired a 75% interest in the operations
of RSL Netherlands, an international reseller which had been operating in the
Netherlands since October 1995. In 1997, RSL

37
<PAGE>

Europe acquired the remaining minority interest in RSL Netherlands. A start-up
wholly-owned subsidiary of RSL Netherlands commenced operations in Denmark in
May 1997. In April 1997, RSL Europe acquired a 30.4% interest in Maxitel
Servicos e Gestao de Telecomunicacoes S.A. ('Maxitel'), a Portuguese
international telecommunications carrier, and has since increased its ownership
interest in Maxitel to 39%. In August 1997, RSL Europe acquired an 85% interest
in the operations of RSL Italy, an international telecommunications reseller
that had been operating in Italy since 1995. In August 1997, RSL Europe also
acquired a 50% interest in RSL Austria, which will initially operate as an
international telecommunications reseller. After the completion, in September

1997, of certain corporate formalities, the Company's interest was increased to
90% of RSL Austria.

In December 1997, RSL Europe acquired a 78.5% interest in RSL Switzerland,
a long distance telecommunications carrier in Switzerland.

In December 1997, RSL Europe formed a joint venture to establish RSL Spain.

In December 1997, RSL Europe acquired a 90% interest in RSL Belgium, a
licensed international telecommunications carrier in Belgium which in turn owns
100% of RSL Luxembourg, a licensed international telecommunications carrier in
Luxembourg.

Most EU member states are in the initial stages of deregulation.
Deregulation in these countries may occur either because the member state
decides to open up its own market (e.g., the United Kingdom, Sweden and Finland)
or because it is directed to do so by the European Commission ('EC') through one
or more directives issued thereby. In the latter case, such an EC directive
would be addressed to the national legislative body of each member state,
calling for such legislative body to implement such directive through the
passage of national legislation.

Although 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 Europe nevertheless provides an opportunity for the Company
to provide a range of services immediately in many countries, while putting in
place adequate infrastructure to capitalize on final deregulation if and when it
occurs. The Company can provide value-added services before interconnection is
available and, in certain EU countries, 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 PSTN to
the Company's switches. See 'Business--International Long Distance Mechanics.'

As of December 31, 1997, the Company had recorded an aggregate of
approximately $51.9 million of goodwill in connection with its European
acquisitions. Goodwill represents the excess of cost over the fair value of the
net assets of acquired entities. The Company's component cost and purchase price
allocation for its European acquisitions are:

<TABLE>
<CAPTION>
COMPONENT COST AND
PURCHASE PRICE ALLOCATION
-------------------------
($ IN MILLIONS)
<S> <C>
ASSETS ACQUIRED:
Cash............................................... $ 2.3
Accounts receivable................................ 0.8
Telecommunications equipment....................... 2.2
Deposits and others................................ 0.3
Intangible assets--goodwill........................ 51.9
LIABILITIES ASSUMED:
Accounts payable and other long-term liabilities... 5.5
Lease commitments.................................. 2.4
</TABLE>

REVENUES

The Company provides both domestic and international long distance services
and derives its revenues principally from the provision of international long
distance voice telecommunication services. Revenues are derived from the number
of minutes of use (or fractions thereof) billed by the Company ('revenue
minutes') and are recorded upon completion of calls. In addition, the Company
derives

38
<PAGE>

revenues from prepaid calling cards. These revenues are recognized at the time
of usage or upon expiration of the card. The Company maintains local market
pricing structures for its services and generally prices its services at a
discount to the prices charged by the local PTTs and major carriers. The Company
has experienced, and expects to continue to experience, declining revenue per
minute in all of its markets as a result of increasing competition in
telecommunications, which the Company expects will be offset by increased minute
volumes and decreased operating costs per minute. See 'Risk Factors--Risks
Associated With Rapidly Changing Industry' and '--Competition.'

U.S. OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------------------
PREDECESSOR
-----------
1994 1995 1996 1997
------- ------- -------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGE OF
CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C>
Revenues....................................... $ 4,702 $18,461 $ 85,843 $ 194,518
Percentage of consolidated revenues............ 100.0% 99.2% 75.8% 64.7%
Cost of services............................... (4,923) (17,367) (76,892) (176,780)
------- ------- -------- -----------
Gross profit (loss)............................ (221) 1,094 8,951 17,738
Selling, general and administrative expenses... (2,395) (7,444) (17,606) (38,207)
Depreciation and amortization.................. (240) (619) (3,047) (5,650)
------- ------- -------- -----------
Loss from operations........................... $(2,856) $(6,969) $(11,702) $ (26,119)
------- ------- -------- -----------
------- ------- -------- -----------
</TABLE>

Prior to 1997, the Company's revenues had been primarily derived from its
operations within the United States. The Company's U.S. revenues result
primarily from the sale of long distance voice services on a wholesale basis to
other carriers, on a retail basis to commercial customers and on a bulk discount
basis to distributors of prepaid calling cards. The Company has experienced, and
expects to continue to experience, significant month to month changes in
revenues generated by its carrier customers. The Company believes such carrier
customers will react to temporary price fluctuations and spot market
availability that will impact the Company's carrier revenues. The Company has
shifted its marketing focus in the United States to small and medium-sized
businesses and has restructured its pricing of wholesale services to other
carriers. The Company has derived increased revenues from its small and
medium-sized business customers, as it has been reducing its reliance on
wholesale carrier revenues. See 'Risk Factors--Dependence on Carrier Customers'
and '--Overview.'

EUROPEAN OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------
1995 1996 1997
------- -------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGE
OF CONSOLIDATED REVENUES)
<S> <C> <C> <C>
Revenues....................................... $ 156 $ 27,414 $ 73,653
Percentage of consolidated revenues............ 0.8% 24.2% 24.5%
Cost of services............................... (143) (21,569) (59,516)
------- -------- -----------
Gross profit................................... 13 5,845 14,137
Selling, general and administrative expenses... (539) (17,377) (43,004)
Depreciation and amortization.................. (12) (1,906) (7,038)
------- -------- -----------
Loss from operations........................... $ (538) $(13,438) $ (35,905)
------- -------- -----------
------- -------- -----------
</TABLE>

The Company commenced European operations with the introduction of
operations in the United Kingdom, Finland and Sweden in the second quarter of
1996. In addition, the Company acquired operations in France and Germany during
the second quarter of 1996 and acquired operations in The Netherlands in the
fourth quarter of 1996. During the second quarter of 1997, the Company commenced
operations in Denmark and during the fourth quarter of 1997 commenced operations
in Italy. Each of the countries in which the Company operates has experienced
different levels of deregulation, resulting

39
<PAGE>

in various levels of competition and differing ranges of services which the
Company is permitted to offer. The Company also believes that as it pursues its
strategic growth strategy it will continue to encounter various degrees of
start-up time.

Substantially all revenues from the Company's European operations are
derived from commercial sales to end-users, which often generate a higher gross
profit than wholesale sales to carriers. Sales are targeted at small and
medium-sized corporate customers, as well as to niche consumer markets
(including selected ethnic communities). To reduce its credit risk, the Company
primarily offers prepaid products to its targeted consumer markets.

EFFECT OF DEREGULATION ON EUROPEAN REVENUES. The Company operates or will
soon operate in various countries in Europe, each of which is in a different
state of deregulation. In certain of these countries, current regulatory
restrictions limit the Company's ability to offer a broader array of products
and services and limit the availability of those services to customers.

Accordingly, the Company anticipates that deregulation will have a favorable
impact on revenues because (i) customers will be able to access the Company's
services more easily and (ii) the Company will have the ability to provide a
broader array of products and services. It is anticipated that most European
countries will deregulate various aspects of the telecommunications industry
beginning in 1998. The Company believes that, with established or start-up
operations in 14 European countries, it will be well positioned to benefit from
the anticipated deregulation of European markets. However, there can be no
assurance regarding the timing or extent of deregulation in any particular
country. See 'Risk Factors--Risks Associated with Rapidly Changing Industry,'
'--Government Regulatory Restrictions' and 'Business--European
Operations--Regulatory Environment.'

OTHER OPERATIONS

During April 1997, the Company acquired a customer base of approximately
1,700 customers from Pacific Star Communications Limited ('Pac Star'), an
Australian-based switchless reseller. As of October 1997, RSL Australia acquired
100% of the issued capital stock of the members of the Call Australia Group and
the copyright in the billing software used by the Call Australia Group. In
November 1997, RSL Australia purchased 85% of EZI Phonecard Holdings Pty.
Limited ('EZI'), an international reseller and prepaid calling card services
provider. In March 1998, the Company acquired, in two separate transactions, the
mobile telephony customer base of each of First Direct Communications Pty.,
Limited and Link Telecommunications Pty., Ltd., two switchless mobile
telecommunications resellers in Australia. Through December 31, 1997, Australian
operations as a whole have generated revenues of approximately $32.3 million.

The Company also acquired operations in Venezuela in mid-1997 as a result
of the Latin American joint venture with the Cisneros Group. To date, the
Company's start-up operations in Venezuela have generated approximately $300,000
in revenues.

In addition, during the second quarter of 1997, the Company incorporated
RSL COM Japan K.K. ('RSL Japan') and, in the third quarter of 1997, recruited a
managing director to oversee its operations in Japan. In February 1998, RSL
Japan was granted an International Simple Resale license by Japan's MPT to
provide international telephony, fax and data services to and from Japan. To
date, the Company's Japanese operations have not generated revenues. The Company
anticipates generating revenues from its operations in Japan during mid-1998.

The other countries in which the Company operates or will soon operate also
have experienced different levels of deregulation. As a result, the level of
competition in each country varies. The Company believes that as it pursues its
strategic growth strategy, the commencement of new operations will entail
varying degrees of time and cost.

COST OF SERVICES

The Company's cost of services is comprised of costs associated with
gaining local access and the transport and termination of calls over RSL-NET.
The majority of the Company's cost of services are variable, including local
access charges and transmission capacity leased on a per-minute of use basis.
The Company expects that an increasing amount of its total operating costs will

be fixed in the future, as the volume of the Company's calls carried over its
IRUs, MIUs and point-to-point fixed cost leases

40
<PAGE>

increases. The depreciation expense with respect to the Company's MIUs and IRUs
is not accounted for in cost of services. In addition, the Company intends to
lower its variable cost of termination as a percentage of revenues by carrying
traffic pursuant to more of its existing operating agreements and by negotiating
additional operating agreements on strategic routes. The Company has directly
linked certain of its Local Operators in Europe and the United States utilizing
lines leased on a fixed cost point-to-point basis and MIUs and IRUs. To the
extent traffic can be transported between two Local Operators over MIUs or IRUs,
there is only marginal cost to the Company with respect to the international
portion of a call other than the fixed lease payment or the capital expenditure
incurred in connection with the purchase of the MIUs or IRUs. The Company's cost
of transport and termination will decrease to the extent that it is able to
bypass the settlement rates associated with the transport of international
traffic. By integrating its operations in this manner, the Company expects to
continue to improve its gross margins. For a discussion of important factors
that adversely affect the Company's gross margins, see 'Risk Factors--Short
Operating History; Entrance into Newly Opening Markets; Margins,' '--Inability
to Predict Traffic Volume' and '--Dependence on Carrier Customers,' '--Overview'
in this section and 'Business--Network Strategy.' However, the Company does not
intend to purchase or construct its own intranational transmission facilities in
any of its markets unless required to do so in order to receive regulatory
approval to operate. Accordingly, variable costs will continue to be a majority
of the Company's cost of services for the foreseeable future.

The Company's cost of services is affected by the volume of traffic
relative to its owned facilities and facilities leased on a point-to-point fixed
cost basis and capacity leased on a per minute basis with volume discounts. To
the extent that volume exceeds capacity on leased facilities that have been
arranged for in advance, the Company is forced to acquire capacity from
alternative carriers on a spot rate per-minute ('overflow') basis at a higher
cost. Acquiring capacity on an overflow basis has a negative impact on margins,
but enables the Company to maintain uninterrupted service to its customers. See
'Risk Factors--Short Operating History; Entrance into Newly Opening Markets;
Margins,' and '--Inability to Predict Traffic Volume.'

EFFECT OF DEREGULATION ON EUROPEAN COST OF SERVICES

The Company's current cost structure varies from country to country, in
part, as a result of the different level of regulatory policies in place in each
country. In general, the Company's cost structure is lower in countries that
have been substantially deregulated than in those which are partially
deregulated. In countries that are not substantially deregulated, the Company's
access to the local exchange network is subject to more expensive means (i.e.,
leased lines or dial-in access). This results in higher costs to the Company for
carrying international traffic originating within a country and terminating in
another country. In addition, local regulations in many countries restrict the
Company from purchasing capacity on international cable and fiber systems. The
Company must instead either enter into long-term lease agreements for

international capacity at a high fixed cost or purchase per-minute of use
termination rates from the dominant carrier. Deregulation in countries in which
the Company operates is expected to permit the Company to (i) interconnect its
switches with the local exchange network and (ii) purchase its own international
facilities. The Company believes that as a result of deregulation, its cost
structure will improve. Deregulation is also expected to permit the Company to
terminate international inbound traffic in a country which will result in an
improved cost structure for the Company as a whole. However, the foregoing is a
forward-looking statement and there can be no assurance that deregulation will
proceed as expected or lower the Company's cost of services.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

The Company's selling, general and administrative expenses consist of costs
incurred to support the continued expansion of RSL-NET, the introduction of new
services and the provision of ongoing customer service. These costs are
principally comprised of costs associated with employee compensation, occupancy,
insurance, professional fees, sales and marketing (including sales commissions)
and bad debt expenses. In addition, as the Company commences operations in
different countries, it incurs significant start-up costs, particularly for
hiring, training and retention of personnel,

41
<PAGE>

leasing of office space and advertising. In addition, the Company's selling,
general and administrative expense includes the settlement of various claims and
disputes relating to pre-acquisition periods.

The Company has grown and intends to continue to grow by establishing
operations in countries that are in the process of being deregulated and that
originate and terminate large volumes of international traffic or offer other
strategic benefits. Each of the Company's operations is in a different stage of
development. The early stages of development of a new operation involve
substantial start-up costs in advance of revenues. Upon the commencement of such
operations, the Company generally incurs additional fixed costs to facilitate
growth. The Company expects that during periods of significant expansion,
selling, general and administrative expenses will increase materially.
Accordingly, the Company's consolidated results of operations will vary
depending on the timing and speed of the Company's expansion strategy and,
during a period of rapid expansion, will not necessarily reflect the performance
of the more established Local Operators.

FOREIGN EXCHANGE

The Company is exposed to fluctuations in foreign currencies relative to
the U.S. dollar, as its revenues, costs, assets and liabilities are, for the
most part, denominated in local currencies. The results of operations of the
Company's subsidiaries, as reported in U.S. dollars, may be significantly
affected by fluctuations in the value of the local currencies in which the
Company transacts business.

The Company recorded a foreign currency translation adjustment of $4.7
million for the year ended December 31, 1997. 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.

The Company incurs settlement costs when it exchanges traffic via operating
agreements with foreign correspondents. These costs currently represent a small
portion of total costs; however, as the Company's international operations
increase, it expects that these costs will become a more significant portion of
its cost of services. Such costs are settled by utilizing a net settlement
process with the Company's foreign correspondents comprised of special drawing
rights ('SDRs'). SDRs are the established method of settlement among
international telecommunications carriers. The SDRs are valued based upon a
basket of foreign currencies and the Company believes that this mitigates, to
some extent, its foreign currency exposure. As the Company establishes
operations in countries the currencies of which are not represented in SDRs, the
Company will consider the implementation of hedging policies, as appropriate.

The Company has monitored and will continue to monitor its currency
exposure. See 'Risk Factors--Devaluation and Currency Risks.'

ACQUISITION ACCOUNTING

Since its formation in 1994, the Company has expanded its revenues,
customer base and network through internal growth and acquisitions. All of its
acquisitions were negotiated on an arm's length basis with unaffiliated third
parties. The Company accounted for all of its acquisitions of controlling
interests using the purchase method of accounting and, accordingly, the
respective purchase prices have been allocated to the assets acquired and
liabilities assumed based on their estimated fair values at their dates of
acquisition. The excess of the purchase price over the estimated fair values of
the net assets acquired has been recorded as goodwill, which is being amortized
over a 15-year period. For periods prior to April 1, 1996, the Company had
included 100% of the losses of its loss generating subsidiaries in its results
of operations because the book value of the minority interests in these
subsidiaries has been reduced to below zero. The Company'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.'

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RESULTS OF OPERATIONS

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 is 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 same period this year 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 same period this year. 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
acquisitions. 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 and acquisitions.

COST OF SERVICES. 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 is 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 is primarily attributable to the Company's
U.S. operations' cost of services, which represent 66.6% of the Company's total
cost of services. The Company's European operations have generated greater gross
margins (19.2% for the year ended December 31, 1997) than the Company's U.S.
operations (9.1% for the year ended December 31, 1997). The Company is currently
seeking to purchase additional capacity on routes on which it has experienced,
or anticipates experiencing, increasing overflow traffic as a result of the
Company's significant increase in traffic. In addition, the Company's prices to
customers utilizing these routes are often adjusted to take into account an
increased expectation of overflow traffic.

GROSS MARGINS. The Company's consolidated gross margins decreased to 11.8%
for the year ended December 31, 1997 from 13.1% for the year ended December 31,
1996. Gross margins in the United States decreased to 9.1% from 10.4% for the
year ended December 31, 1997 as compared to the same period in 1996. Gross
margins in the Company's European operations decreased to 19.2% for the year
ended December 31, 1997 from 21.3% for the year ended December 31, 1996.
Although the Company anticipated U.S. and European gross margin improvements
during 1997, rapid growth in excess of the Company's expectations continued to
cause traffic overflow and gross margin pressure.

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 reasons
previously provided for revenues and cost of services above. As a percent of
U.S. revenues, the Company's U.S. selling, general and administrative expense
decreased to 19.6% for the year ended December 31, 1997 from 20.5% in the
comparable period last year. As a percent of European revenues, the Company's
European selling, general and administrative expense decreased to 50.4% for the
year ended December 31, 1997 from 60.6% in the comparable period last year. The
Company's consolidated selling, general and administrative expense in Europe is
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.
Selling, general and administrative expense as a percentage of revenues will
continue to increase as a result of start-up costs and infrastructure expansion
attributable to new local operations.

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 is primarily attributable to the increased amortization
of goodwill recorded as a result of the Company's acquisitions. Depreciation and

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amortization expense is expected to increase in the future as the Company
acquires additional businesses and assets.

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 Notes and the proceeds from the Initial Public Offering.

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. Interest expense will increase subtantially in future periods
due to the interest payments on the 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 is due primarily to the full year of U.S. operations that is
consolidated in the 1996 results of operations compared to only three months of
the Company's U.S. operations consolidated in the historical statement of
operations for 1995. The Company experienced an increase in commercial customers
at each of the Company's operations. The Company's Swedish, Finnish and U.K.
operations began generating revenues in May 1996 and contributed approximately
$7.8 million to 1996 revenues. The Company purchased Sprint's international
voice operations in France and Germany in May 1996. These operations contributed
approximately $13.1 million to 1996 revenues. The Company's European operations
generated minimal revenues in 1995. For the year ended December 31, 1996,
approximately 24% of the Company's revenues were generated from the Company's
European operations. The Company expects European operations to increase as a
percentage of its total consolidated revenues as the Company proceeds with its
expansion of its operations in geographic areas outside the U.S. The foregoing
is a forward-looking statement and there can be no assurance in this regard.
Factors which could affect such statement include (i) changes to or the
Company's inability to effect its growth strategy, (ii) regulatory actions or
inactions which adversely affect the Company's existing operations or ability to
expand outside of the U.S. and (iii) changes in the competitive and economic
environments in each of the Company's existing and new markets.

In connection with the Company's shift in marketing focus to small and
medium-sized businesses, the Company determined in December 1995 that certain

carrier customers provided the Company with margins below its targeted levels
for margin contribution. Accordingly, the Company established new pricing
structures and terminated service to the low or zero margin customers which did
not agree to the new pricing structures. In addition, the Company terminated
service in February 1996 to its largest wholesale customer because of such
customer's inability to pay for past services. This customer represented
approximately 11% of ITG's revenues in 1995. The Company has commenced legal
proceedings to recover amounts owed to the Company by such customer. The Company
has also instituted stricter credit criteria to reduce its bad debt exposure.

To compensate for the loss of such revenues, the Company accelerated its
U.S. sales efforts to small and medium-sized businesses during 1996, resulting
in increased sales to this segment.

COST OF SERVICES. Cost of services increased to $98.5 million for the year
ended December 31, 1996 from $17.5 million for the year ended December 31, 1995,
an increase of 463%. This increase is due primarily to the full year of U.S.
operations that is consolidated in the 1996 results of operations compared to
only three months of the Company's U.S. operations consolidated in the
historical statement of operations for 1995. As a percentage of revenues, cost
of services decreased to 86.9% for the year ended December 31, 1996 from 94.1%
for the year ended December 31, 1995. The decrease in cost of services as a
percentage of revenues is primarily attributable to the Company's growing
European revenues which generate greater gross margins (21.3% in 1996) than the
Company's U.S. operations (10.4% in 1996) and, to a lesser extent, to a decrease
in overflow traffic and increased utilization of the Company's operating
agreements. The Company is currently seeking to purchase additional capacity on
routes on which it has experienced, or anticipates experiencing, overflow
traffic.

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<PAGE>

In addition, the Company's prices to customers utilizing these routes are often
adjusted to take into account an increased expectation of overflow traffic.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the year ended December 31, 1996 increased to $38.9
million from $9.6 million for the year ended December 31, 1995. This increase is
primarily attributable to the Company's investment in sales personnel and
marketing expense in order to generate increased revenue. Costs for start-up and
expansion of the Company's U.K., Dutch, Finnish and Swedish Local Operators
represented 30.1% and 5.6% of the Company's total selling, general and
administrative expense for the years ended December 31, 1996 and 1995,
respectively, although they only accounted for 9.9% and less than 1.0% of the
Company's total revenues for the same periods. Selling, general and
administrative expense as a percentage of revenues will vary from period to
period as a result of new Local Operators' start-up costs. For existing Local
Operators however, such costs are not expected to increase in proportion to
revenues.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 689% to $6.7 million for the year ended December 31, 1996 from
$849,000 for the year ended December 31, 1995. This increase is primarily

attributable to the increased amortization of goodwill recorded as a result of
acquisitions. For the years ended December 31, 1996 and 1995, amortization of
goodwill amounted to approximately $2.9 million and $548,000, respectively.
Depreciation and amortization expense is expected to increase in the future as
the Company acquires additional businesses and assets. The Company depreciates
its switches over a five- to seven-year life, office equipment is depreciated
over their estimated useful lives which range from three to seven years and its
investments in MIUs and IRUs are depreciated over a 15-year life. Goodwill is
amortized over 15 years.

INTEREST INCOME. Interest income increased to $4.0 million for the year
ended December 31, 1996 from $173,000 for the year ended December 31, 1995,
primarily as a result of interest earned on the net proceeds from the 1996 Units
Offering.

INTEREST EXPENSE. Interest expense increased to $11.4 million for the year
ended December 31, 1996 from $194,000 for the year ended December 31, 1995, an
increase of approximately $11.2 million, as a result of interest related to the
1996 Notes ($9.2 million) and borrowings under the Revolving Credit Facility
($748,000) and the remaining amounts due to interest related to capital leases.
Interest expense will increase substantially in future periods due to the
interest payments on the Notes.

PERIODS PRIOR TO JANUARY 1, 1995

The Company had no operations in 1994 other than insignificant salary
expense. The Company's predecessor, ITG, had $4.7 million of revenue and a net
loss of $3.1 million for the year ended December 31, 1994. In 1995, the Company
had virtually no operations other than its initial investments in its U.S.
operations and an investment in Cyberlink Europe, which had no material
operations. The majority of the Company's investments (in terms of acquisition
value) were made at the end of the third quarter of 1996. Therefore, a
comparison of historical results for 1995 compared to 1994 would not be
meaningful. Accordingly, the discussion set forth above focuses on the
historical information for the years ended December 31, 1995, 1996 and 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred significant operating and net losses, due in large
part to the start-up and development of the Company's operations and RSL-NET.
The Company expects that such losses will increase as the Company implements its
growth strategy. Historically, the Company has funded its operating losses and
capital expenditures through capital contributions, borrowings and a portion of
the net proceeds of each of the 1996 Units Offering and the Initial Public
Offering.

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 are 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 such 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
such operating losses, capital

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<PAGE>

expenditures and acquisitions with a portion of the net proceeds of the 1996
Units Offering and a portion of the net proceeds of the Initial Public Offering.
At December 31, 1997, the Company had $83.1 million of working capital as
compared to $124.9 million of working capital at December 31, 1996.

The Company had 'other income' for the year ended December 31, 1997 of
approximately $7.0 million, primarily as a result of favorable amendments to
certain transmission capacity agreements which resulted in elimination of
previously accrued charges.

The Company's indebtedness was approximately $304.6 million at December 31,
1997, of which $300.0 million represents long-term debt and $4.6 million
represents short-term debt. Substantially all such indebtedness is attributable
to the 1996 Units Offering.

The 1996 Notes, which are guaranteed by the Company, are redeemable, at the
Issuer's option, subsequent to November 15, 2001, initially at 106.1250% of
their principal amount, declining to 103.0625% of their principal amount for the
calendar year subsequent to November 15, 2002, and at 100% of the principal
amount subsequent to November 15, 2003. In addition, at any time on or before
November 15, 1999, the Company may redeem up to $90.0 million of the original
aggregate principal amount of the 1996 Notes with the net proceeds of a sale of
common equity at a redemption price equal to 112.25% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
redemption, provided that at least $210.0 million of aggregate principal amount
of the 1996 Notes remains outstanding immediately after such redemption. On
April 3, 1998 the Company redeemed $90.0 million of the original aggregate
principal amount of the 1996 Notes with the net proceeds of the Initial Public
Offering, paying $90,000,000 in principal, $11,025,000 as a premium and
$4,226,250 in accrued interest, for a total of $105,251,250.

The Indentures contain certain restrictive covenants which impose
limitations on the Company and certain of its subsidiaries' ability to, among
other things: (i) incur additional indebtedness, (ii) pay dividends or make
certain other distributions, (iii) issue capital stock of certain subsidiaries,
(iv) guarantee debt, (v) enter into transactions with shareholders and
affiliates, (vi) create liens, (vii) enter into sale-leaseback transactions, and
(viii) sell assets.

In connection with the issuance of the 1996 Notes, the Company was required
to purchase and maintain restricted marketable securities, which are held by the
trustee under the 1996 Indenture, 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, as adjusted to reflect the use of
such securities in connection with the Equity Clawback, was approximately $47.9

million.)

In February 1998, the Issuer consummated the U.S. Dollar Notes Offering of
$200.0 million 9 1/8% Senior Notes due 2008 and $328.1 million ($200.0 million
initial accreted value) 10 1/8% Senior Discount Notes due 2008. In March 1998,
the Issuer consummated the German Debt Offering of DM296.0 million
(approximately $99.1 million initial accreted value) 10% Senior Discount Notes.
A portion of the net proceeds from the German Debt Offering may be used to
purchase, in the open market, an undetermined amount of the 1996 Notes.

The Company has a $7.5 million Revolving Credit Facility. There were no
amounts outstanding under the facility at December 31, 1997 or as of the date of
this Prospectus. The Revolving Credit Facility is payable on April 1, 1998 and
accrues interest, at the Company's option, at (i) the lender's prime rate per
annum or (ii) LIBOR plus 1% per annum.

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.

One of the Company's primary equipment vendors has also provided to certain
of the Company's subsidiaries an aggregate of approximately $50.0 million vendor
financing facility to fund the purchase of additional capital equipment. At
December 31, 1996 and 1997, approximately $39.0 million and $15.8 million were
available, respectively, under this facility. Borrowings from this vendor accrue
interest at a rate of LIBOR plus either 5.25% or 4.5% depending on the equipment
purchased. See 'Description of Certain Indebtedness.'

The Company believes that the net proceeds from the U.S. Dollar Notes
Offerings and the DM Debt Offering, the remaining net proceeds of the Initial
Public Offering (net of the Equity Clawback) and of the

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<PAGE>

1996 Units Offering, together with the available borrowings under the Revolving
Credit Facility, vendor financing and short-term lines of credit and overdraft
facilities from local banks, should be sufficient to fund the Company's planned
expansion of its existing operations and operating losses for approximately 12
to 24 months. If the Company's plans or assumptions change or prove to be
inaccurate, if the Company consummates acquisitions in addition to those
currently contemplated, if the Company experiences unanticipated costs or
competitive pressures or if the net proceeds from the U.S. Dollar Notes
Offerings and the DM Debt Offering, the Initial Public Offering (net of the
Equity Clawback) and the 1996 Units Offering, together with the proceeds of the
Revolving Credit Facility and such vendor financing otherwise prove to be
insufficient, the Company may be required to seek additional capital. See 'Risk
Factors--Historical and Future Net Operating Losses and Negative EBITDA; Need
for Additional Capital; Substantial Indebtedness; Ability to Service
Indebtedness.'

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 its operations
and the Company will expand its current footnote disclosure to meet this
criteria.

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 Company is upgrading its computer system in an effort to prevent major
system failures which could result upon the transition from 1999 to the year
2000. There can be no assurance that any such upgrades will be successfully
implemented or that additional steps will not be necessary. The Company
anticipates that it will be fully Year 2000 compliant by the end of 1999;
however 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 position or results of operations. The Company
currently estimates that the cost to become Year 2000 compliant is approximately

$2.0 million. Costs associated with software modification are expensed by the
Company when incurred. See 'Risk Factors-- Dependence on Effective Information
Systems; Year 2000 Technology Risks,' 'Business--U.S. Operations' and
'--European Operations--General.'

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BUSINESS

COMPANY OVERVIEW

The Company is a rapidly growing multinational telecommunications company
which provides a broad array of international and domestic telephone services to
both carrier and commercial (including business and residential) accounts. These
services include international long distance calling to over 200 countries and
calling card, private line and value-added telecommunications services. The
Company focuses on providing international long distance voice services to small
and medium-sized businesses in key markets. The Company currently has revenue
generating operations in the United States, the United Kingdom, France, Germany,
Sweden, Finland, The Netherlands, Denmark, Italy, Switzerland, Australia,
Venezuela and Belgium. The Company is in the process of commencing start-up
operations through its investments in majority-owned entities in Austria, Spain,
Luxembourg and Japan, and through its 39% investment in a Portuguese
telecommunications company. In 1996, approximately 66% of all international long
distance telecommunications minutes originated in these markets. The Company
plans to expand its operations and network into additional key markets which
account for a significant portion of the world's remaining international
traffic.

The Company was formed by Ronald S. Lauder and Itzhak Fisher in 1994 to
capitalize on the opportunities created by the growth, deregulation, and
profitability of the international long distance market. The Company has grown
rapidly through acquisitions, strategic investments and joint ventures, as well
as through the start-up of its own operations in key markets. The Company began
its operations in the United States in order to establish a presence in the
largest and one of the most deregulated telecommunications markets in the world,
and has since expanded its presence to key European countries in anticipation of
continued telecommunication deregulation in the EU. In order to pursue
opportunities in Latin America, the Company formed in mid-1997 a joint venture
with entities controlled by the Cisneros Group. The Company has also established
a presence in Asia and the Pacific Rim through its operations in Australia and
the start-up of its operations in Japan. The Company intends to continue to
expand rapidly by establishing or acquiring operations in additional countries
as they deregulate.

COMPANY STRUCTURE

The Guarantor was incorporated under the laws of Bermuda in March 1996. The
Guarantor is the successor in interest to RSL Communications Inc., a British
Virgin Islands corporation ('RSL BVI'), which was amalgamated into the Guarantor
in July 1996. RSL BVI is the successor in interest to RSL Communications, Inc.,
a Delaware corporation ('RSL Delaware'), which was merged into RSL BVI in April
1995. RSL Delaware and RSL BVI were incorporated in July 1994 and April 1995,

respectively.

UNITED STATES. The Company operates in the United States through ITG, an
international telecommunications carrier which operates through its 97% owned
subsidiary, RSL USA. The Company owns 100% of ITG. During the first quarter of
1997, the Company completed the consolidation of its U.S. operations under RSL
USA. RSL USA's operations include the operations of Cyberlink and LDM.

EUROPE. RSL Europe is a United Kingdom limited liability company and a
wholly-owned subsidiary of the Company, which was formed in March 1995 to
implement the Company's pan-European strategy. RSL Europe also serves as the
Company's Local Operator in the United Kingdom. In addition, RSL Europe owns RSL
Sweden and RSL Finland.

In May 1996, the Company acquired the international long distance voice
businesses of Sprint in France and Germany through its indirectly wholly-owned
subsidiaries RSL COM France S.A., a French corporation ('RSL France'), and RSL
COM Deutschland GmbH, a German limited liability company ('RSL Germany').

In October 1996, RSL Europe acquired a 75% interest in the operations of
RSL Netherlands, an international reseller which had been operating in the
Netherlands since October 1995, and, in October 1997, acquired the remaining 25%
interest in RSL Netherlands. RSL Netherlands in turn owns 100% of RSL COM
Danmark A/S ('RSL Denmark'). RSL Denmark commenced operations in Denmark in May
1997.

In April 1997, 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%. RSL

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Europe and the other two principal shareholders of Maxitel entered into a
shareholders' agreement pursuant to which, among other things, (i) certain major
decisions by the Board of Directors of Maxitel can only be approved with the
consent of RSL Europe and (ii) RSL Europe has the right to designate two
directors to the Board of Directors of Maxitel.

In August 1997, RSL Europe acquired an 85% interest in the operations of
RSL Italy, an international telecommunications reseller that had been operating
in Italy since 1995.

In August 1997, RSL Europe acquired 50% of RSL Austria, which is initially
commencing its operations as an international telecommunications reseller. After
the completion in September 1997 of certain corporate formalities, the Company's
interest was increased to 90% of RSL Austria.

In December 1997, RSL Europe acquired a 78.5% interest in RSL Switzerland,
a Swiss long distance telecommunications carrier.

In December 1997, RSL Europe formed a joint venture to establish RSL Spain.
RSL Europe has a 90% interest in the joint venture, and the managing director of
RSL Spain owns the remaining 10% interest.

In December 1997, RSL Europe acquired a 90% interest in RSL Belgium, an
international telecommunications carrier in Belgium, which in turn owns 100% of
RSL Luxembourg, an international telecommunications carrier in Luxembourg.

ASIA AND PACIFIC RIM

The Company carries on its Australian operations through its wholly-owned
subsidiary, RSL COM Asia, Ltd. ('RSL Asia'). The Company carries on other
regional operations in Asia and the Pacific Rim through RSL COM Asia Pacific
Ltd. In October 1996, RSL Asia established RSL Australia to carry on its
Australian operations. In April 1997, RSL Australia acquired substantially all
of the commercial contracts of Pac Star, an Australian switchless reseller.

As of October 1997, RSL Australia acquired 100% of the issued capital of,
and the copyrights in the billing software used by, the members of the Call
Australia Group, leading Australian fixed wire resellers. In November 1997, RSL
Australia purchased 85% of EZI, an international reseller and prepaid calling
card services provider. In March 1998, the Company acquired, in two separate
transactions, the mobile telephony customer base of each of First Direct
Communications Pty., Limited and Link Telecommunications Pty., Ltd., two
switchless mobile telecommunications resellers in Australia.

In March 1997, the Company also incorporated RSL Japan, a wholly-owned
subsidiary of RSL Asia, to initiate the Company's operations in Japan. To date,
the Company has not generated revenues in Japan. The Company expects to commence
generating revenues in Japan in mid-1998.

LATIN AMERICA

The Company conducts its operations in Latin America through RSL Latin
America. RSL Latin America is a joint venture which is 51% owned by the Company
and 49% owned by the Cisneros Group of Companies. RSL Latin America owns 100% of
RSL Venezuela, a telecommunications carrier in Venezuela.

In February 1998, the Company entered into a joint venture agreement with
PCM Comunicaciones, S.A. de C.V., a licensed long distance telecommunications
service provider in Mexico, to provide domestic and international long distance
telecommunications services primarily to small and medium-sized businesses in
Mexico. The transaction is subject to regulatory approval in Mexico and other
customary conditions to closing.

INDUSTRY OVERVIEW

International telecommunications involves the transmission of voice and
data from the domestic telephone network of one country to that of another.
According to industry sources, international long distance switched
telecommunications traffic worldwide increased from 28 billion minutes in 1989
to

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70 billion minutes in 1996 and is projected to reach between approximately 99
and 151 billion minutes by the year 2000. The market for these services is
highly concentrated in more developed countries, with Europe and the United
States accounting for approximately 41% and 27%, respectively, of the industry's
1996 total worldwide minutes of use.

International telecommunications is currently recognized as one of the
fastest growing and most profitable segments of the long distance
telecommunications industry, having experienced a compounded growth in total
minutes of 14.0% per annum from 1989 to 1996. The industry has been undergoing
rapid change due to the continued deregulation of the telecommunications market,
the construction of additional infrastructure and the introduction of new
technologies, which has resulted in increased competition and demand for
telecommunications services worldwide. Forecasts by the International
Telecommunications Union (the 'ITU'), a worldwide telecommunications
organization under the auspices of the United Nations, and Analysys Ltd., a
telecommunications industry consulting group, project this trend to continue
with an annual growth rate between approximately 11% and 17% through the year
2000.

The size of each market in which the Company currently operates or is in
the process of commencing operations is set forth below.

<TABLE>
<CAPTION>
COUNTRY'S
1996 MARKET COUNTRY'S PERCENTAGE
SIZE IN OF 1996 GLOBAL
COUNTRY OF MILLIONS OF INTERNATIONAL
OPERATION MINUTES(1) TRAFFIC
- ------------------- ----------- --------------------
<S> <C> <C>
USA................ 18,874 27.0
Germany............ 5,100 7.3
UK................. 4,569 6.5
France............. 3,116 4.5
Italy.............. 2,124 3.0
Switzerland........ 1,936 2.8
Japan.............. 1,698 2.4
The Netherlands.... 1,534 2.2
Australia.......... 1,305 1.9
Belgium............ 1,228 1.8
Spain.............. 1,189 1.7
Sweden............. 1,026 1.5
Austria............ 960 1.4
Denmark............ 573 0.8
Portugal........... 340 0.5
Finland............ 332 0.5
Luxembourg......... 249 0.4
Venezuela.......... 139 0.2
----------- --------
46,292 66.4%
</TABLE>

- ------------------
(1) All data, with the exception of U.S. outbound traffic, were taken from
Telegeography 1997/1998, which is published by Telegeography, Inc. and the
International Telecommunications Union. U.S. data were derived from FCC Rule
Section 43.61 filings which are publicly available.

The increasing pace of deregulation in telecommunications is evidenced by
the recent 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,

50
<PAGE>

although there can be no assurance of such enactment. 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 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.

[Chart]
MAC/JOBS/16715/CHART 1.1

<PAGE>

- ------------------
Source: Analysys Ltd.

* Prices have declined and are expected to continue to decline. Accordingly,
growth in revenues is expected to be substantially less than growth in
minutes. The data presented above constitutes a forward-looking statement.
Important factors that could cause actual minutes of use to differ materially
from the forward-looking data above are noted herein. See 'Risk Factors--Risks
Associated with Rapidly Changing Industry' and '--Government Regulatory
Restrictions.'

U.S. INTERNATIONAL LONG DISTANCE MARKET

The U.S. international long distance switched telecommunications market
accounted for approximately 27% of global international long distance call
originations in 1996 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.

The profitability of the traditional U.S.-originated international long
distance market is principally driven by the difference between settlement rates
(i.e., the rates paid to other carriers to terminate an international call) and
billed revenues. Increased competition arising from deregulation and
privatization and pressure arising from increased global trade have brought
about reductions in settlement rates and end-user prices, reducing termination
costs for United States based carriers. Based on FCC data for the period 1989
through 1996, per minute settlement payments by United States based carriers to
foreign PTTs fell 39%, from $.70 per minute to $.43 per minute. The FCC issued
in September of 1997 benchmark levels for settlement rates, of between $.15 and
$.23 per minute, in an effort to reduce the settlement rates charged and paid by
U.S. carriers. Such benchmark rates are substantially lower than the current
settlement rates. The FCC has encouraged carriers to use alternative measures to
terminate international traffic other than through operating agreements and the
international settlement process. The Company believes that as settlement rates
and costs for leased capacity continue to decline, international long distance
will continue to provide high revenue and gross profit per minute, although
there can be no assurance in this regard.

Although the Company focuses on the international telecommunications
market, it also provides domestic long distance services to many of its

customers. According to the FCC, the U.S. domestic long distance market grew in
total minutes at an annual compound rate of approximately 7.6% from 1989 to 1995
while the U.S.-originated international long distance market grew in total
minutes at an annual compound rate of approximately 15.4% during the same
period. Although the domestic market is much larger, the profit per minute of
use for international traffic has generally been higher than for domestic
traffic. See '--U.S. Operations.'

EUROPEAN INTERNATIONAL LONG DISTANCE MARKET

The European international long distance market is the largest in the
world, accounting for approximately 29 billion minutes or approximately 41% of
worldwide minute originations in 1996 based on minutes.

The European PTTs have historically had monopolies on providing telephone
services, making the cost of international telephone calls from Europe much
higher than similar calls from the United States. In addition, the Company
believes that many PTTs have used profits from international traffic to
subsidize domestic calling. Customers in many European markets are not able to
obtain a number of value-added features taken for granted in the United States,
such as itemized billing, touch tone dialing, voice mail and other enhanced
services. Deregulation, together with significant advances in technology that
have decreased the cost of providing services and allowed the provision of more
sophisticated

52
<PAGE>

value-added features, have made it possible for other telephone companies to
compete with the PTTs in providing international voice telecommunications
services.

A 1990 EC directive (the '1990 Directive') required each EU member state to
liberalize by 1992 all telephony services offered over its PSTN, with the
exception of basic 'voice telephony' and specified other services. The effect of
the 1990 Directive was that value-added services and the delivery of voice
telephony to closed user groups (i.e., to a specified group of people) were
liberalized to the extent that they do not come within the 1990 Directive's
definition of basic 'voice telephony.' Different interpretations as to whether a
service should be regarded as a value-added service or as a basic 'voice
telephony' service, and as to what constitutes a closed user group, have led to
variations among the EU member states as to what services may be delivered and
the manner in which they can be provided. In addition, certain EU member states
are late in enacting the relevant legislation implementing the 1990 Directive,
which has created further regulatory uncertainty. Under a 1996 EC directive (the
'Full Competition Directive'), voice telephony services were to be liberalized
by January 1, 1998 in most of the EU member states. However, many 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 distance calls, as well as
improvement in both the services offered and the level of overall responsiveness
to customers, have occurred. Although pricing has become competitive in both
countries, pricing levels continue to permit services to be profitably provided.
There can be no assurance, however, that this will continue to be the case.

LATIN AMERICAN INTERNATIONAL LONG DISTANCE MARKET

Various countries in Latin America have taken initial steps towards
deregulation in the telecommunications market during the last few years. Certain
countries have competitive local and/or long distance sectors, most notably
Chile, which has competitive operators in all sectors. Colombia has granted an
operating license to a local company, ending the monopoly of Colombia's PTT. In
addition, various Latin American countries have completely or partially
privatized their national carriers, including Argentina, Chile, Mexico, Peru and
Venezuela. Venezuela has also legalized value-added services and has targeted
January 1, 2000 as the date for deregulation. Brazil has adopted a
constitutional amendment requiring the privatization of its PTT, the
establishment of an independent regulator and the opening of the
telecommunications market to competition. In Mexico, the former PTT has been
privatized, its exclusive long distance concession expired in August 1996 and it
has been obligated to interconnect with the networks of competitors since
January 1997. Competition in Mexico has been initiated and an independent
regulator has been established.

OTHER MARKETS

Deregulation is spreading throughout many of the major markets in Asia and
the Pacific Rim. A significant number of countries in these regions are
signatories of the GBT Agreement and have committed to open their markets to
competition. Australia, the Philippines and New Zealand have

53
<PAGE>

already opened their markets to full competition and Hong Kong, Indonesia,
Japan, South Korea and Malaysia have legalized the provision of value added
services. Hong Kong also licensed three new carriers in 1997 to provide local
service and Singapore will be licensing two new operators in 1998.

Despite the growth and deregulatory trends in the global telecommunications
market, the pace of change and emergence of competition in many countries,
particularly in parts of Africa, remains slow, with domestic and international
traffic still dominated by the government-controlled PTTs. The Company believes
that international carriers, such as itself, which have already established, or
are in negotiations to establish, operating agreements with the PTTs in many
such countries will be well-positioned to capture the benefits of increasing
traffic flows as the telecommunications infrastructure in these countries is
expanded.

The Company believes that the trend towards deregulation creates numerous
opportunities for international carriers such as itself to increase their access
to developing telecommunications markets and to increase their market share for
calls both into and out of these emerging markets. The Company believes that
many of the emerging carriers in developing countries, as well as certain
recently privatized PTTs, are likely to seek alliances, partnerships or joint
ventures with other international carriers to expand their global networks, and
that the size of many of the markets may lead them to seek alliances with
carriers like the Company as opposed to the mega-carriers, such as Uniworld,
Concert and Global One. Although there is a general trend towards deregulation
worldwide, there can be no assurance regarding the timing or the nature of
deregulation, whether any deregulation will occur at all or whether any trend
towards deregulation will not be reversed in any particular country.

INTERNATIONAL LONG DISTANCE MECHANICS

A long distance telephone call generally consists of three segments:
origination, transport and termination.

[Chart]
MAC/JOBS/16715/chart 2.1

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

54
<PAGE>

not prohibited) to operate as an international long distance carrier in most of
its current markets, the range of services that may be offered pending further
deregulation is, in certain countries, limited to value-added services and
closed-user group services. See '--European Operations'. Any carrier that

desires to transport switched calls to or from a particular country must, in
addition to obtaining a license or other permission (if required), enter into
operating agreements or other arrangements with the PTT or another international
carrier in that country or lease capacity from a carrier that already has such
arrangements.

ORIGINATION

The Company can originate calls in all countries where it currently has
revenue-generating operations and route them to its local switch through a
dedicated telephone line between the customer and the Company's switch (commonly
known as 'direct access'). In addition, depending on local regulations, the
Company can originate calls by using the PSTN. In the United States, all
licensed long distance carriers are provided with 'equal access,' which allows
such carriers to directly interconnect with the PSTN on the same basis. As a
result of equal access, all long distance calls from a customer are routed
directly to the Company's local switch without requiring the customer to dial
any special access numbers. This is accomplished by the local telephone company
in the customer's territory programming its network to direct all of the
Company's customers' long distance calls to the selected switch. Outside the
United States, certain restrictions require the Company to utilize one of the
following methods to originate a call via the PSTN.

PREFIX DIALING. Prefix dialing allows a customer to access the Company's
switch via the PSTN by dialing a multiple digit access code (the 'prefix')
assigned to the Company prior to dialing the destination telephone number.
Prefix dialing requires direct interconnection with the operator of the PSTN,
typically the PTT or another major carrier, in order to allow the PSTN to
recognize the prefix and direct the call to the Company's switch. In order to
make the use of prefix dialing service transparent to the customer, the Company
can either program the customer's telephone system or install an auto-dialer
device to automatically dial the prefix on behalf of the customer when
appropriate. The auto-dialer device is purchased, installed and maintained by
the Company.

In Europe, prefix dialing is currently provided only by the Company's
operations in the United Kingdom, Sweden and Finland because prefix dialing
service requires interconnection with the PSTN, which is either not currently
permitted or not implemented by the Company in the remainder of Europe. 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 second half of 1998, at the earliest. See 'Risk Factors--Government
Regulatory Restrictions.' In France, RSL France has been granted a four digit
prefix by the French national telecommunications regulatory authority and has a
pending application for 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 EU

55
<PAGE>

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. In instances where a carrier has not purchased interests in a
cable prior to the time when the cable was placed in service, the carrier is
only permitted to acquire capacity on the cable through the purchase, by way of
a lump sum payment, of an IRU. The fundamental difference between an IRU holder
and an owner of MIUs is that the IRU holder is not entitled to participate in
management decisions relating to the cable system. Between two countries, a
carrier from each country owns a 'half-circuit' of a cable, essentially dividing
the ownership of the cable into two equal components. In the event that the
Company commences utilizing its remaining operating agreements, it will have to
either invest in additional IRUs or MIUs, or acquire satellite capacity, to
enable it to connect to a carrier in such countries. Additionally, any carrier
may generally lease circuits on a cable from another carrier with an MIU or IRU.
Satellite circuits are also obtained on a leased basis.

Traditionally, international long distance traffic is exchanged under
bilateral operating agreements between international carriers which own MIUs or
IRUs on the same fiber optic cable system in two countries or through leased
satellite capacity. Operating agreements provide for the termination of traffic
in, and return of traffic to, the carriers' respective countries at negotiated
accounting rates. Operating agreements typically provide that carriers will

return to their correspondents a percentage of the minutes received from such
correspondents ('return traffic'). In the United States, this percentage is set
by the FCC to be the relative ratio of U.S. inbound traffic to U.S. outbound
traffic to each country. In addition, operating agreements provide for network
coordination and accounting and settlement procedures between the carriers.

Accounting rates are reciprocal between each party to an operating
agreement. For example, if a foreign carrier charges a U.S. carrier $0.30 per
minute to terminate a call in the foreign country, the U.S. carrier would charge
the foreign carrier the same $0.30 per minute to terminate a call in the United
States. All U.S. carriers face a single accounting rate for each country unless
otherwise permitted by the FCC.

The term 'settlement' rates arises because carriers pay each other for
traffic exchanged utilizing the accounting rate structure on a net basis
determined by the difference between inbound and outbound traffic between them.
Settlement rates differ between countries. For example, a U.S. carrier may have
a settlement rate of $.30 to terminate a call in one country and $.35 in another
country while a U.K. carrier may have settlement rates of $.45 and $.40 to
terminate calls in the same countries. By linking its Local Operators over owned
and leased facilities, the Company bypasses this traditional settlement process
and lowers its cost of transporting its international traffic.

The FCC has established a policy that effectively prohibits foreign
carriers from discriminating among U.S. carriers (the 'International Settlements
Policy'). The International Settlements Policy requires: (1) the equal division
of accounting rates; (2) non-discriminatory treatment of U.S. carriers; and (3)
proportionate return of inbound traffic. In December 1996, the FCC modified its
rules to allow alternative payment arrangements that deviate from the
International Settlements Policy between any U.S. carrier and any foreign
correspondent in a country that satisfies the FCC's effective competitive
opportunities test. The FCC also stated that it would allow alternative
settlement arrangements between a U.S. carrier and a foreign correspondent in a
country that does not satisfy the effective competitive opportunities test, if
the U.S. carrier can demonstrate that deviation from the International
Settlements Policy will promote market-oriented pricing and competition while
precluding abuse of market power by the foreign correspondent.

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<PAGE>

In September 1997, the FCC adopted new lower benchmark rates that U.S.
carriers must pay to foreign carriers in order to settle calls originating from
the U.S. The benchmark rates were adopted to remedy a growing U.S. settlement
deficit, which results from the imbalance between outbound and inbound call
volume, which is estimated to be approximately 70% higher than the actual cost
of terminating international calls. Three benchmarks were established to fit the
income level of foreign countries, with a low of $0.15 per minute for high
income countries and a high of $0.23 per minute for low income countries.
Implementation periods, ranging from one year for high income nations to five
years for nations with less than one telephone line for every 100 inhabitants,
were also adopted. The FCC also determined that a grant of authorization to
provide international facilities-based switched service from the United States
to an affiliated market would be conditioned on the carrier's foreign affiliate

offering U.S. international carriers a settlement rate at or below the relevant
benchmark. If, after the carrier has commenced service to an affiliated market,
the FCC learns that the carrier's service offering has distorted market
performance, the FCC will take enforcement action. The new benchmarks are
intended to promote a competitive environment in which rates will more closely
reflect costs; officials also hope that the FCC's order will encourage
multilateral negotiations and lead to an international agreement to reduce costs
further.

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 foreign
carriers with less than 50% market share in each relevant market on the foreign
end should be treated as non-dominant. These open entry policies will apply to
applicants of all World Trade Organization member countries, including those who
are not signatories to the GBT Agreement.

A carrier which does not have an operating agreement with a carrier in a
particular country is able to provide international service to that country by
leasing capacity from a carrier which does. Until recently, in many foreign
countries there was only one operating agreement in place between that country's
PTT and a foreign based international carrier as a result of monopolies held by
such PTTs. For example, in the United States, before the deregulation of
telecommunications services, AT&T was the only carrier that had operating
agreements with foreign carriers. However, after deregulation, MCI and Sprint,
over a period of years, each negotiated its own operating agreements with
foreign carriers. Since then, a limited number of other U.S.-based companies,
including the Company, have been able to secure operating agreements with
foreign carriers. Operating agreements are expected to become increasingly
available as international markets deregulate and new carriers that are seeking
business partners emerge in countries previously subject to a PTT monopoly or
other limited competition market. See 'Risk Factors--Risks Associated with
Rapidly Changing Industry' and '--Risk of Loss, or Diminution of Value, of
Operating Agreements.'

For an international long distance company without operating agreements or
its own international network, the profitability of originating international
traffic is a function of, among other things, the difference between its billing
rates and the rates it must pay another carrier to transport and terminate such
traffic.

For a company with operating agreements that provide for return traffic,
the profitability of originating international traffic will be a function of,
among other things, the volume of its originating traffic and its billing rates,
as well as the relative volume of its originating and return traffic minutes.
Under the settlement process, a carrier which originates more traffic than it
receives, will, on a net basis, make payments to the corresponding carrier,
while a carrier which receives more traffic than it originates will receive
payments from the corresponding carrier. If the incoming and outgoing flows of
traffic are equal in the number of minutes transmitted, there is no net
settlement payment to either carrier. Therefore, in addition to all of the other

factors that can influence the profitability of a long distance carrier, the
profitability of an international carrier is dependent on its relative flows of
incoming and outgoing traffic.

Return traffic can be more profitable than outgoing traffic when there is a
significant disparity in the cost of terminating traffic between the two
countries that are party to an operating agreement. This is

57
<PAGE>

particularly true for a U.S. carrier because the actual cost for a U.S. carrier
to terminate a call in the United States generally is less expensive than the
settlement cost under an operating agreement with any foreign carrier and return
traffic does not involve any origination costs. The receipt of more profitable
return traffic reduces the aggregate cost to a carrier to transport traffic
pursuant to an operating agreement, and carriers with significant levels of
return traffic can price their international transport and termination services
at a discount to the settlement cost and recover the discount on the return
traffic.

TERMINATION

The termination of an international call occurs after the call has been
transported to an international carrier in the destination country. The
international carrier then transports the call to a local exchange network where
it is then terminated. In many countries, only the PTT is licensed to provide
international long distance service and local exchange services.

COMPANY STRATEGY

FOCUS ON PROVIDING INTERNATIONAL LONG DISTANCE SERVICES

The international long distance public switched telecommunications market
generated an estimated $61.3 billion in revenue and 70.0 billion minutes in 1996
with minutes of use projected to grow at a rate of between approximately 11% and
approximately 17% per annum through the year 2000. The Company currently has
significantly less than a 1% share of this market. Although prices are expected
to decline, resulting in substantially slower growth in revenues, the
international long distance switched telecommunications market is currently
recognized as one of the fastest growing and most profitable segments of the
long distance industry. The Company provides a broad array of international and
domestic services but focuses on 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 $.29 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. 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.'

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ESTABLISH OPERATIONS IN KEY MARKETS

The Company establishes operations in markets that (i) originate or
terminate significant levels of international traffic and (ii) are, or are in
the process of being, deregulated. The Company has structured its Local
Operators to be managed independently and expects its Local Operators to be
separately profitable, while benefiting from centralized strategic, financial
and network support provided by the Company. The Local Operators are each
developed to be stand-alone operations shaped by local market conditions and
preferences. The Company currently provides each Local Operator with centralized
business development, financial, and marketing support and has commenced a plan
of operation to provide billing and RSL-NET management. See '--Headquarters
Operations.' The Company currently operates or is in the process of commencing
operations in 18 markets that, in the aggregate, accounted for approximately 66%
of all international long distance telecommunications minutes in 1996. By
expanding its operations into additional key markets, in which significant
volumes of international traffic are originated and terminated and which are in
the process of deregulation, the Company seeks to rapidly establish a broad
market coverage. The Company currently plans to initiate operations in five to
10 additional countries over the next two years which, together with the markets
in which the Company currently operates, accounted for approximately 75% of the
1996 worldwide international long distance minutes of use.

The Company enters additional countries primarily by acquiring a
controlling interest in existing companies that are either operating in or are
in the process of establishing operations in the international
telecommunications industry in that country or by means of a start-up operation
which the Company funds and manages on its own or together with a local
strategic partner. In the case of an acquisition, the Company seeks to acquire
an international carrier which matches the criteria set forth below. In the case
of the establishment of new operations, the Company identifies an experienced

and professional management team to develop the new operation. In the formation
of a joint venture, the Company identifies a local strategic partner with a good
reputation and knowledge of the local marketplace.

ENTER MARKETS EARLY

The Company believes that its early entry into deregulating markets will
provide it with an advantage in obtaining licenses as they become available over
carriers which attempt to enter the market after deregulation is complete. The
securing of necessary licenses, which is limited in some circumstances to a
small number of entrants into the deregulating market, is essential to the
Company's strategy and the Company will endeavor to enter into arrangements with
a licensee to gain access to such market if the Company cannot secure
successfully the license.

In countries that are in the process of deregulating, competition is often
restricted to a limited number of specific services. In such cases, the Company
employs a two-stage market penetration strategy whereby initially the Company
takes advantage of current market conditions and, within the context of its
established strategy and service offerings, provides the fullest range of
services permissible under local regulation. The Company thereby gains an early
toehold in the market, affording it the opportunity to become a recognized
international carrier and to begin to build its own marketing channels and
customer base prior to the opening of markets to broader competition.
Subsequently, as deregulation permits, the Company expands its service offerings
thereby giving the Company the

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opportunity to increase the amount of business it does with its existing
customers and to increase its market penetration by building on its name
recognition, marketing channels and expanded service offerings to attract
additional customers. However, there can be no assurance regarding the timing or
extent of deregulation in any particular country. See 'Risk Factors--Government
Regulatory Restrictions.'

TARGET SMALL AND MEDIUM-SIZED BUSINESSES

significant market opportunities because it has traditionally been underserved
by the major global telecommunications carriers and the PTTs, which offer their
lowest rates and best services primarily to higher volume multinational business
customers. The Company believes that in most markets, small and medium-sized
businesses account for a significant percentage of international calling traffic
and will continue to do so in the future.

Small and medium-sized businesses account for the majority of all
businesses. For example, the EU estimates that there are 15 million small and
medium-sized businesses in the EU and that the businesses that employ fewer than
100 workers in the aggregate account for more than one half of all EU employment
and almost half of all business revenue. In addition, Europe's small to
medium-sized businesses are projected to produce total telecommunications
revenues larger than those of the major multinational business sector. For the
year ended December 31, 1997, approximately 40% of the Company's revenues were
derived from sales to other carriers, 43% were derived from commercial
customers, including small and medium-sized businesses, and 17% were derived
from calling card customers.

DEVELOP A COST COMPETITIVE GLOBAL NETWORK

Most of the Local Operators maintain network switching facilities to
establish POPs to provide international voice and other telecommunications
services in their markets. The Company presently has an international gateway
and/or a domestic switch located in each of New York, Los Angeles, London,
Paris, Frankfurt, Rotterdam, Amsterdam, Stockholm, Helsinki, Sydney, Melbourne,
Brisbane, Vienna, Copenhagen, Lisbon and Caracas. The Company intends to link
its current and future switches via owned international facilities or leased
capacity to form an integrated network for international telecommunications. By
integrating its current and future POPs into RSL-NET, the Company believes that
it will be able to originate, transport and terminate traffic utilizing its own
network, thereby bypassing the high costs associated with the transport of the
international portion of a call through a third party carrier. This is expected
to enable the Company to reduce significantly its operating costs for calls that
originate and terminate in markets in which the Company has Local Operators, as
well as its overall operating costs. See '--Network' and '--Network Strategy.'

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

PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES

The Company intends to enter additional markets and expand its operations
through acquisitions, joint ventures, strategic alliances and the establishment
of new operations. The Company is continuously reviewing acquisition
opportunities and seeks to acquire control of businesses with an established
customer base, compatible operations, licenses to operate as an international
carrier, experience with additional or emerging telecommunications products and
technologies and/or experienced management. The Company intends to pursue
acquisitions which it believes will expand or enhance its current operations by
providing the Company with the opportunity to enter additional key markets or to
strengthen its operations in an existing market. The Company also seeks to enter

into joint

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ventures and strategic alliances which the Company believes will enhance its
ability to grow its business. For example, the Company has entered into a joint
venture with the Cisneros Group and a strategic alliance with Ericsson.

The Company believes that many of the emerging carriers in developing
countries, as well as certain recently privatized PTTs, are likely to seek
alliances, partnerships or joint ventures to compete more effectively in their
local markets and abroad. The Company actively seeks out opportunities for
alliances with such carriers to expand the scope of its network and improve its
competitive abilities. The Company believes that it is uniquely positioned as an
attractive alternative strategic partner for such carriers as opposed to the
mega-carriers such as Uniworld, Concert and Global One.

LEVERAGE EXPERTISE OF MANAGEMENT TEAM

MANAGE NETWORK INVESTMENTS

The Company seeks to manage the investment of capital within its network on
an incremental basis in order to maximize the efficiency of its capital
expenditures program. In general, the Company transmits traffic by leasing
capacity on a variable cost per minute basis until it believes that a direct
investment in facilities or a fixed cost lease arrangement between countries or
on a particular route is warranted. When the cost of owning facilities is
justified relative to leasing facilities, and the Company invests in such
facilities, the Company generally experiences higher gross margins and lower
overall transmission costs. See 'Risk Factors--Short Operating History; Entrance
Into Newly Opening Markets; Margins' and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview.'

NETWORK

The Company generally utilizes a single switch technology platform for its
international gateway switches comprised of state-of-the-art Ericsson AXE-10
switches. The Company believes that a single switch platform 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 other global
carriers which may employ multiple switch technologies. The Company is also
pursuing alternative transmission technologies such as the Internet in order to
minimize its operating costs. See 'Summary--Certain Recent
Developments--Internet Telephony/Acquisition of Delta Three' and '--Internet
Telephony Operation--General.'

OWNED FACILITIES

The Company's owned facilities include switches and interests in
international fiber optic cable systems. The Company's 12 international gateway
switches are located in New York, Los Angeles, London, Stockholm, Paris,
Frankfurt, Helsinki, Vienna, Milan, Copenhagen, Lisbon and Sydney. In addition,
the Company operates seven domestic switches in Rotterdam, Amsterdam, New York,
London, Melbourne, Brisbane and Caracas, although the Company's Australian
switches cannot be used until they are interconnected with the Australian PSTN
which is anticipated to occur by the end of the first quarter of 1998. The
Company's existing international gateway switches conform to international
signaling and transmission standards provided for in CCITT recommendations and
allow the Company to interconnect its network to existing PTT and carrier
networks around the world while maintaining quality and dependable services. The
Company's switch and related equipment purchases have been financed by Ericsson
and the Company believes it has developed a favorable working relationship with
Ericsson which will enable the Company to benefit from Ericsson financing for
future Ericsson purchases, although there can be no assurance that this will be
the case. See 'Risk Factors--

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Dependence on Equipment Supplier.' The Company's switching facilities are easily
expandable to accommodate growth.

The Company also owns capacity on certain international digital fiber optic
cable systems. The Company's United States operations currently own IRUs on four
undersea fiber optic cable systems, which are the CANUS-1, CANTAT-3, PTAT-1 and
the TAT-12/TAT-13 systems and owns MIUs on six undersea fiber optic cable
systems, which are the Antillas I, Odin, Rioja, APCN, NPCard JASAURUS systems.
The Company also owns MIUs on the CMC and MCC terrestrial fiber optic cables.
The Company also is currently in negotiations to purchase IRUs for its United
States operations on the Columbus II, TPC-5, America's One, T-C and Eurafrica
Systems and on Ariane-2, Aphrodite and GEMINI undersea fiber optic cable
systems. The Company's Swedish operation owns IRUs on the CANTAT-3 and MIUs on
the KATTEGAT-1 transoceanic cables. The Company's United Kingdom operations owns
IRUs on the UK-NL14, CANTAT-3 and PTAT-1 undersea fiber optic cable systems and
plans to purchase MIUs on the FLAG and GEMINI transoceanic cable systems. The
Company's Australian operation owns MIUs on the APCN, JASAURUS and NPC undersea
fiber optic cable systems and on the CMC and MCC terrestrial fiber optic cables.

In April 1998, the Company agreed to acquire two strands of dark fiber
(the 'Fiber') in Mexico from Bestel Communicaciones, S.A. de CV for
approximately $8.7 million. The Fiber will be connected through 14 cities in
Mexico, including Mexico City, Guadalajara and Monterrey. Installation of the
Fiber is expected to be completed by the end of the third quarter of 1998. The
Company will be accepting delivery of the Fiber at different stages as
completed.

OPERATING AGREEMENTS

The Company's operating agreements provide the Company with the ability to
transmit traffic directly to foreign carriers over jointly-owned facilities

rather than utilizing leased capacity. The Company's U.S. operations currently
hold 18 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, the Netherlands, New Zealand, Norway, Russia, Sweden, Switzerland,
Suriname and the United Kingdom. The Company currently only transmits and
terminates traffic pursuant to operating agreements in the Dominican Republic,
the United Kingdom, Denmark, The Netherlands, Russia and Norway. See '--U.S.
Operations--U.S. Network Architecture.' The Company believes that these
agreements constitute significant assets and that the Company is one of only a
limited number of carriers within the United States that has been able to secure
a significant number of operating agreements with non-U.S. carriers. The
Company's Swedish operation currently utilizes two operating agreements which
enable it to exchange traffic with Denmark and Norway. Operating agreements
lower the cost of transmitting traffic by allowing the Company to utilize its
MIUs and IRUs to correspond directly with its foreign carriers, thereby
eliminating the cost of transmitting a call through leased capacity. In
addition, if the Company can develop sufficient traffic into another country, it
can potentially develop an additional source of revenue through return traffic
or other settlement arrangements with the PTT or other carriers in that country.
See 'Risk Factors--Risk of Loss, or Diminution of Value, of Operating
Agreements.'

LEASED CAPACITY

For all routes where the Company does not own facilities or utilize
operating agreements, the Company utilizes leased capacity. In addition, the
Company has arrangements with local carriers in each country in which it
originates traffic to transmit domestic calls from its end-users to its switch.
The Company does not own or intend to own intra-national transmission facilities
networks, unless required to do so in order to receive regulatory approvals to
operate, due to the general availability of such facilities for lease and the
high cost associated with the development and operation of a transmission line
infrastructure. Leased capacity is typically obtained on a per minute basis or a
point-to-point fixed cost basis. The Company utilizes leased satellite
facilities for traffic to and from those countries where digital undersea fiber
optic cables are not available or cost-effective. Leased satellite facilities
are also

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used for redundancy when digital undersea cable service is temporarily
interrupted. See 'Risk Factors--Dependence on Other Carriers.'

NETWORK MANAGEMENT SYSTEMS

The Company generally utilizes redundant, highly automated state-of-the-art
telecommunications equipment in its network and can, in cases of component or
facility failure, use the network management facilities to redirect calls to
another carrier's facilities. Back-up power systems and automatic traffic
re-routing enable the Company to provide a high level of reliability to its
customers. Computerized automatic network monitoring equipment allows fast and
accurate analysis and resolution of service problems. The Company maintains

separate network management facilities for its U.S. and European operations
which maintain separate least cost routing systems. U.S. network management is
operated from the Company's facilities in New York and Los Angeles. European
network management for the United Kingdom, Sweden, France, Germany and Finland
is operated centrally from the Company's switching center in London. See 'Risk
Factors--Risks Associated with Rapidly Changing Industry,' '--Dependence on
Effective Information Systems; Year 2000 Technology Risks' and '--Dependence on
Equipment Supplier.'

NETWORK STRATEGY

The Company has switches in most of the countries in which it operates. The
Company has connected its current switches and expects to connect its future
switches by investing in IRUs and MIUs or fixed point-to-point leases, subject
to local regulatory conditions. In countries in which the Company currently
operates without a switch and in each new market the Company enters, the Company
intends to install its own switching facilities which will then be integrated
into RSL-NET to improve the Company's overall cost structure. The Company
transmits traffic from its Local Operators on capacity leased on a variable cost
per minute basis until it believes an investment in owned facilities or fixed
cost lease arrangements between countries or on a particular route is warranted.
To the extent traffic can be transported between two Local Operators over MIUs
and IRUs or lines leased on a fixed cost point-to-point basis, there is almost
no marginal cost to the Company. In such cases, the Company will be able to
bypass the traditional settlement process for the transport and termination of
international traffic. The settlement rates for international correspondence are
based on negotiated rates which are, according to the FCC, up to 70% higher than
the actual cost. The Company expects that it will realize significant cost
savings by routing an increasing portion of its international traffic over its
owned and leased facilities as opposed to corresponding via operating
agreements, in particular, once the markets in which the Company operates
deregulate sufficiently to allow interconnect. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Effect of
Deregulation on European Cost of Services.' In addition, each of the Local
Operators maintains an independent cost structure for all other traffic. By
directly linking its operations, the Company will be better able to implement a
least cost routing system. See '--International Long Distance Mechanics,' 'Risk
Factors--Short Operating History; Entrance into Newly Opening Markets; Margins,'
'--Inability to Predict Traffic Volume' and '-- Dependence on Other Carriers.'

For calls to countries where the Company does not have a Local Operator,
the Company seeks to establish and utilize an operating agreement with a local
carrier. While this method generates higher costs than transporting calls
between the Local Operators, it has the potential to generate higher margin
return minutes. The Company has not generated significant return minutes to
date. In addition, by strategically establishing its Local Operators and
obtaining operating agreements, the Company will seek to arbitrage the
differential in settlement rates between countries.

Origination and termination of traffic is accomplished through transmission
capacity leased on a per minute basis, except where the Company provides private
line service. As the Company's operations in a given country grow, the Company
generally will install additional POPs and lease transmission capacity (on a
point-to-point fixed cost basis) to connect the new POP to its international

gateway switch. This will enable the Company to reduce its dependence on
relatively high cost-per-minute leases by reducing the distance calls will
travel over capacity leased on that basis.

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PRODUCTS AND SERVICES

The Company offers a variety of long distance products and services to its
customers, as well as certain value-added services. Although the Company focuses
on providing international service, it also provides domestic long distance
services, where permitted under relevant regulations, to accommodate customer
demands.

The Company provides the services described below to the extent permitted
by local regulation in each of its markets. See 'Risk Factors--Government
Regulatory Restrictions' and '--Industry Overview,' '--International Long
Distance Mechanics,' '--U.S. Operations' and '--European Operations--General.'

LONG DISTANCE SERVICES

The Company provides domestic and international long distance service to
its customers. Currently, the Company provides domestic services in the United
States, the United Kingdom, Sweden, Belgium, Finland and Australia. In the
United States, the Company is certified and tariffed or otherwise authorized to
originate intrastate, interexchange calls in 48 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 all countries where the Company has revenue
generating operations.

CALLING CARDS

The Company's calling cards are either prepaid cards or post paid cards
(for which calls are billed in arrears). The Company's calling cards provide
international call access to or between all countries that have direct dial
service with the United States. Prepaid calling cards are similar products to
other calling cards, but differ in marketing focus as well as the method of
payment. A customer purchases a prepaid card that entitles the customer to make
phone calls on the card up to some limit. The Company also offers prepaid
calling cards that are rechargeable. In all cases, the card number is
proprietary to the customer and is secured by means of a personal identification
number. The Company currently offers these products only in the United States,
the United Kingdom, the Netherlands, Australia, Denmark and Venezuela. The
Company plans to offer these products in the rest of its existing European
operations through PrimeCall Europe during 1998 and throughout its global
operations in subsequent years, to the extent permitted under the laws and
regulations of each market.

VALUE-ADDED SERVICES

The Company currently offers facsimile services in all of its operations,
toll-free dialing in the United States, the United Kingdom and Sweden and
Internet access in Sweden and, in the future, intends to offer most of these
services in all markets where it is allowed to do so. The Company also intends
to introduce the following services: (i) voice mail, (ii) video-teleconferencing
and (iii) international directory assistance. In addition, through Delta Three,
the Company can offer international long distance voice service to niche markets
utilizing the Internet at discounts to standard international calls.

INTERNATIONAL TERMINATION AND TRANSIT

International termination on a wholesale basis involves the sale of long
distance services to another long distance company that resells the services to
its customers. Selling bulk capacity to other carriers generates traffic
sufficient to allow the Company to obtain volume discounts when it leases
capacity on a per-minute basis and allows it to generate revenues from otherwise
unused capacity on its MIUs, IRUs and point-to-point leases. See 'Risk
Factors--Dependence On Carrier Customers.' Transit traffic

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originates and terminates outside of a particular country, but is transported
through that country on a carrier's network to take advantage of lower costs.

MARKETING AND SALES

The Company markets its services on a retail basis to business customers
and residential customers and on a wholesale basis to other carriers and
resellers. The Company markets its products and services utilizing its direct
sales forces, networks of independent agents and distributors and telemarketing
organizations. The Company's services are currently marketed independently by
the Local Operators. The Company is in the process of developing a universal
brand name to provide uniformity of image and brand and to create worldwide name
recognition for the Company.

CUSTOMERS

SMALL AND MEDIUM-SIZED BUSINESSES. The Company's target customers are
small and medium-sized businesses with significant international telephone usage
(i.e., generally in excess of $500 in international phone calls per month). The
Company has focused on industries which traditionally have significant volumes
of international traffic. The Company believes that small and medium-sized
businesses have generally been underserved by the major global
telecommunications carriers and the PTTs, which have focused on offering their
lowest rates and best services primarily to higher volume multinational business
customers. The Company offers these companies significantly discounted
international calling rates as compared to the standard rates charged by the
major carriers and PTTs.

Small and medium-sized businesses account for the majority of all
businesses and the Company believes that in most markets they account for a

significant percentage of the international long distance traffic originated in
those markets. For example, the EU estimates that in 1996 there were 15 million
small and medium-sized businesses in the EU and that businesses that employ
fewer than 100 workers accounted for more than one half of all EU employment in
1996, almost half of all business revenue and about $30 billion per year in
total telecommunications revenue. Consistent with that, it is estimated that in
the United Kingdom, companies employing fewer than 250 people spend about $6
billion to $7 billion per year on telecommunications services as compared to
about $8 billion to $9 billion per year for businesses employing in excess of
250 people and only $3 billion per year for the multinationals.

CARRIERS. The Company offers international termination and transit traffic
services to other carriers, including resellers, on a wholesale basis, as a
'carriers' carrier.' The Company's carrier customers as a group currently
provide the Company with a relatively stable customer base and thereby assist
the Company in projecting potential utilization of its network facilities. In
addition, the significant levels of traffic volume generated by such carrier
customers enable the Company to obtain large usage discounts based on volume
commitments. The Company believes that revenues from its carrier customers will
continue to represent a significant portion of the Company's overall revenues in
the future. See 'Risk Factors--Inability to Predict Traffic Volume' and
'--Dependence on Carrier Customers.'

RESIDENTIAL CUSTOMERS. The Company targets customers with high
international calling patterns. The Company intends to capitalize on global
immigration patterns to target ethnic communities, primarily for its prepaid
calling cards.

LARGE CORPORATIONS. The Company services a number of large corporations
through its French and German operations (acquired as part of the Sprint
Acquisitions) and the Company intends to continue to target large corporations
on those routes where the Company's cost structure allows it to compete
effectively. See '--French Operations.'

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SALES CHANNELS

The Company markets its services through a variety of channels, including
sales by the Company's own direct sales force, indirect sales through
independent agents, sales through distributors and telemarketing sales by
outside organizations, depending, in part, on local business practices and
business environment. Residential customers are targeted in neighborhoods with
large immigrant populations, utilizing resource materials and third party market
research companies, among other things, as resources for this information.
Carriers typically approach the Company directly to inquire about the Company's
transit and termination rates.

DIRECT SALES. Most Local Operators maintain their own direct sales force.
Generally, sales representatives are compensated on a commission basis. The
Company intends to expand its direct sales force as it expands existing
operations and commences additional operations.

INDEPENDENT AGENTS. The Company also markets its services through an
indirect sales force comprised of independent agents. These agents include,
among others, companies which have a sales force or individuals marketing
related services such as telephone systems, copiers, fax machines or other
office equipment to the Company's targeted customer segments. The Company's
indirect sales force will be an increasingly important sales channel to access
the local market.

DISTRIBUTORS. The Company has relationships with a small number of
distributors in the United States as well as the Netherlands for the sale of
prepaid cards and will seek such arrangements in its other markets.

TELEMARKETING SALES. As a result of its acquisition of LDM, the Company's
U.S. operations have added its own telemarketing sales as an additional
marketing channel. The Company's European operations use the services of
independent telemarketing sales organizations in certain of their markets.
Telemarketing sales are targeted to cover small to medium-sized business and
niche residential customers. Commercial customers are offered long distance
services while residential customers are offered long distance services and a
blend of prepaid and similar products.

CUSTOMER MANAGEMENT

The Company strives to provide competitive pricing, high quality services
and superior customer service and believes that these factors are important to
its ability to compete effectively. The Company works closely with its customers
to develop competitively priced telecommunications and value-added services
(such as customized billing) that are tailored to their needs. The Company has
invested significant resources in developing information systems to allow it to
provide accurate and timely responses to customer inquiries. In addition, each
of the Local Operators has customer service and engineering personnel available
to address service and technical problems as they arise.

HEADQUARTERS OPERATIONS

The Company directs the operations of its subsidiaries, including the
management of the growth of current operations, the expansion of operations into
new markets, the formation of potential joint ventures and strategic alliances
and the execution of acquisitions. Identification of key markets, determination
of the vehicles through which, as well as the manner in which, the Company will
enter such markets and oversight of the implementation of these plans is also
done at the Company level. The Company is continuously reviewing and considering
investment and acquisition opportunities. The Company intends to pursue
acquisitions which it believes will expand or enhance its current operations.
All such acquisitions will be identified, negotiated and consummated at the
Company level, generally working together with local and regional management in
cases where the acquisitions supplement existing operations. In addition, the
Company seeks alliances with carriers to expand the scope of the Company's
network and improve its competitive profile.

The Company currently provides centralized financial services for all of
the Local Operators, including financial planning and analysis, cost control and
network management. The Company attempts to coordinate the acquisition of
additional transmission capacity (either leased or purchased)

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with the growth of traffic volumes of each Local Operator. The Company assists
in securing financing and discounts for these expenditures as well as other
capital expenditures through its arrangements with particular vendors. The
Company also maintains global treasury functions, including the management of
cash flows between the Local Operators for the transmission of traffic between
them, as well as the allocation of working capital.

The Company will eventually link all of its switching facilities to a
central billing system administered at the Company level. The Company will
provide the billing information to Local Operators which will then invoice the
customers directly. The invoice will be branded with the Company's name and will
be payable to a Company account in the Local Operator's country.

The Company manages the expansion of RSL-NET, including the acquisition of
additional capacity for existing operations and the integration of developing
and new Local Operators into RSL-NET. The Company coordinates the routing of
traffic on RSL-NET to effect routing on a least cost basis. Least cost routing
involves the programming of the Company's switches to transport international
calls over the route which is most likely to produce the lowest cost to the
Company without compromising call quality. The Company consolidates the least
cost routing information of each of its Local Operators to allow them to take
advantage of each others' cost structure.

The Company is in the process of coordinating the marketing activities of
the Local Operators and defining its own unique approach to branding and
marketing its services on a global basis. In addition, the Company intends to
direct the service offerings of the Local Operators to enable the Company to
provide services to a single customer in more than one country. The Company
intends to then provide the customer with a single bill and designate a primary
customer service representative to address the customer's overall needs.

U.S. OPERATIONS

OVERVIEW

The United States is the largest single market in terms of international
long distance call terminations and originations. The top seven destinations for
U.S.-originated calls in 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 ITG and has grown the business significantly
since then. As of October 1997, the Company acquired a 100% interest in LDM. The
Company operates in the United States as a full service international long
distance carrier with multiple '214' licenses issued under the Communications
Act, which permit it to provide international telecommunications services. The
Company currently has offices located in the New York, Los Angeles and Miami
metropolitan areas. The Company is planning to open additional offices in
several large metropolitan areas by the end of 1999.

The Company primarily operates in the United States through RSL USA. The
Company's predecessor operations in the United States began generating revenues

in May 1990 and the operations have shown considerable growth since then.
International traffic carried by RSL USA has experienced substantial growth.

During 1996, the Company initiated a program focused on enhancing
profitability, revenues and the quality of services to customers. The Company
shifted the marketing focus of its U.S. operations from wholesale 'carriers'
carrier' business to higher margin services targeted at end-user customers in an
effort to increase operating margins. In connection with this effort, the
Company determined that the rates offered to certain customers provided the
Company with inadequate margins. Accordingly, the Company increased rates to
these customers and, as a result, these customers either accepted the rate
increases or terminated their arrangements with the Company, thus reducing the
Company's exposure to low or negative margin business. Beginning in the fourth
quarter of 1996, the Company began restructuring its U.S. operations and
recorded a charge of $750,000 in connection with such restructuring.
Operational, managerial and technical functions were consolidated under a single
organization. The Company has hired experienced management, implemented new
managerial and

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financial controls, and introduced a new marketing focus and plan. Although
these activities, in conjunction with the Company's investment in MIUs, IRUs and
switches, receipt of multiple international operating agreements and increased
focus on customer service, have resulted in rapid growth of the business, gross
margins for the U.S. operations were lower for the year ended December 31, 1997
compared to the year ended December 31, 1996 due to the rapid expansion of the
Company's operations. See 'Risk Factors--Short Operating History; Entrance into
Newly Opening Markets; Margins' and 'Dependence on Other Carriers' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'

SERVICES AND CUSTOMERS

The Company offers its customers in the United States international and
domestic long distance, private line, calling card and value added services.
Since the first quarter of 1996, the Company has been refocusing its U.S.
operations from providing international long distance services to other carriers
to providing international and domestic long distance services to small and
medium-sized businesses as well as certain residential markets.

In addition, through RSL COM PrimeCall, Inc. ('RSL PrimeCall'), the Company
specializes in the provision of prepaid calling cards for niche ethnic markets
and for promotional use by large corporate subscribers in entertainment, retail,
banking and other industries.

MARKETING AND SALES

The Company markets its services and products in the United States through
a variety of channels, including direct sales, indirect sales through
independent agents and distributors. The Company's U.S. operations employ sales
and marketing employees and has had relationships with master agents with an
underlying network of independent agents, distributors and telemarketing sales.
In addition, the Company employs a retail and wholesale sales force dedicated to
the sale of promotional post and prepaid card products. The Company intends to
expand its direct sales force as a part of its growth strategy by adding sales
personnel to its New York City, Los Angeles and Miami metropolitan area sales
offices and by opening additional sales offices in several other large
metropolitan areas by the end of 1999. The Company believes that, due to the
existence of a competitive marketplace in the United States for over a decade,
it can hire capable, experienced sales representatives and managers and that use
of a direct sales force is the most efficient means for it to grow its business.

U.S. NETWORK ARCHITECTURE

The Company operates two international gateway switches in the United
States, an Ericsson AXE-10 located in New York and a Northern Telecom DMS
250/300 located in Los Angeles. The Company plans to add an Ericsson switch to
the existing Northern Telecom switch by the end of the first quarter of 1998 in
order to increase switching capacity. The Company's New York international
gateway switch and Los Angeles international gateway switch conform to CCITT
recommendations and are directly connected to each other via leased lines on a
fixed cost, point-to-point basis. The Company also operates a domestic switch
and a prepaid card platform in each of New York and Los Angeles. The Company is
developing a plan for installation of additional switches in strategic sites
throughout the United States, which may include a third international gateway
switch in Florida. Traffic to Asia and the Pacific Rim is generally routed via
the Company's Los Angeles international gateway switch and traffic to Europe,
Africa and Latin America is generally routed via the Company's New York
international gateway switch.

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The Company currently owns IRUs in four undersea fiber optic cable systems
which are the CANUS-1, CANTAT-3, PTAT-1 and the T-12/TAT-13 systems and owns
MIUs on five undersea fiber optic cable systems, which are the Antillas I Odin,
Rioja, APCN, NPC and JASAURUS systems. The Company also owns MIUs on the CMC and
MCC terrestrial fiber optic cables. The Company also is currently in
negotiations to purchase IRUs for its United States operations on the Columbus
II, TPC-5, America's One, T-C and Eurafrica transoceanic cable systems and on
Ariane-2, Aphrodite and GEMINI undersea fiber optic cable systems.

The Company currently is a party to 18 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, The Netherlands, New Zealand,
Norway, Russia, 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 the operating agreements in the
Dominican Republic, the United Kingdom, Denmark, the Netherlands, Russia and
Norway. The Company transmits call traffic bound for all other destinations
through leased capacity. The remaining operating agreements are inactive because
the Company has not yet invested in international transmission capacity for
those routes, in certain cases because call volume on such routes does not
warrant such an investment. By activating these operating agreements as well as
any additional operating agreements it may obtain, the Company believes it will
be able to significantly lower its costs of terminating international traffic.
The Company's failure to begin transmitting traffic pursuant to any such
operating agreement could lead to the termination of the agreement. See 'Risk
Factors--Risk of Loss, or Diminution of Value, of Operating Agreements.'

The Company also operates the network management control facilities from
which the Company administers and monitors the Company's switches and facilities
and provides customer service, 24-hour network monitoring, trouble reporting and
response procedures, service implementation and billing assistance. The Company
designates a specific customer service representative for each commercial
customer to oversee the installation and maintenance of the phone equipment, the
start-up of service and problem resolution.

INFORMATION SYSTEMS AND BILLING

The Company owns and operates an Electronic Data Systems ('EDS') IXPlus
System that runs on an IBM AS/400 hardware platform. The Company is utilizing
the EDS system in the U.S. to: (i) provide sophisticated billing information
that can be tailored to meet a specific customer's requirements, (ii) provide
high quality customer service, (iii) detect and reduce fraud, (iv) integrate
efficiently additions to its customer base and (v) provide real time traffic and
call detail management. The EDS IXPlus System is operated and maintained by the
Company in its Los Angeles office. The Company has also implemented a customer
care and trouble management system, as well as developed a state of the art
information system that produces, among other things, profitability margin
analysis, routing statistics and overall traffic trends by country, customer,
vendor and switch. In addition, the Company has installed a Wide Area Network
linking all of its offices in the U.S. enabling the use of its systems within
the organization. The Company's information systems are important to its
operations as they allow the Company to assess and determine quickly customer
billing and collection problems, production by and compensation or commissions
owed to agents, sales representatives and distributors, proper pricing for the
Company's services and other matters which are important to the operation of the
Company.

The Company has reviewed the EDS IXPlus System in connection with the Year
2000 problem and the Company expects to receive from its vendor, at no
additional cost to the Company, a Year 2000 compliant version of the EDS IXPlus
System by the end of 1998. The Year 2000 compliant EDS system is expected to be
operational in early 1999. In addition, the Company's standardized desktop and

server configurations and software applications are already Year 2000 compliant.
See 'Risk Factors-- Dependence on Effective Information Systems; Year 2000
Technology Risks.'

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COMPETITION

The Company competes with AT&T, MCI, Sprint, WorldCom and other United
States-based and foreign carriers, many of which have considerably greater
financial and other resources than the Company. Certain of the larger United
States based carriers have entered into joint ventures with foreign carriers to
provide international services. In addition, certain foreign carriers have
entered into joint ventures with other foreign carriers to provide international
services and have begun to compete or invest in the United States market,
creating greater competitive pressures on the Company. The Company believes that
its services are competitive in terms of price and quality with the service
offerings of its U.S. competitors.

REGULATORY ENVIRONMENT

The Company's United States operations are subject to extensive federal and
state regulation. Federal laws and FCC regulations apply to interstate
telecommunications (including international telecommunications that originate or
terminate in the United States), while particular state regulatory authorities
have jurisdiction over telecommunications originating and terminating within the
state. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
domestic or international regulators or third parties will not raise material
issues with regard to the Company's compliance or noncompliance with applicable
regulations or that regulatory activities will not have a material adverse
effect on the Company.

FEDERAL. The FCC currently regulates the Company as a non-dominant carrier
with respect to both its domestic and international long distance services.
Generally, the FCC has chosen not to exercise its statutory power to closely
regulate the charges, practices or classifications of non-dominant carriers.
Nevertheless, the FCC acts upon complaints against such carriers for failure to
comply with statutory obligations or with the FCC's rules, regulations and
policies. The FCC also has the power to impose more stringent regulation
requirements on the Company, to change its regulatory classification, to impose
monetary forfeiture and to revoke its authority. In the current regulatory
atmosphere, the Company believes that the FCC is unlikely to do so with respect
to the Company's domestic service offerings. With respect to the Company's
international services, however, it is possible that the FCC could classify the
Company as dominant for the provision of services on specific international
routes on the basis of the Company's foreign ownership and affiliations or a
determination that the Company had the ability to discriminate against U.S.
competitors. In 1997, for example, the FCC classified Sprint as a dominant
carrier for the provision of U.S. international services on the U.S.-France and
U.S.-Germany routes in connection with investments in Sprint by France Telecom
and Deutsche Telekom.

Among domestic carriers, LECs are currently classified as dominant carriers
with respect to the local exchange services they provide, and no interstate,
interexchange carriers, including RBOCs which are permitted to offer long
distance service outside their service areas, are classified as dominant. Until
recently, AT&T was classified as a dominant carrier, but AT&T successfully
petitioned the FCC for non-dominant status in the domestic interstate,
interexchange and international markets. Therefore, certain pricing restrictions
that once applied to AT&T have been eliminated, likely making AT&T's prices more
competitive than the Company's prices. Nonetheless, the FCC placed certain
conditions on AT&T's 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 or the
United Kingdom, and to provide international telecommunication services by
acquiring circuits on various undersea cables or leasing satellite facilities.
The FCC reserves the right to condition, modify or revoke such domestic and
international authority for violations of the Communications Act or the FCC's
regulations, rules or policies promulgated thereunder. Although the Company
believes the probability to be remote, a rescission by the FCC of the Company's
domestic or international authority or a refusal by the FCC to grant additional
international authority would have a material adverse effect on the Company.

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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 and the United Kingdom and the Company is authorized to resell
international private lines to these points for the provision of basic services
interconnected to the PSTN.

The FCC has promulgated certain rules governing the offering of
international switched telecommunications. Such calls typically involve a
bilateral, correspondent relationship between a carrier in the United States and
a carrier in the foreign country. Until recently, the United States was one of a
few countries to allow multiple carriers to handle international calls; almost
all foreign countries authorized only a single carrier, often a state-owned
monopoly, to provide 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 outbound and inbound
call volume which is estimated to be approximately 70% higher than the actual
cost of terminating international calls. Three benchmarks were established to
fit the income level of foreign countries, with a low of $0.15 per minute for
high income countries and a high of $0.23 per minute for low income countries.
Implementation periods, ranging from one year for high income nations to five
years for nations with less than one telephone line for every 100 inhabitants,
were also adopted. The

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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 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 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 foreign carriers with less than 50% market share in each relevant
market on the foreign end should be treated as non-dominant. These open entry
policies will apply to applicants of all World Trade Oranization 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 48 states and the District of
Columbia and uses a third party carrier to originate calls in states where it
needs, but does not have, authorization to provide services. See 'Risk
Factors--Government Regulatory Restrictions.'

The vast majority of states require carriers to apply for certification to
provide telecommunications services before commencing intrastate service and to
file and maintain detailed tariffs listing the rates for intrastate service.
Many states also impose various reporting requirements and require prior
approval for all transfers of control of certified carriers, assignments of
carrier assets, carrier stock offerings and the incurrence by carriers of
certain debt obligations. In some states, regulatory approval may be required
for acquisitions of telecommunications operations. In the past, the Company has
sought and successfully obtained such approval for its acquisitions.

EUROPEAN OPERATIONS--GENERAL

OVERVIEW

RSL Europe is a wholly-owned subsidiary of the Company. RSL Europe was
formed in March 1995 to implement the Company's pan-European strategy. In
November 1995, RSL Europe acquired a 51% interest of Cyberlink Europe, which,
through its wholly-owned subsidiaries, RSL Finland and RSL Sweden, commenced
operations in May 1996. During the period from August 1996 through March 1997,
RSL Europe acquired the remaining 49% interest in Cyberlink Europe. In May 1996,
the Company acquired the international long distance voice businesses of Sprint
in France and Germany. In October 1996, RSL Europe acquired a 75% interest in
the operations of RSL Netherlands, an international reseller which had been
operating in The Netherlands since October 1995, and, in the fourth quarter of
1997, acquired the remaining 25% interest in RSL Netherlands. RSL Denmark
commenced operations in Denmark in May 1997.

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In April 1997, RSL Europe entered into an agreement with Gerard van Leest,
the founder of RSL Netherlands, and the First Worldwide Network Management &
Consultant N.V. ('FWN'), a corporation wholly-owned by RSL Netherlands' founder,
pursuant to which RSL Europe and FWN are to jointly develop, market and
distribute a prepaid calling card product targeted at select customers
throughout Europe.

In April 1997, RSL Europe acquired a 30.4% interest in Maxitel, a
Portuguese international telecommunications carrier, and has since increased its
ownership interest in Maxitel to 39%. RSL Europe and the other two principal
shareholders of Maxitel entered into a shareholders' agreement, pursuant to
which, among other things, (i) certain major decisions by the Board of Directors
of Maxitel can only be approved with the consent of RSL Europe and (ii) RSL
Europe has the right to designate two directors to the Board of Directors of
Maxitel.

In August 1997, RSL Europe acquired an 85% interest in the operations of
RSL Italy, an international telecommunications reseller that had been operating
in Italy since 1995 providing value-added services.

In August 1997, the Company acquired 50% of RSL Austria, which is initially
expected to commence operations by June 1998 as a switchless international
telecommunications reseller. After the completion, in September of 1997, of
certain corporate formalities, the Company's interest was increased to 90% of
RSL Austria.

In December 1997, RSL Europe acquired a 78.5% interest in RSL Switzerland,
a Swiss long distance telecommunications carrier.

In December 1997, RSL Europe formed a joint venture to establish RSL Spain.
RSL Europe has a 90% interest in the joint venture, and the managing director of
RSL Spain owns the remaining 10% interest.

In December 1997, RSL Europe acquired a 90% interest in RSL Belgium, an

international telecommunications carrier in Belgium, which in turn owns 100% of
RSL Luxembourg, an international telecommunications carrier in Luxembourg.

As of February 25, 1998, the Company had 553 employees in Europe.

INFORMATION SERVICES, SYSTEMS AND BILLING

RSL Europe has developed its own proprietary information and billing system
employing a Hewlett Packard 9000 UNIX server and a Sybase, Inc. ('Sybase')
developed customized software package (collectively, the 'System'). The System
provides for billing, customer service, management information, financial
reporting and related functions. The Company has invested significant resources
into the development of the System and the Company's management worked closely
with Sybase to develop software which reflects the experiences of the Company's
management in the telecommunications industry. The System has been designed to
be easily integrated into the operations of each of its current, planned and
future European Local Operators and may ultimately be used as the centralized
information system for the Company. The System currently provides centralized
billing, customer service, and information systems to the Company's United
Kingdom, Sweden and Finland operations, with France and Germany expected to be
brought online by April 1998. The Company believes that the System is a key
asset of the Company and an important advantage in the management of its growth.

The System provides for sophisticated, automatic, itemized billing that can
be tailored to meet each customer's specific requirements, including customized
tariffs and discount schemes. The Company expects that the System will also
facilitate integration and central oversight of its European operations through
automated data entry by its Local Operators and through easily generated
financial status, sales information, performance and sales commission reports.

The Company has reviewed the System in connection with the Year 2000
problem and has determined that the System is Year 2000 compliant. The Company's
standardized desktop and server configurations and software applications in
Europe are also Year 2000 compliant. The Company is in the process of reviewing
its Ericsson international gateway and domestic switches in Europe in

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connection with the Year 2000 problem and the Company expects that its switches
will be Year 2000 compliant by the end of 1998.

REGULATORY ENVIRONMENT

Since most European countries currently restrict competition to a limited

number of specific services, the Company has developed a two stage market
penetration strategy to capitalize on the current and future opportunities in
Europe. The first step is to take advantage of current market conditions and,
within the parameters of the Company's established service offerings, to provide
the fullest range of services permissible under local regulation. The Company
thereby seeks to become a recognized international carrier in the targeted
countries as its operations grow. The second step, as deregulation permits, is
to build on its name recognition, marketing channels and existing customer base
in the market to expand its service offerings to both existing and new
customers. By the time that the telecommunications markets throughout Europe are
open to broader competition, the Company intends to have established Local
Operators in all major European telecommunications markets. However, there can
be no assurance regarding the timing or extent of deregulation in any particular
country. See 'Risk Factors--Government Regulatory Restrictions.'

The EC issued in 1997 an interconnect directive (the 'Interconnect
Directive'), which is expected to be implemented in various countries at
different times during 1998 and is expected to require the incumbent PTTs to
interconnect to other carriers using CCITT C-7 signaling standards. Such
connection will provide 'Calling Line Identity' ('CLI'), also known as ANI or
PIC, which will allow the Company's customers to access more easily the
Company's local switch (e.g., through prefix dialing instead of dial-in access)
and will remove the local access fee levied in addition to the Company's charge
for the call. After interconnection, rates charged by the PTT for the PSTN
portion of the call are expected to be incurred by carriers at wholesale rates
and it is expected that carriers will be allowed to compete against the PTT in
the domestic long distance market, as well as the international market. However,
the implementation of this or any EC directive by member states is subject to
substantial delay. See 'Risk Factors--Government Regulatory Restrictions.'

Member States have limited flexibility to interpret EC directives. If the
EC determines that a member state's legislation implementing an EC directive
does not adequately do so, the EC may test such interpretation through legal
proceedings in a court of law. This process is time consuming. Accordingly,
while a date has been set for the liberalization of voice telephony services
within the EU, the actual date on which liberalization actually occurs could be
months or years later. See 'Risk Factors--Government Regulatory Restrictions.'

There also may be practical considerations in implementing a directive
which could result in a delay of its implementation, as there are considerable
doubts as to the preparedness of many EC countries for a wide-ranging change.
For example, the negotiation of interconnection agreements can take a
significant amount of time. Even after such agreements are negotiated and
implemented, substantial ongoing disputes with the incumbent PTTs regarding
prices and billing are to be expected.

In an attempt to speed up the market entry of new operators despite the
obstacles referred to above, the Full Competition Directive allowed alternative
entities to the PTTs (typically utility and cable television companies) to
supply infrastructure, beginning July 1, 1996. This permits the Company to
purchase cable capacity from companies other than the local PTTs as such
companies build transmission facilities. To date, however, there has not been
substantial construction of such facilities by competitors to the PTTs in EU
countries, although several member states have enacted national legislation to

adopt the Full Competition Directive.

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Although it is not expected that interconnect will be available and
implemented in most countries of interest immediately, the current regulatory
scheme in Europe nevertheless provides an opportunity for the Company to provide
a range of services immediately in many countries, while putting in place
adequate infrastructure to capitalize on final deregulation when it occurs. 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 United Kingdom originated approximately 4.6 billion minutes of
international traffic in 1996. 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. Customers access these services by direct
access, prefix dialing and dial-in. Direct access services are provided by
connecting customers to the Company's London switches by means of lines leased
from British Telecom or Mercury. Prefix dialing services are provided by means
of access to the Company's London switches by way of the PSTN using the
Company's access codes. The Company's customer base in the United Kingdom
consists primarily of carriers, commercial customers and prepaid account
customers. The Company's current commercial customers include multinationals,
large national companies, as well as small and medium-sized businesses.

MARKETING AND SALES

The Company markets its services in the United Kingdom through a variety of
channels, including direct sales, indirect sales through independent agents, and
telemarketing sales. RSL Europe intends to expand its direct sales force as a
part of its growth strategy by adding sales representatives to its London office
as well as establishing additional sales offices in the United Kingdom. The
Company 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. The Company has acquired one of these agents and is negotiating to
acquire a second, with the strategic aim of providing the Company with local
presence in certain regions of the U.K.

U.K. NETWORK ARCHITECTURE

RSL UK operates two Ericsson switches, one an international gateway switch,
the other a domestic switch, located in London. Prior to December 1996, the
Company was prohibited from owning interests in fiber optic cable coming in or
out of the United Kingdom. As a result, the Company had been transmitting call
traffic bound for destinations outside of the United Kingdom through leased
capacity provided by British Telecom and Mercury. The Company has since
purchased IRUs on the UK-NL14, CANTAT-3 and PTAT-1 undersea fiber optic cable
systems and continues to utilize leased capacity for all other international
destinations. The Company is currently in negotiations to purchase MIUs on the
FLAG and GEMINI transoceanic cable systems. The Company will attempt to acquire
additional MIUs and IRUs as warranted.

COMPETITION

The Company's principal competitors in the United Kingdom are British
Telecom, the dominant supplier of telecommunications services in the United
Kingdom, and Mercury. The Company also faces competition from emerging licensed
public telephone operators (who are constructing their own

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facilities-based networks) such as Energis, and from resellers including ACC
Corporation, WorldCom, Esprit and Global One. The Company believes its services
are competitive, in terms of price and quality, with the service offerings of
its UK competitors.

REGULATORY ENVIRONMENT

The Company was awarded an International Facilities Based
Telecommunications License (an 'IFBTL') in the United Kingdom in December 1996.
An IFBTL entitles the Company to acquire IRUs and MIUs on international
satellite and cable systems, resell international private lines, as well as
interconnect with, and lease capacity at, wholesale rates from British Telecom
and Mercury. In addition, the Company holds an International Simple Resale
('ISR') license in the United Kingdom. An ISR license allows the Company to
resell international private lines, as well as interconnect with, and lease
capacity at wholesale rates from, British Telecom and Mercury.

GERMAN OPERATIONS

OVERVIEW

Germany originated 5.1 billion minutes of international traffic in 1996.
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.

SERVICES AND CUSTOMERS

National and international long distance services are offered by the
Company to members of closed user groups. International long distance services
are further offered to customers that are not members of closed user groups
utilizing direct access over leased lines from Deutsche Telekom. The Company's
current customer base in Germany primarily consists of large national or
multinational corporations and a larger number of small and medium-sized
business customers. See '--Products and Services.'

MARKETING AND SALES

The Company employs direct sales and marketing employees in Germany. The
Company currently has four sales offices in Germany, located in Munich, Hamburg,
Wiehl and 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 in Germany through a variety of channels
including indirect sales, through resellers and agents, and direct sales. The
Company continues to develop a network of independent sales agents to sell its
services in Germany.

GERMAN NETWORK ARCHITECTURE

RSL Germany currently operates a Wyatts MRX 2000 domestic switch in its
offices in Frankfurt, and has installed an Ericsson AXE 10 international gateway
switch, which has been operational since August 1, 1997. International
transmission facilities are leased from international carriers. The Company has
interlinks with other carriers for termination of its international traffic. The
Company is integrating these services into its own systems and is making such
other arrangements as are necessary to ensure these services are provided to the
Company.

COMPETITION

In Germany, the Company competes with facilities-based carriers and
resellers. The Company's principal competitor in Germany is Deutsche Telekom,
the dominant supplier of telecommunications services in Germany. The Company
also faces competition from emerging public telephone operators (who are
constructing their own facilities-based networks) such as Arcor (Mannesmann and
DBKom), O.telo (RWE and VEBA) and VIAG Interkom (VIAG and British Telecom), from
resellers including WorldCom and Viatel, Inc. ('Viatel') and call-back providers
such as TelePassport. After deregulation on January 1, 1998, alternative
networks became available to route and terminate voice traffic. The Company
believes its services are competitive, in terms of price and quality, with the
service offerings of its German competitors.

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REGULATORY ENVIRONMENT

The German Parliament passed the German Telecommunications Act 1996 (the
'German Act'), which became effective August 1, 1996, in order to liberalize the
German telecommunications market. Until January 1, 1998, 'voice telephony' as

defined in the German Act in accordance with the 1990 Directive was only
permitted to be provided by Deutsche Telekom. 'Voice telephony' as defined in
the German Act does not, however, include the delivery of voice telephony to
'closed user groups'. International direct dialing services offered to customers
utilizing direct access over leased lines also do not come within the German
Act's definition of 'voice telephony '.

Under the German Act, licenses for the offering of voice telephony services
are issued to an applicant unless (i) such applicant fails to meet certain good
standing requirements, (ii) such applicant lacks the competence to run a
telecommunications business or (iii) the offering of telecommunications services
by such applicant would be regarded as a danger to public safety. Under the
German Act, Deutsche Telekom is required to permit competitors to be
interconnected to its network. RSL Germany has been granted a Germany-wide,
Class 4 license for public switched telephony services by the Federal Ministry
of Posts and Telecommunications ('Bundes Amt for Post Und Telekommunikation' ).
The Class 4 license permits RSL Germany to transmit voice traffic via the
Company's international telecommunications network.

On January 1, 1998, the last remaining monopoly of Deutsche Telekom, the
'voice telephony' monopoly, ceased to exist. The German Act provides, among
other things, for regulations regarding licensing, rate and interconnection
regulation, numbering and customer protection. A Regulatory Authority has been
established as successor to the former Federal Ministry of Posts and
Telecommunications. The Regulatory Authority has been provided with certain
powers, described in the German Act, in order to promote the introduction of
competition in the German telecommunications market.

DUTCH OPERATIONS

OVERVIEW

The Netherlands originated 1.5 billion minutes of international traffic in
1996. The Company operates in The Netherlands through 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 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 card 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.
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.

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COMPETITION

The Company's principal competitor in The Netherlands is PTT Telecom
Netherlands, the dominant supplier of telecommunications services in The
Netherlands. The Company also faces competition from emerging licensed public
telephone operators (who are constructing their own facilities-based networks)
such as WorldCom, and from mega-carriers including Concert and Global One. The
Company believes its services are competitive, in terms of price and quality,
with the service offerings of its competitors in The Netherlands.

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 leased lines capacity and other leased
facilities, nor the services provided by the Company, requires a license.

A new telecommunications act is expected to take effect by the second half
of 1998. The new act is expected to consolidate the full liberalization of the
Dutch telecommunications market and introduce a new licensing regime. Although
the details of that new regime are not yet certain, the Company expects it will
be required to obtain a registration from the new Regulatory Authority in order
to provide its current services. Such a registration is, however, mainly a
formality, and is not intended to restrict access to the market. Although it is
not part of the current bill, the new telecommunications act may require an
individual license for the provision of voice telephony services between the
Netherlands and non-EU countries. The Company, however, does not believe such a
license will be required for the services it provides in The Netherlands,
although there can be no assurance in this regard.

FRENCH OPERATIONS

OVERVIEW

France originated 3.1 billion minutes of international traffic in 1996. 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.
Dial-in access is currently restricted to closed-user groups. Upon grant of RSL
France's pending application for authorization, pursuant to articles L33.1 and
L34.1 of the Postal and Telecommunications Code, to operate a public network,
dial-in access will no longer be restricted to closed-user groups. The Company
expects such authorization to be granted during 1998, although there can be no
assurance in this regard.

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, as well as certain large national and multinational
businesses that were part of Sprint France's customer base and which remain
customers of the purchased business.

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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 operations employ 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 international gateway switch in its
offices in Paris. RSL France also operates three POPs, one located in each of
Paris, Nice-Sophia Antipolis and Marseilles. The services are today available in
six regions in France which include Paris and the Paris area, Nice, Marseilles,
Lyon, Bordeaux, Toulouse and Lille, with RSL representatives in Paris, Nice,
Marseilles and Toulouse. In addition, the Company intends to install additional
POPs in major business centers outside Paris to lower its cost of providing
services in seven more regions during 1998 which include Montpellier, Nantes,
Grenoble, Reims, Bordeaux, Metz and Dijon. French regulations currently do not

allow the Company to purchase its own international transmission facilities and
it is uncertain when or if the law will be changed. As a result, international
transmission facilities are leased from France Telecom. The Company connected
its French operations to RSL-NET in December 1996.

COMPETITION

The Company's principal competitor in France is France Telecom, the
dominant supplier of telecommunications services in France, and the Modulance
Partenaire International which offers discount long distance services to the
largest commercial customers. The Company also faces competition from emerging
licensed public telephone operators (who are constructing fiber networks in
major metropolitan areas) such as AT&T, Bouygues and CEGETEL and from resellers
including Esprit and Viatel. Upon deregulation, alternative networks currently
under construction are expected to become available to route and terminate
traffic domestically. The Company believes its services are competitive, in
terms of price and quality, with the service offerings of its French market
competitors.

REGULATORY ENVIRONMENT

The services currently provided by the Company in France do not require a
license. In accordance with the Telecommunications Laws passed in July 1996, the
liberalization process is regulated by a new government authority, the French
Telecommunications Authority ('Autorite de regulation des Telecommunications'),
which was established in January 1997. The telecommunications market in France
was scheduled to be liberalized on January 1, 1998. The French
Telecommunications authority is working toward liberalization. In accordance
with the standard terms and conditions and price lists for interconnection with
France Telecom duly approved by the French Telecommunications Authority on April
9, 1997, new operators of public networks would be able to interconnect with
France Telecom's PSTN starting January 1, 1998. The Company has applied for a
license which will permit it 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 would 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 is the only such
operator capable of providing interconnection services on a national scale in
France. The terms and conditions of interconnection offered by France Telecom
would 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 would be available only in
those areas where RSL France has POPs. If this license is granted, the French
government is expected to require the Company to commit approximately $10
million in capital expenditures for infrastructure over the next three to five
years, which is in excess of amounts the Company believes it will spend on
capital expenditures in all of its other European operations. See 'Risk
Factors--Government Regulatory Restrictions.'

In November 1997, RSL France entered into a joint venture agreement with
the Chamber of Commerce and Industry of Marseille Provence (the 'CCIMP') and
Teleport Marseille Provence

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('Teleport'), a licensed telecommunications service provider in Marseille,
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 Marseille and in other
regions of France.

RSL France has filed a complaint with the governmental body in charge of
telecommunications matters regarding the squeeze effects entailed by low retail
tariffs, that RSL France has alleged prevent competition and set barriers to
entry for entrants.

RSL France has requested the French Ministry to withdraw its approval of
certain France Telecom International French Ministry retail tariffs. The
ministry could rule on such request in May 1998.

SWEDISH OPERATIONS

OVERVIEW

Sweden originated approximately one billion minutes of international
traffic in 1996. The Company operates in Sweden through RSL Sweden. The Company
acquired a majority interest in RSL Sweden in November 1995. RSL Sweden is
licensed as an international carrier in Sweden, which permits it to transmit
long distance services nationally and internationally. The Company's Swedish
operations began operating and generating revenues in May 1996.

SERVICES AND CUSTOMERS

The Company offers domestic and international long distance and value-added
services to its customers in Sweden. Customers access the Company's switch
utilizing prefix dialing and direct access. The Company's customer base in
Sweden consists primarily of commercial customers and residential customers.

MARKETING AND SALES

The Company's Swedish operation markets its services through a variety of
channels, including direct sales, indirect sales through independent agents and
telemarketing sales. The Company employs full-time sales and marketing employees
in Sweden. The Company primarily relies on its network of independent sales
agents to sell its long distance calling services in Sweden. In addition, the
Company sells its services through a chain of independent telecommunications
stores with locations throughout Sweden, as well as through a large association
comprised of individuals and businesses. The Company believes that many of its
agents have existing relationships with businesses in the Company's target
market which better position them to identify, and sell services to, prospective
customers.

SWEDISH NETWORK ARCHITECTURE

In Sweden, the Company operates an Ericsson AXE-10 international gateway
switch from its offices outside of Stockholm. RSL Sweden is connected to RSL-NET

by leased facilities. RSL Sweden utilizes its IRUs on the CANTAT-3 transoceanic
cable and resells services from WorldCom and Telia (the former monopoly PTT in
Sweden). RSL Sweden also owns MIUs on the KATTEGAT-1 transoceanic cable system.
RSL Sweden currently has operating agreements with carriers in Denmark and
Norway, as well as direct connections to the Company's operations in the United
Kingdom, United States and Finland.

COMPETITION

The Company's principal competitor in Sweden is Telia, the dominant
supplier of telecommunications services in Sweden. The Company also faces
competition from emerging licensed public telephone operators (which are
constructing their own fiber networks) such as Tele 2 and WorldCom, and from
resellers including Telenordia, Telecom Finland and Tele 8. Upon the completion
of the construction of the new fiber networks, the Company will have alternative
means of routing and terminating calls. The Company believes its services are
competitive, in terms of price and quality, with the service offerings of its
Swedish competitors.

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REGULATORY ENVIRONMENT

All types of telecommunications services were liberalized in Sweden in
1993. Through RSL Sweden, the Company holds an unrestricted license to provide
national and international telephony in the Swedish market. As a licensed
carrier, the Company may buy IRUs or lease fixed capacity from other providers,
or utilize the former PTT network to originate and terminate its traffic. The
Company's services are accessed primarily by prefix dialing. It is generally
believed that the Swedish Parliament will amend the Swedish Telecom Act to
facilitate equal access for all carriers after 1998.

FINNISH OPERATIONS

OVERVIEW

Finland originated 332 million minutes of international traffic in 1996 and
is a strategically important market because it serves as a gateway to Russia.
The Company operates in Finland through RSL Finland. 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. Customers are also
offered telecommunications terminal equipment and telecommunications systems by
the Company's subsidiary Telecenter Oy. The Company's customer base in Finland
consists primarily of commercial and residential customers.

MARKETING AND SALES

The Company markets its services in Finland through a variety of channels,
including direct sales. Company employs sales and marketing employees in
Finland. The Company relies heavily on its direct sales to sell its long
distance calling services in Finland. As of January 1998, the Company acquired a
90% interest in Telecenter Oy, an independent sales agent in Finland.

FINNISH NETWORK ARCHITECTURE

In Finland, the Company operates an Ericsson AXE-10 international gateway
switch in its offices in Helsinki. RSL Finland primarily utilizes RSL Europe's
network for international termination. International termination is also
achieved by RSL Finland through connections to Telecom Finland's and other
carriers' international circuits. 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 Telecom Finland, the
dominant supplier of telecommunications services in Finland. The Company also
faces competition from emerging licensed public telephone operators (who are
constructing their own facilities-based networks) such as Finnnet, Telk and
Global One and from resellers including Tele 1. The Company believes its
services are competitive, in terms of price and quality, with the service
offerings of its Finnish competitors.

REGULATORY ENVIRONMENT

There are two classes of operators in Finland, (i) network operators, which
have their own network of domestic transmission lines, and (ii) service
operators, which cannot own domestic transmission lines or IRUs, but can have
their own switching facilities. RSL Finland was granted a license to provide
services as a network operator in March 1997.

In August 1997, the New Telecommunications Market Law was enacted, which
removes the last restrictions applicable to telecommunications and enforces
competition. As a result, network operators are obligated to rent full network
capacity, including local loops, to other operators. In addition, the New
Telecommunications Market Law provides that companies will only need to hold a
license in order to provide services as a mobile phone network operator.

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DANISH OPERATIONS

Denmark originated 573 million minutes of international traffic in 1996.
The Company operates in Denmark through RSL Denmark, a wholly owned subsidiary
of RSL Netherlands, which initiated its operations in April 1997 and began
generating revenues in May 1997.

SERVICES AND CUSTOMERS

RSL Denmark currently offers its customers 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 gateway switch
in Copenhagen. The Company routes all calls through Tele Danmark's network via
the interconnect agreement between the Company and Tele Danmark.

COMPETITION

The Company's principal competitor in Denmark is Tele Danmark, the dominant
PTT supplier of telecommunications services in Denmark. In January 1998, the
Danish government sold a controlling interest in the Danish PTT, Tele Danmark,
to U.S. based Ameritech. The Company also faces competition from various other
carriers, primarily Telia (the Swedish PTT), the smaller Netcom Services,
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 carriers, including Mobilix A/S, 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 offers both
long distance services through prefix dialing and other related services such as
call center solutions and data services.

REGULATORY ENVIRONMENT

All telecommunications services in Denmark were liberalized in 1996.
Currently, the Company may, through RSL Denmark, provide national and
international telephony in the Danish market, except mobile telephony which
requires a license. The Company currently can only either buy or lease fixed
lines from the PTT operator, Tele Danmark, which still has an effective (but not
legal) monopoly on the ownership and construction of fixed lines. However,
competition is growing in the market for 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. In December 1997, an amendment of Tele
Danmark's tariff structure was adopted, which became effective April 1, 1998.
The amendment of the tariff structure 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

Portugal originated 340 million minutes of international traffic in 1995.
The Company operates in Portugal through its 39% investment in Maxitel. The
Company made its initial 30.4% investment in Maxitel in April 1997. Maxitel
commenced operations in the international voice and data business in December
1994.

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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 gateway switch in its
offices in Lisbon. Maxitel is in the process of converting its entire customer
terminal equipment to this new platform. The Oporto node is already working in
this new configuration. Additionally, Maxitel leases satellite transmission
capacity on Orion, Hispasat and Intelsat.

COMPETITION

Maxitel's primary competitor is Portugal Telecom, the dominant supplier of
telecommunications services in Portugal. The Company also competes with the
local Portuguese affiliates of global carriers such as Global One, and with
resellers in the Portuguese market.

REGULATORY ENVIRONMENT

Fixed voice telephony services, except mobile, were subject to a monopoly
until March 1997. A second GSM mobile operator has been licensed since 1992 and
a third operator was licensed for GSM and PCN (DCS 1800). Under the terms of the
current legislation it is possible for companies other than the PTT to offer
both national and international voice services to closed user groups.
Interconnection to the Portugal Telecom PSTN is permitted for such services. 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

Italy originated 2.1 billion minutes of international traffic in 1996. 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.

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.

MARKETING AND SALES

RSL Italy markets its services through a direct sales force and is
developing an indirect sales force of independent agents.

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 gateway switch and a POP in Milan and has installed a POP in Rome.
The Company is in the process of linking RSL Italy with RSL-NET and expects to
complete this process by the end of second quarter 1998.

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COMPETITION

RSL Italy's primary competitor is Telecom Italia S.p.A. ('Telecom Italia'),
the dominant supplier of telecommunications services in Italy. The Company also
competes with the local Italian affiliates of global carriers such as British
Telecom and Global One. In addition, the Company competes with
telecommunications providers in the Italian market such as Infostrada.

REGULATORY ENVIRONMENT

The 'voice telephony' monopoly in Italy was formally abolished on January
1, 1998, but 'voice telephony' is currently still provided by Telecom Italia
only. The domestic and international voice services presently offered by RSL
Italy do not fall within the definition of 'voice telephony' as construed by
Italian authorities. Under the current regime, in order to render certain
liberalized services, RSL Italy is required to file a declaration with, or
obtain an ad hoc authorization from, the Italian Ministry for Communications.
Whether RSL Italy needs the declaration or the authorization depends on the type
of links to the PSTN actually used to render the services. In fact, for voice
services offered through switched links to the PSTN, the declaration is
required, whereas an ad hoc authorization is needed for voice services offered
through dedicated links. RSL Italy has filed a declaration and an application

with the Ministry for Communications to obtain the ad hoc authorization and
approval which are required to offer the services that it currently offers. Such
ad hoc authorization and approval have been received.

In July 1997, the Italian Parliament passed Law No. 249/97 for the creation
of the National Regulatory Authority ('NRA') in the telecommunications field.
The NRA is not operating yet. However, when the NRA is actually established and
operative, it will assume most of the regulatory and supervisory functions
currently carried out by the Italian Ministry for Communications. The NRA will
have to ensure the application of EU liberalization principles in Italy.

On September 19, 1997, Presidential Decree No. 318/97 established the
regulatory framework to implement a number of EC directives (including the Full
Competition Directive and the Interconnect Directive) aimed at creating a fully
competitive environment also with respect to 'voice telephony.' The decree
should gradually assure 'full competition' in accordance with the Full
Competition Directive. Pursuant to the above-mentioned Presidential Decree No.
318/97, further secondary legislation (to be issued by the NRA or, in its
absence, by the Ministry for Communications) is required for the implementation
of the EC Directives covered by said Presidential Decree. In this respect, on
November 25, 1997, the Ministry for Communications issued a decree containing
the provisions for the obtainment of individual licenses in the
telecommunications field. However, further secondary legislation is expected to
be issued shortly in order to regulate significant matters, including
interconnection, universal service as well as fees to be paid in connection with
individual licenses. The actual liberalization of the Italian telecommunications
market will depend also on such secondary legislation and on its actual
application by the NRA or, in its absence, the Ministry for Communications.

AUSTRIAN OPERATIONS

OVERVIEW

Austria originated 960 million minutes of international traffic in 1996.
The Company operates in Austria through RSL Austria in which it currently holds
a 90% interest.

SERVICES AND CUSTOMERS

RSL Austria began offering international voice services utilizing
autodialers, direct access and calling cards in March 1998. RSL Austria's
targeted customers will be small to medium-sized businesses.

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MARKETING AND SALES

RSL Austria markets its services through both a direct and indirect sales
force as well as independent agents.

AUSTRIAN NETWORK ARCHITECTURE

RSL Austria began offering services in March 1998 as an international
telecommunications reseller. The Company has installed an Ericsson AXE-10
international gateway switch in Vienna which is operational. An international
gateway switch in Austria enables RSL Austria to expand the products and
services it offers.

COMPETITION

RSL Austria's primary competitor in Austria will be Post und Telecom
Austria (the 'PTA'), the dominant supplier of telecommunications services in
Austria. The Company will compete with the local Austrian affiliates of global
carriers such as the British Telecom and Global One. In addition, the Company
expects to compete with resellers in the Austrian market.

REGULATORY ENVIRONMENT

The telecommunications monopoly has remained largely intact and the PTA has
a legal monopoly on voice telephony, telex and telegram services. New
telecommunications legislation, however, was passed in July 1997 which permitted
interconnection with the PTA's PSTN beginning on January 1, 1998. Competition in
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 PTA.

SPANISH OPERATIONS

OVERVIEW

Spain originated 1.2 billion minutes of international traffic in 1996. RSL
Spain was formed in December 1997. The Company operates in Spain through RSL
Europe which holds a 90% interest in RSL Spain. It is expected that RSL Spain
will begin generating revenues by June 1998.

SERVICES AND CUSTOMERS

Only Telefonica de Espana, S.A. ('Telefonica de Espana') 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.

MARKETING AND SALES

RSL Spain intends to market its services through both a direct and indirect
sales force.

SPANISH NETWORK ARCHITECTURE

RSL Spain anticipates installing an Ericsson AXE-10 international gateway
switch in Spain by the end of 1998. An international gateway switch will allow

RSL Spain to expand the products and services it offers.

COMPETITION

The Company's main competitor in Spain will be 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. Retevision, started operations at the
beginning of 1998. In addition, the Government has called for bids to award a

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third nation-wide license to provide voice telephony, as well as carrier
services. 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 EU 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 EU Commission 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 recent call for a
competitive bid for the granting of a third basic telephony license no later
than May 1998 and authorization to cable operators to provide voice telephony as
of January 1998; and (iv) the creation of the Telecommunications Market
Commission as a regulatory independent entity.

The 1987 Telecommunications Act (the 'LOT') was previously enacted for a
monopolistic market. The General Telecommunications Act, a new
telecommunications act (the 'LGT'), 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 in Spain. RSL Spain has also applied for
licenses to resell telecommunications services and to provide value added
services.

BELGIAN OPERATIONS

OVERVIEW

Belgium originated 1.2 billion minutes of international traffic in 1996.
The Company operates in Belgium through RSL Belgium, in which the Company
currently holds a 90% interest.

SERVICES AND CUSTOMERS

RSL Belgium offers its customers in Belgium international long distance
voice services utilizing dial-in access via autodialers. RSL Belgium's customer
base consists primarily of small and medium-sized businesses.

MARKETING AND SALES

RSL Belgium markets its services through a direct and indirect sales force
as well as independent agents.

BELGIAN NETWORK ARCHITECTURE

RSL Belgium currently operates as a reseller, purchasing wholesale
facilities from other carriers operating in Belgium. The Company anticipates
installing an Ericsson AXE-10 international gateway switch in Belgium by the end
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 and local resellers.

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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. However, a number of the Royal Decrees necessary to
implement the provisions of the Belgian Act have yet to become law. Pending
these Royal Decrees becoming law, providers of voice telephony services can
apply for a so-called temporary license (which the Company has done). When the
Royal Decrees become law, the applicants (including the Company) will have to
re-apply for a definitive license. There is no specific procedure to
automatically grant definitive licenses to companies that have successfully
applied for and obtained a temporary license. Both the temporary license and the

definitive license have to be applied for with the BIPT. The licenses, temporary
or definitive, are granted by the Minister for Telecommunications, upon
recommendation from the BIPT. The failure by RSL Belgium to receive a temporary
license, or the failure at a later stage to receive a definitive license, would
have a material adverse effect on the ability of RSL Belgium to offer national
and international telecommunications services in Belgium and could have a
material adverse effect on the Company, its financial condition and its results
of operations.

SWISS OPERATIONS

OVERVIEW

Switzerland originated 1.9 billion minutes of international traffic in
1996. The Company operates in Switzerland through 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, in the future RSL Switzerland will, in
addition to such multinationals, target 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 gateway switch. Customer access will be over leased lines or over
the three carrier selection codes which were assigned to the Company in December
1997.

COMPETITION

RSL Switzerland's primary competitors in Switzerland are Swisscom, Diax,
Sunrise, GlobalOne, Colt, 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 '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.

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('Divtel'), a Venezuelan corporation, and a member of the Cisneros Group. RSL
Latin America is 51% owned by RSL and 49% owned by the Cisneros Group. To date,
RSL Latin America 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.

Pursuant to the Joint Venture Agreement, RSL Latin America acquired 100% of
RSL Venezuela, from Divtel and Megatel Telecomunicaciones, C.A. ('Megatel'). RSL
Venezuela has terminated its agreements with each of Sprint and Global One to
distribute each of their products in Venezuela and has begun to provide calling
cards and enhanced fax services for RSL Latin America.

Since most Latin American countries currently restrict competition to a
limited number of specific services, the Company has developed a two stage
market penetration strategy to capitalize on the current and future
opportunities in Latin America. The first step is to take advantage of current
market conditions and, within the parameters of the Company's product line, to

provide the fullest range of services permissible under the local regulation.
The Company seeks to build a customer base within its target segments prior to
full market liberalization, and when the market opens to competition, the
Company will have an established base in its target areas.

VENEZUELAN OPERATIONS

OVERVIEW

Venezuela originated 139 million minutes of international traffic in 1996.
The Company operates in Venezuela through RSL Venezuela and provides value-added
telecommunications services for RSL Latin America. 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.
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,
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 Telefonica de Espana, Impsat, Texcom S.A.
and Charter Communications, and callback operators.

REGULATORY ENVIRONMENT

The Venezuelan telecommunications market is regulated by the Ministry of
Transportation and Telecommunications, by means of the National
Telecommunications Commission ('Conatel'). CANTV holds an exclusive monopoly on
the provision of local, domestic and international switched fixed telephone
services within Venezuela until November 2000. However, certain value-added
services are open to competition with a concession. RSL Venezuela currently
holds Concessions for Value Added and Data Services which allow it to provide
international voice services via dedicated access provided on a private network.
RSL Venezuela is not required to obtain a concession to provide prepaid and post

paid card services.

RSL Latin America, which is 51% owned by the Company and 49% owned by the
Cisneros Group, was required to register its investment in RSL Venezuela with
the Venezuelan Office of the Superintendent of Foreign Investments ('SIEX')
within 60 days of the acquisition of RSL Venezuela, which was completed as to
49% on August 4, 1997 and as to the remaining 51% on January 26, 1998. Until RSL
Latin America completes the registration, RSL Lating America will be entitled to
receive dividends from RSL Venezuela but will not be able to repatriate capital
or remit the divdends from Venezuela. An application for registration of the
initial 49% investment was filed on February 27, 1998, and the Company expects
that RSL Latin America will file shortly an application with SIEX to register
the balance of its investment. Although both applications for registration will
have been filed after the requisite 60-day period, the Company has been advised
by its counsel in Venezuela, Baker & McKenzie, that it is reasonable to expect
that SIEX will accept the registration of RSL Latin America's investment in RSL
Venezuela and, as a result thereof, RSL Venezuela will not be restricted from
repatriating capital or remitting dividends from Venezuela.

ASIA AND PACIFIC RIM OPERATIONS

In Asia, the Company carries on its Australian operations through RSL Asia,
a wholly-owned subsidiary of the Company, based in Hong Kong. The Company
carries on its other regional operations in Asia through RSL COM Asia Pacific
Ltd. RSL Asia was formed to expand the Company's operations into the
Asian/Pacific Rim market and, in March 1997, the Company incorporated RSL Japan
to initiate the Company's operations in Japan. RSL Asia intends to capitalize on
the trend toward deregulation within the region to establish operations in key
countries. The Company has hired a managing director to oversee and develop RSL
Japan's operations. In February 1998, RSL Japan was granted an International
Simple Resale license by the MPT to resell international telephony, fax and data
services to and from Japan. RSL Japan has received a Type II value added network
provider license and expects to provide such services by the end of the second
quarter of 1998. RSL Japan has applied for a Type I license in Japan to provide
facilities-based international long distance service. The Company plans to
install an Ericsson AXE-10 international gateway switch in its offices in Tokyo
by the end of 1998.

In October 1996, RSL Asia established RSL Australia to carry on its
Australian operations. In April 1997, the Company acquired substantially all of
the commercial contracts of Pac Star, an Australian based switchless fixed wire
reseller.

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As of October 1997, RSL Australia acquired 100% of the issued capital of
the Call Australia Group, leading Australian switchless fixed wire resellers and
the copyright in the billing software of the Call Australia Group.

In November 1997, RSL Australia purchased 85% of EZI, an international
reseller and prepaid calling card services provider.

In March 1998, the Company acquired, in two separate transactions, the

mobile telephony customer base of each of First Direct Communications Pty.,
Limited and Link Telecommunications Pty. Ltd., two switchless mobile
telecommunications resellers in Australia.

AUSTRALIAN OPERATIONS

OVERVIEW

Australia originated 1.3 billion minutes of international traffic in 1996.
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. From April 1, 1997 through December 31, 1997, RSL Australia
generated $32.3 million of revenues.

SERVICES AND CUSTOMERS

As a result of its transaction with Pac Star and the acquisition of the
Call Australia Group, 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. As a result of its acquisition of EZI, RSL Australia also
offers prepaid cards to residential customers. The Company recently entered the
mobile telephony market in Australia with the acquisitions of the customer base
of each of First Direct and Link, with a combined customer base of over 90,000
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 Pac Star and the Call Australia Group and the mobile
telephony customer bases acquired from First Direct and Link. 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 owns MIUs on the APCN, JASAURUS and NPC
undersea fiber optic cable systems and on the CMC and MCC terrestrial fiber
optic cables.

COMPETITION

The Company's principal competitors in Australia are the two licensed
general carriers Telstra Corporation Limited (the former PTT) and Optus
Communications Pty. Limited. Each of these competitors provides a bundle of
services including mobile, local, and domestic and international long distance.
In addition, the Company faces competition from switch-based and switchless
resellers such as Spectrum Network Systems Limited, Axicorp Pty. Limited and
AAPT Limited.

REGULATORY ENVIRONMENT

RSL Australia has been enrolled with the Australian Telecommunications
Authority ('Austel') under the provisions of the International Service Providers
Class License as a provider of services with double-ended interconnection. The
Telecommunications Act 1991 allows enrollment as a provider of services with
double-ended interconnection, provided that Austel is satisfied that the
services to be offered are in the public interest. Double-ended interconnection
allows the Company to interconnect with the Australian PSTN, to resell general
carrier services, and to transmit international calls over owned international
transmission facilities. Customers are able to access the Company's network from
the PSTN utilizing a four digit prefix code issued by Austel and via 'national
access,' a preselect and override code service for domestic and international
calls. International long distance services may be

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provided by the use of satellite based facilities or international cable
capacity. Full deregulation of the Australian telecommunications market occurred
in July 1997 with the repeal of the Telecommunications Act 1991 and the
introduction of the Telecommunications Act 1997. RSL Australia can, at any time,
apply for a general carriers license under the new act, but obtaining such a
license may impose certain restrictions and costs rather than expand the scope
of operations of RSL Australia. Since there have been delays in implementing the
new act, the Company has continued to operate as it has under the old act
pursuant to the transitional provisions of the new act. See 'Risk
Factors--Government Regulatory Restrictions.'

INTERNET TELEPHONY OPERATION--GENERAL

In July 1997, the Company acquired a 51% interest in Delta Three, a
telecommunications provider utilizing the Internet and networks based on
Internet protocols to provide telecommunications services and to transmit voice
communications. Since July 1997, the Company has acquired an additional 21% and
as of December 1997 agreed to acquire an additional approximately 26% interest
in Delta Three which would bring the Company's total ownership interest in Delta
Three to approximately 98%. Concurrently with the execution of the acquisition
agreement relating to the Company's initial investment, the Company and Delta
Three entered into a services agreement, pursuant to which, among other things,
Delta Three provides the Company with discounted Internet telephony services and
the Company provides Delta Three with termination services at preferred rates.
Such services agreement also provides for the co-location of Delta Three's
servers with the Company's facilities.

The Internet is an interconnected global computer network of tens of
thousands of packet-switched networks using Internet protocols. Technology
trends over the past decade have removed the distinction between voice and data
segments. Traditionally, voice conversations have been routed on analog lines.
Today, voice conversations are routinely converted into digital signals and sent
together with other data over high-speed lines. In order to satisfy the high
demand for low-cost communication, software and hardware developers began to
develop technologies capable of allowing the Internet to be utilized for voice
communications.

Several companies, including Delta Three, now offer services that provide
real-time voice conversations over the Internet ('Internet Telephony'). These
services work by the use of an Internet gateway server ('Internet Gateway'),
which provides a connection between the PSTN and the Internet and converts
analog voice signals into digital signals. These signals are in turn compressed
and split into packets which are sent over the Internet like any other packets
and reassembled by a second Internet Gateway as audio output at the receiving
end. The packets are converted back into analog format and transferred to the
PSTN and then to the telephone number dialed.

Most Internet Telephony software today requires both users to use computers
that are connected to the Internet at the time of the call, but services
provided by Delta Three allows both parties to use their ordinary telephones.
Current Internet Telephony does not provide comparable sound quality to
traditional long distance service. The sound quality of Internet Telephony,
however, has increased over the past few years, and the Company expects such
quality to continue to improve, although there can be no assurance in this
regard.

DELTA THREE OPERATIONS

OVERVIEW

Delta Three began operations in May 1996 and began offering commercial
Internet Telephony services in January 1997. Delta Three currently offers
commercial service between 15 countries and it plans to extend the service to
additional countries within the next two years.

SERVICE AND CUSTOMERS

Delta Three utilizes the Internet, traditionally a network for data
communications, as a transmission medium for ordinary telephone calls. The
service offered by Delta Three enables customers to place long distance and
international phone calls 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.

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Delta Three operates as a wholesale carrier for international long distance
resellers on a point-to-point basis and as a retail carrier, servicing its own
network and marketing the use of its network to consumers in designated areas
and corporations.

The Company currently provides its U.S. customers Delta Three's Internet
Telephony service for telephone service from the United States to Hong Kong,
Israel, Cali and Bogota, Colombia and Sao Paolo, Brazil.

In January 1998, RSL Japan entered into an agreement with Nifty Corp.
('Nifty'), a large on-line Internet service provider in Japan and a joint

venture company owned by Fujitsu Ltd. and Nissho Iwai Corp., to provide Delta
Three's Internet Telephony service in Japan to Nifty's customers.

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. In addition, Delta Three
utilizes the worldwide web as an additional sales venue to offer services to
retail customers. Delta Three focuses on supplying its services to high-margin
international niches. Delta Three also offers the Company the ability to
purchase minutes wholesale at preferred rates.

DELTA THREE NETWORK

The Delta Three network consists of 16 Internet Gateways, located within
key metropolitan areas in target countries. A Delta Three customer dials an
access number where a Delta Three system prompts the customer for an access code
and the desired phone number. The system then opens a connection with a remote
Internet Gateway and instructs the Internet Gateway to place a local call to the
telephone the customer has dialed. Once the local call is transmitted, the
Internet Gateway converts the call into a form which can be routed over the
Internet and transfers the call to a second Internet Gateway. The Internet
Gateway may be connected by (i) the Internet accessed through an Internet
service provider, (ii) capacity leased on a private Intranet and (iii) leased
private lines. By routing calls in such a manner, Delta Three is able to avoid
the high costs associated with the settlement process.

REGULATORY ENVIRONMENT

While regulation still plays a significant role in traditional
telecommunications markets, the Internet is largely unregulated, permitting
business opportunities to flourish and to rapidly follow technological
developments. To date, the FCC has never directly exercised regulatory
jurisdiction over Internet-based services. The rapid development of the
Internet, however, raises the question of whether the language of the
Communications Act of 1934, as amended by the Telecommunications Act of 1996, or
existing FCC regulations, covers particular services offered over the Internet.

The FCC and most foreign regulators have not yet attempted to regulate the
companies that provide the software and hardware for Internet Telephony, the
access providers that transmit their data, or the service providers, as common
carriers or telecommunications services providers. Therefore, the existing
systems of access charges and international accounting rates, to which
traditional long distance carriers are subject, are not imposed on providers of
Internet Telephony services. As a result, such providers may offer calls at a
significant discount to standard international calls. There can be no assurance,
however, that the FCC and foreign regulators will not regulate Internet
Telephony or Internet service providers in the future. In a recent Report to
Congress, the FCC indicated that certain forms of phone-to-phone Internet
protocol 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 Internet Telephony differs significantly from
country to country and, in many countries, Internet Telephony is not regulated
any differently than other Internet service. In some countries Internet
Telephony is illegal. There can be no assurance that regulation of Internet
Telephony will not increase around the world. See 'Risk Factors--Government
Regulatory Restrictions'.

EMPLOYEES

As of February 25, 1998, the Company employed approximately 1,186 people,
including officers, administrative and salaried selling personnel. The Company
considers its relationship with its employees to be good.

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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 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 maintains an office at Churchill House, 142-146 Old Street,
London, England which is used as the location for the London international
gateway switch and the London domestic switch. The lease extends until October
1, 2005 and provides for annual lease payments of $83,000 until March 1998 and
may be increased thereafter.

The Company maintains office space at Victoria House, London Square, Cross
Lanes, Guildford, Surrey, which is RSL Europe's headquarters. The lease extends
until August 20, 2006 and provides for annual lease payments of approximately
$245,000.

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

AT&T recently filed with the FCC an opposition to the Company's requests
for modification of the International Settlement Policy to implement the
Company's accounting rates for international long distance service between the
United States and each of Denmark, the Dominican Republic, Finland, Norway and
the United Kingdom. AT&T has alleged, inter alia, that the requests violate the
principles underlying the International Settlement Policy and the FCC's
non-discrimination policy. The Company does not believe that the FCC's
resolution of this matter reasonably can be expected to have a material adverse
effect on its business or results of operations.

On April 14, 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'). On October 24,
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. Under the
terms of the stock purchase agreement between LDM and RSL USA, RSL USA is
indemnified from, among other things, liability relating to litigation
proceedings. 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, President and Chief Executive
Officer

Andrew Gaspar................................. 50 Director and Vice Chairman of the Board
Jacob Z. Schuster............................. 49 Director, Executive Vice President, Chief
Financial Officer, Assistant Secretary and
Treasurer
Richard E. Williams........................... 46 President and Chief Executive Officer 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........................... 47 Vice President of Marketing
Nir Tarlovsky................................. 31 Vice President of Business Development
Nesim N. Bildirici............................ 31 Vice President of Mergers and Acquisitions
Mark J. Hirschhorn............................ 33 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............................... 28 Vice President of Emerging Technologies
Avery S. Fischer.............................. 31 Legal Counsel
Tucker Hall................................... 42 Secretary
Gustavo A. Cisneros........................... 52 Director
Fred H. Langhammer............................ 54 Director
Leonard A. Lauder............................. 65 Director
Eugene A. Sekulow............................. 66 Director
Nicolas G. Trollope........................... 50 Director
</TABLE>

All directors hold office, subject to death, removal or resignation, until
the next annual meeting of shareholders and thereafter until their successors
have been elected and qualified. Officers of the Company serve at the pleasure
of their respective Boards of Directors, subject to any written arrangements
with the Company. See '--Employment Arrangements.' Set forth below is certain
information with respect to the directors, executive officers and other senior
management of the Company.

Ronald S. Lauder co-founded the Company, has served as its Chairman since
1994 and is 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.

Andrew Gaspar has served as a director and Vice Chairman of the Board of
the Company since its inception in 1994. Mr. Gaspar has been (through a limited
liability company) the managing member of Lauder Gaspar Ventures LLC ('LGV')
since its inception in September 1996 and has been President of the corporate
general partner of R.S. Lauder, Gaspar & Co., L.P. ('RSLAG') since 1991. Both
RSLAG and LGV are venture capital companies. Mr. Gaspar has also been a director
of CME since June 1994. From 1982 until 1991, Mr. Gaspar was a partner of
Warburg, Pincus & Co., a venture capital firm. From 1973 until 1981, Mr. Gaspar
served in various executive capacities at RCA Global Communications, Inc. and
its affiliates.

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 and 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,

95
<PAGE>

Ms. van de Vrande served as Managing Director of AT&T's Israeli operations. She
served in various marketing and sales capacities at AT&T from 1981 to 1990.

Nir Tarlovsky has been Vice President of Business Development of the
Company since April 1995 and served as a director of the Company from April 1,
1995 until March 1997. Mr. Tarlovsky is also Vice President of ITG. From 1992 to
March 1995, Mr. Tarlovsky served as Senior Economist of Clal, where he was
responsible for oversight of the operations and budgets of 150 of Clal
subsidiaries. While at Clal, he was also responsible for the development of new
international telecommunications ventures. Prior to 1992, Mr. Tarlovsky served
as an officer in the Israeli Army, where he was responsible for management and
financial oversight of international research and development projects.

Nesim N. Bildirici has been Vice President of Mergers and Acquisitions of
the Company since 1995 and served as a director of the Company from April 1995
until March 1997. From August 15, 1993 to December 31, 1996, Mr. Bildirici was
employed by both RSLAG and the Company. Mr. Bildirici is also a Managing
Director of RSLAG. Prior to joining RSLAG, Mr. Bildirici was an investment
banker at Morgan Stanley & Co. Incorporated from 1989 to 1991. From 1991 to
1993, Mr. Bildirici was a graduate student at Harvard Business School, where he
received his MBA.

Mark J. Hirschhorn has been Vice President-Finance of the Company since
August 1997 and has been Global Controller of the Company since January 1996.
Mr. Hirschhorn has also served as the Assistant Secretary of the Company since
September 1996. From October 1987 to December 1995, Mr. Hirschhorn was employed
at Deloitte & Touche LLP, most recently as a Senior Manager specializing in
emerging business and multinational consumer product companies.

Roland T. Mallcott has been Vice President of Engineering of the Company
since February 1997. From December 1995 until January 1997, Mr. Mallcott served
as Director of Joint Ventures of Concert, through British Telecom and MCI, in
Canada, Mexico and Germany. From January 1991 to December 1995, Mr. Mallcott

served as Director of Engineering and Operations for British Telecom (US)
responsible for building and managing the British Telecom and Concert global
data and voice networks. Prior to 1991, Mr. Mallcott served in various network
engineering capacities for British Telecom.

Andrew C. Shields has been Vice President of International Carrier
Relations since August 1997. From October 1993 until August 1997, Mr. Shields
served as Vice President of International Business Development of LCI
International, with responsibility for international business development and
international carrier relations. From June 1991 until October 1993, Mr. Shields
served as Director of Global Alliances for Northern Telecom responsible for
international infrastructure expansion. Mr. Shields also served as Northern
Telecom's Director of International Marketing from June 1989 until June 1991.
From 1984 to 1989, Mr. Shields served as Senior Manager, International Relations
for MCI International responsible for negotiating bilateral direct operating
agreements with international carriers. Mr. Shields also served, in various
capacities at MCI International, MCI Telecommunications, and ITT World
Communications from 1979 to 1984.

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

96
<PAGE>

York, with a practice concentrating in commercial and securities litigation.
From 1990 to 1993, Mr. Fischer was a student at Brooklyn Law School, where he
received his Juris Doctor.

Tucker Hall, Secretary of the Company since March 1997, has been a manager
of Codan Services Limited, Hamilton, Bermuda, a corporate service company
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, a director of Estee Lauder since November 1995, and was
Executive Vice President of Estee Lauder from 1985 until 1995. Mr. Langhammer
joined Estee Lauder in 1975 as President of its operations in Japan. In 1982, he
was appointed Managing Director of Estee Lauder's operations in Germany. Prior
to joining Estee Lauder, Mr. Langhammer was General Manager of Dodwell (Japan),
a global trading company. He is a member of the Board of Directors of the
Cosmetics, Toiletries and Fragrance Association, an industry group, and serves
on the Board of the American Institute for Contemporary German Studies at Johns
Hopkins University.

Leonard A. Lauder has been a director of the Company since March 1997. Mr.
Lauder is a principal shareholder and, 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 1986 to 1991. Prior to joining NYNEX
International Company, Mr. Sekulow had served as President of RCA International,
Ltd. since 1973. Mr. Sekulow previously served as a member of the United States
State Department Advisory Committee on International Communications and
Information Policy and on the State Department Task Force on Telecommunications
in Eastern Europe.

Nicolas G. Trollope, a director of the Company since July 1996, has been a
partner with the law firm of Conyers, Dill & Pearman, Hamilton, Bermuda, since
1991. 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').

97
<PAGE>

EXECUTIVE COMMITTEE

The Executive Committee is composed of Ronald S. Lauder, Andrew Gaspar,
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 require shareholder approval); (ii) adopt an agreement of
merger or consolidation or approve the sale, lease or exchange of all or
substantially all of the Company's property and assets; or (iii) approve or
recommend to the Company's shareholders a dissolution of the Company.

COMPENSATION COMMITTEE

The Compensation Committee is composed of Ronald S. Lauder, Gustavo A.
Cisneros and Eugene A. Sekulow. During a portion of 1997, Andrew Gaspar and
Itzhak Fisher were members 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 two fiscal years (together, the 'Named
Executive Officers'). See 'Employment Agreements.'

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------
AWARDS
ANNUAL SECURITIES
COMPENSATION UNDERLYING
------------------------- OPTIONS/
SALARY BONUS(1) SARS
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#)
- -------------------------------------------------------------------- ---- ------- -------- ------------------
<S> <C> <C> <C> <C>
Itzhak Fisher....................................................... 1997 400,000 650,000 432,856
President and Chief Executive Officer 1996 350,000 150,000 --

Nir Tarlovsky....................................................... 1997 187,500 300,000 --
Vice President of Business Development 1996 178,000 75,000 --

Richard E. Williams (2)............................................. 1997 240,000 165,000 350,400
President and Chief Executive Officer of RSL Europe 1996 172,000 50,000 --

Nesim N. Bildirici (3).............................................. 1997 185,000 300,000 --
Vice President of Mergers and Acquisitions 1996 165,000 75,000 --

Mark Hirschhorn..................................................... 1997 155,000 232,500 16,206
Vice President--Finance 1996 140,000 50,000 93,294
</TABLE>

98
<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 Incentive Compensation Plan described below and paid in the first
quarter of 1998 following receipt of 1997 audited financial results.

(2) Mr. Williams' salary has been converted to U.S. dollars for the purposes of
this table based upon the average exchange rate of British pounds to U.S.
dollars for the periods covered.

(3) Mr. Bildirici is employed by the Company but, during 1996, was employed by
both the Company and RSLAG. For purposes of this Prospectus, he is treated as an
employee of the Company only for the relevant periods. See '--Fiscal Year-End
Option Values,' and '--Compensation Committee Interlocks and Insider
Participation.'

No other annual compensation, restricted stock awards, stock appreciation
rights or long-term incentive plan payouts or other compensation (all as defined
in the regulations of the Commission) were awarded to, earned by or paid to the
Named Executive Officers during 1996 or 1997.

STOCK OPTION AND COMPENSATION PLANS

AMENDED AND RESTATED 1995 STOCK OPTION PLAN

In April 1995, the Board of Directors of the Company authorized, and the
shareholders of the Company approved, the 1995 Plan (which was later amended and
restated). 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 Initial
Public Offering, the 1995 Plan was replaced by the stock option plans described
below and the Company will not grant further options under the 1995 Plan.

1997 STOCK INCENTIVE PLAN

In connection with the Initial Public Offering, the Company adopted the
1997 Plan. Under the 1997 Plan, the Company's Compensation Committee is
authorized to grant options for up to 3,100,000 shares of Class A Stock. The
purposes of the 1997 Plan are to foster and promote the long-term financial
success of the Company and materially increase shareholder value by (i)
motivating superior performance by means of performance-related incentives, (ii)
encouraging and providing for the acquisition of an ownership interest in the
Company by executive officers and other key employees and (iii) enabling the
Company to attract and retain the services of an outstanding management team
upon whose judgment, interest and special effort the successful conduct of its
operations is largely dependent. The 1997 Plan reflects the Company's view that
it is desirable to lengthen the vesting period and shorten the terms of its
options, and to have a 'cost capital' factor included in the pricing of the
options.

The 1997 Plan is administered by the Compensation Committee and provides
for the grant of (i) incentive and non-incentive stock options to purchase Class
A Common Stock; (ii) stock appreciation rights ('SARs'), which may be granted in
tandem with stock options, in addition to stock options, or freestanding; (iii)
restricted stock and restricted units; (iv) incentive stock and incentive units;
(v) deferred stock units; and (vi) stock in lieu of cash (collectively,
'Awards'). The number of shares of Class A Common Stock which are available for
Awards granted under the 1997 Plan during its term is approximately 7.0% of the
total number of shares of Class A Common Stock outstanding on a fully diluted
basis. The maximum number of shares for which options or stock appreciation
rights may be granted to any one participant in a calendar year is 500,000. The
Company granted to Itzhak Fisher, pursuant to his new employment agreement,
options to acquire 432,856 shares of Class A Common Stock under the 1997 Plan
representing 1% of the Common Stock, on a fully-diluted basis. As of

99
<PAGE>

April 30, 1998, the Company had granted options to acquire 437,856 Class A
Common Stock under the 1997 Plan. See '--Employment Arrangements'.

1997 PERFORMANCE INCENTIVE COMPENSATION PLAN

The Company has established 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 not less than 50% of
such bonus may 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
(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. 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
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.'

100
<PAGE>

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
have been granted by the Company.

<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 the grant date which
dates were 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.

101
<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
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 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 asks 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 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 them 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 and Vice 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 and $75,000 in the
case of Ronald S. Lauder and Andrew Gaspar, respectively, in their respective
capacities as Chairman and Vice Chairman of the Board of Directors). Each such
option will have a 10-year term. The exercise price of the options initially
will equal the fair market value of the Class A Common Stock on the date of
grant and will be increased on the first day of each calendar quarter by an
amount, compounded annually, 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.

102
<PAGE>

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 issued under the Directors Plan is
250,000.

KEY MAN LIFE INSURANCE

The Company maintains $5.0 million key man life insurance policies on the
lives of each of Itzhak Fisher and Richard E. Williams. The Company is the sole
beneficiary of such policies.

EMPLOYMENT ARRANGEMENTS

Each of the Company and ITG 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 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 ITG is obligated to use its
best efforts to ensure that Mr. Fisher continues to serve as a director of ITG.
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 Initial Public Offering 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 agreed to by the Executive and Compensation
Committees as representing a comparable investment opportunities as 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 Initial Public Offering, 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.

103
<PAGE>

Each of the Company and ITG has also entered into an employment agreement,
dated as of April 1, 1995, with Nir Tarlovsky, the Vice President of Business
Development of the Company and a Vice President of ITG, the terms of which
expired on March 31, 1998. Mr. Tarlovsky's employment agreements provided that
his aggregate initial base salary be $150,000 per annum. Pursuant to the
agreement with the Company, the Company granted to Mr. Tarlovsky options under
its 1995 Plan to acquire up to 876,000 shares of the Class A Common Stock, but
in no event greater than 2% of the outstanding shares of capital stock as of
the date on which his employment agreement expired. Mr. Tarlovsky was granted
options to acquire 192,127 shares of Class A Common Stock under the agreements.
These options are exercisable at $.000457 per share, vested on April 1, 1998 and
expire 10 years from the date of grant. The agreements contained non-compete
covenants having a term of one year following the termination of the agreements
and a confidentiality covenant. The agreement with the Company related to
services to be provided by Mr. Tarlovsky solely outside of the United States,
while the agreement with ITG related to services to be provided by Mr. Tarlovsky
solely within the United States. The Company and ITG are negotiating new
employment agreements with Mr. Tarlovsky.

RSL Europe has entered into an employment agreement, dated as of August 5,
1995, with Richard E. Williams, the Chief Executive Officer of RSL Europe, the
term of which expires on August 4, 1998. The employment agreement provides that
Mr. Williams' base salary shall be pounds 100,000 (approximately $160,000) per
annum, which amount may be increased at the sole discretion of RSL Europe's
Board of Directors, the majority of whom are either members of the management of
the Guarantor or an employee of the Company's subsidiary. Pursuant to the
agreement, RSL Europe granted to Mr. Williams the option to purchase shares of
capital stock of RSL Europe equal to up to 2% of the outstanding capital stock
of RSL Europe (the 'RSL Europe Option Rights'). In addition, Mr. Williams is,
under circumstances more fully described in the agreement, entitled to receive
certain annual bonus payments based upon certain performance-based goals. The
agreement contains a non-compete covenant having a term of nine months following
the termination of the agreement and a confidentiality covenant. The Company
entered into an agreement pursuant to which the Company, in consideration for
his waiver of the RSL Europe Option Rights, granted to Mr. Williams options to
purchase 350,400 shares of Class A Common Stock, which options became
exercisable upon the closing date of the Initial Public Offering at an exercise
price per share of $.00457, and expire 10 years from the date of grant.

The Company has entered into an agreement with Codan Services Limited, a
corporate service company, located in Bermuda, of which Tucker Hall, the
Company's Secretary and a resident of Bermuda, is a manager. Mr. Hall 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 its local operations in the United States, the United
Kingdom, France, Sweden, Finland, Australia, Italy, Japan and The Netherlands.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee currently are Ronald S. Lauder,
Gustavo A. Cisneros and Eugene A. Sekulow. During the portion of 1997 prior to
the Initial Public Offering, Andrew Gaspar and Itzhak Fisher were members of the
Compensation Committee.

RSL Management Corporation ('RSL Management'), which is wholly-owned by
Ronald S. Lauder, the Chairman of the Board of the Company 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 The Estee Lauder Companies, Inc. Ronald S.
Lauder is a principal shareholder of Estee Lauder, Leonard A. Lauder, a director
of the Company, is 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

104
<PAGE>

Company for an annual fee of $6,000 through 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
Revolving Credit Facility. During a portion of 1997, the outstanding commitment
amount under the Revolving Credit Facility was $15.0 million and Mr. Lauder had
also personally guaranteed such amount.

As consideration for Mr. Lauder's continuing guarantee of the Revolving
Credit Facility, Mr. Lauder received, in the aggregate, warrants to purchase
459,900 shares of Class B Common Stock, of the Company (the 'Lauder Warrants').
The Lauder Warrants became exercisable on October 3, 1997 at an exercise price
of $.00457.

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. The Company does not intend to enter into agreements and
arrangements with its non-employee directors or affiliates.

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.'

105
<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 Stock at
April 30, 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. The table
gives effect to distributions of Class B Common Stock by LGV to its members and
by RSLAG to its partners (see notes 5 and 6).

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF BENEFICIAL OWNERSHIP COMMON STOCK
CLASS A COMMON OF CLASS B COMMON ---------------------------
STOCK(1) STOCK % OF
--------------------- ---------------------- VOTING
NUMBER PERCENT NUMBER PERCENT POWER(2) % OWNERSHIP(2)
--------- ------- ---------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ronald S. Lauder (3)(4)(5)(6)(7)... 48,464 * 18,086,296 62.5 % 59.7% 42.5%
Andrew Gaspar (3)(5)(6)(8)......... 2,005,641 14.6% 1,170,497 4.1 4.6 7.5
Itzhak Fisher (3)(9)............... -- -- 4,590,986 16.1 15.4 10.9
Leonard A. Lauder
(3)(5)(6)(7)(10)................. -- -- 6,399,831 22.5 21.5 15.2
RSL Investments Corporation
(3)(4)........................... -- -- 9,348,563 32.9 31.3 22.1
EL/RSLG Media, Inc. (3)(7)......... -- -- 1,786,350 6.3 6.0 4.2
Bukfenc, Inc. (3)(8)............... 1,953,033 14.2 -- -- * 4.6
Jacob Z. Schuster (3)(11).......... -- -- 1,720,715 6.0 5.8 4.1
Gustavo A. Cisneros (12)........... 1,408,629 10.2 -- -- * 3.3
Nir Tarlovsky (3)(13).............. 718,614 5.1 345,301(14) 1.2 1.4 2.5
Nesim Bildirici (15)............... 547,499 3.9 178,513 * * 1.7
Mark J. Hirschhorn................. 61,495 * -- -- * *
Eugene Sekulow (16)................ 43,800 * -- -- * *
Fred H. Langhammer................. 12,226 * -- -- * *
Richard Williams (17).............. 350,400 2.5 -- -- * *
Nicolas G. Trollope (18)........... 1,000 * -- -- * *
All directors and executive
officers as a group (19 persons)
(19)............................. 5,522,522 37.4 28,364,795 98.1 95.1 77.5
Essex Investment Management Company
(20)............................. 1,090,530 10.5 -- * * 2.9
Nicholas-Applegate Capital
Management(21)................... 683,600 5.0 -- -- * 1.6
</TABLE>

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

<TABLE>
<C> <S>
* Less than 1%.
(1) Does not include (i) 28,914,981 shares of Class A Common Stock issuable upon conversion of shares of Class B
Common Stock (including 459,900 shares of Class B Common Stock issuable upon the exercise of Lauder Warrants)
or (ii) 1,128,866 shares of Class A Common Stock issuable upon the exercise of certain of the Warrants. 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. The Warrant Registration covers (i) the issuance to the holders of
the Warrants of 1,152,715 shares of Class A Common Stock underlying the Warrants and (ii) the sale of 300,000
shares of Class A Common Stock by Bukfenc, Inc., a corporation wholly owned by Andrew Gaspar and members of
his family.
(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 April 30, 1998 by each identified shareholder and all
directors and executive officers as a group. The Class A Common Stock and the Class B Common Stock are the
only authorized classes of the Company's capital stock with shares outstanding.

(3) The business address of each of the indicated holders of the Company's securities is 767 Fifth Avenue, New
York, New York 10153.
(4) Includes (a) 48,464 shares of Class A Common Stock owned directly by Ronald S. Lauder; (b) 261,407 shares of
Class B Common Stock owned by RSLAG (see note 6); (c) 909,090 shares of Class B Common Stock owned by LGV (see
note 5); (d) 9,348,563 shares of Class B Common Stock owned by RSL Investments Corporation, a corporation
wholly-owned by Mr. Lauder; (e) 1,786,350 shares of Class B Common Stock owned by EL/RSLG Media, Inc.
('EL/RSLG') (see note 7); (f) 893,175 shares of Class B Common Stock owned by RAJ Family Partners L.P., of
which Mr. Lauder is a limited partner and a shareholder of the general partner; (g) 4,427,811 shares of Class
B Common Stock owned directly by Ronald S. Lauder; and (h) 459,900 shares of Class B Common Stock issuable
upon exercise of the Lauder Warrants.
(5) Andrew Gaspar is the managing member of LGV and Ronald S. Lauder and Leonard A. Lauder are both members with
substantial ownership interests in LGV, and as such each may be deemed to beneficially own all of the shares
of Class B Common Stock owned by LGV. Such shares, however, are only included once in the computation of
shares beneficially owned by directors and executive officers of the group. The managing member of LGV has
executed an irrevocable proxy in favor of Ronald S. Lauder to vote Ronald S. Lauder's allocable interest in
such shares as directed by him. Ronald S. Lauder, Leonard A. Lauder and Andrew Gaspar each disclaim beneficial
ownership of some of such shares.

(Footnotes continued on following page)
</TABLE>

106
<PAGE>

<TABLE>
<C> <S>
(Footnotes continued from previous page)
On March 20, 1998, LGV distributed an aggregate of 1,149,669 shares of Class B Common Stock to its members. As
a result of such distribution, (a) 571,727 shares of Class B Common Stock were transferred to Ronald S.
Lauder; (b) 571,727 shares of Class B Common Stock were transferred to Leonard A. Lauder; (c) an aggregate of
4,972 shares of Class B Common Stock were transferred to Andrew Gaspar and Bukfenc LLC (see note 8); and (d)
909,090 shares of Class B Common Stock remain in LGV.
(6) Andrew Gaspar is president of the corporate general partner of RSLAG, and Ronald S. Lauder is directly and
indirectly the owner of a majority of the limited partnership interests in RSLAG, and, as such, may be deemed
to beneficially own all of the shares of Class B Common Stock owned by RSLAG. The general partner of RSLAG has
executed an irrevocable proxy in favor of Ronald S. Lauder to vote Ronald S. Lauder's allocable interest in
such shares as directed by him. In addition, Leonard A. Lauder owns limited partnership interests in RSLAG.
Ronald S. Lauder, Leonard A. Lauder and Andrew Gaspar each disclaim beneficial ownership of some of such
shares. The shares of Class B Common Stock owned by RSLAG which may be deemed to be beneficially owned by
Ronald S. Lauder, Andrew Gaspar and Leonard A. Lauder are only included once in the computation of shares
beneficially owned by directors and executive officers of the group.
On March 20, 1998, RSLAG distributed an aggregate of 16,366,325 shares of Class B Common Stock to its
partners. As a result of such distribution, (a) an aggregate of 12,028,088 shares of Class B Common Stock were
transferred to certain entities over which Ronald S. Lauder has control or the stock holdings of which he may
be deemed to have beneficial ownership; (b) an aggregate of 3,274,975 shares of Class B Common Stock were
transferred to Leonard A. Lauder and certain entities over which he has control or the stock holdings of which
he may be deemed to have beneficial ownership; (c) an aggregate of 2,300,669 shares of Class B Common Stock
were transferred to Andrew Gaspar and Bukfenc, Inc. (see note 8); and (d) 261,407 shares of Class B Common
Stock remain in RSLAG.
(7) The 1995 Estee Lauder RSL Trust, of which Ronald S. Lauder is a trustee and the beneficiary, and the 1995
Estee Lauder LAL Trust, of which Leonard A. Lauder is a trustee and the beneficiary, each own 50% of EL/RSLG's
outstanding common stock. As such, Ronald S. Lauder and Leonard A. Lauder may each be deemed to beneficially
own all of the shares of Class B Common Stock owned by EL/RSLG. Ronald S. Lauder and Leonard A. Lauder each
disclaim beneficial ownership of some of such shares. Such shares, however, are only included once in the

computation of shares beneficially owned by directors and executive officers as a group.
(8) Includes (a) 48,879 shares of Class B Common Stock owned directly by Mr. Gaspar; (b) an aggregate of 1,170,497
shares of Class B Common Stock owned by LGV and RSLAG (see notes 5 and 6); (c) 1,953,033 shares of Class B
Common Stock owned by Bukfenc, Inc., a corporation wholly owned by Mr. Gaspar and members of his family; and
(d) 3,729 shares of Class B Common Stock owned by Bukfenc, LLC, a limited liability company, of which Mr.
Gaspar and members of his family are the only members.
(9) Such shares are owned by Fisher Investment Partners, L.P., a Delaware limited partnership, of which Itzhak
Fisher is the sole general partner and the Fisher 1997 Family Trust is the sole limited partner. Mr. Fisher
disclaims beneficial ownership of such shares.
(10) Includes (a) an aggregate of 1,170,497 shares of Class B Common Stock owned by LGV and RSLAG (see notes 5 and
6); (b) 2,196,558 shares of Class B Common Stock owned directly by Leonard A. Lauder; (c) 4,866 shares of
Class B Common Stock owned by Mr. Lauder's wife; (d) 348,385 shares of Class B Common Stock owned by LAL
Family Partners, L.P., of which Mr. Lauder is a general partner; (e) 1,786,350 shares of Class B Common Stock
owned by EL/RSLG (see note 7); and (f) 893,175 shares of Class B Common Stock owned by LWG Family Partners,
L.P., a partnership whose managing partner is a corporation which is one-third owned by Mr. Lauder. Mr. Lauder
disclaims beneficial ownership of the shares of Class B Common Stock owned by his wife.
(11) Such shares are owned by Schuster Family Partners I, L.P., a New York limited partnership, of which Jacob Z.
Schuster is the sole general partner and the limited partners of which are certain of Mr. Schuster's children.
Mr. Schuster disclaims beneficial ownership of such shares.
(12) Such shares are owned by Coral Gate, an investment business company organized under the laws of the British
Virgin Islands, which is beneficially owned by Gustavo A. Cisneros and his brother, Ricardo Cisneros. The
business address for Gustavo Cisneros is 36 East 61st Street, New York, New York 10021.
(13) Includes 525,677 shares of Class A Common Stock owned directly by Mr. Tarlovsky and 192,127 shares of Class A
Common Stock issuable upon the exercise of an equal number of options granted to Mr. Tarlovsky under the 1995
Plan, which options become exercisable on April 1, 1998.
(14) Such shares are owned by Tarlovsky Investment Partners, L.P., a Delaware limited partnership of which Nir
Tarlovsky is the sole general partner and the Tarlovsky 1997 Family Trust is the sole limited partner. Mr.
Tarlovsky disclaims beneficial ownership of such shares.
(15) Includes 202,561 shares of Class A Common Stock owned directly by Mr. Bildirici and 344,938 shares of Class A
Common Stock issuable upon the exercise of an equal number of options granted to Mr. Bildirici under the 1995
Plan, which options become exercisable on April 15, 1998.
(16) Consists of 43,800 shares of Class A Common Stock issuable upon the exercise of an equal number of presently
exercisable options granted to Mr. Sekulow under the 1995 Plan.
(17) Consists of 350,400 shares of Class A Common Stock issuable upon the exercise of an equal number of presently
exercisable options granted to Mr. Williams under the 1995 Plan.
(18) Such shares are owned by The Proverbs Trust, a Bermuda trust, of which Mr. Trollope and his wife are the
trustees and beneficiaries.
(19) Includes 1,019,595 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.
(20) 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, 1997, and is taken from a Schedule 13G/A
filed with the Securities and Exchange Commission (the 'Commission') on April 9, 1998. The address for Essex
Investment Management Company is 125 High Street, Boston, Massachussetts 02110.
(21) Information as to the shares owned by Nicholas-Applegate Capital Management, an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940, is as of December 31, 1997, and is taken from a
Schedule 13G filed with the Commission on February 3, 1998. The address for Nicholas-Applegate Capital
Management is 600 West Broadway, 29th Floor, San Diego, California 92101.
</TABLE>

107

<PAGE>

RANKING

The 1996 Notes are unsecured senior obligations of the Issuer, rank pari
passu in right of payment with the 1996 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 Issuer.

REDEMPTION

The 1996 Notes are not redeemable at the Issuer's option 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>

In addition, at any time on or before November 15, 1999, the Issuer may
redeem up to $90.0 million of the original aggregate principal amount of the
1996 Notes with the net proceeds of a sale of common equity at a redemption
price equal to 112.25% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption, provided that at least
$210.0 million of aggregate principal amount of 1996 Notes remains outstanding
immediately after such redemption. On April 3, 1998, the Issuer redeemed $90.0
million of the original aggregate principal amount of the 1996 Notes with the
net proceeds of the Initial Public Offering.

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 Company'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 Company or certain of its subsidiaries.

OLD U.S. DOLLAR NOTES

GENERAL

On February 27, 1998, the Issuer issued the Old U.S. Dollar Senior Notes
pursuant to an Indenture, dated as of February 27, 1998 (the 'Senior Notes
Indenture'), between the Issuer, RSL Communications, Ltd., as guarantor, and The
Chase Manhattan Bank, as trustee (the 'Senior Notes Trustee') and the Old U.S.
Dollar Senior 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'), between the Issuer, RSL
Communications, Ltd., as

108

<PAGE>

guarantor, and The Chase Manhattan Bank, as trustee (the 'Senior Discount Notes
Trustee'). The Old U.S. Dollar Notes are unconditionally guaranteed by the
Guarantor.

PRINCIPAL, MATURITY AND INTEREST

The Old 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 Old U.S. Dollar 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 Old U.S. Dollar Senior Discount Notes
prior to September 1, 2003. From and after March 1, 2003, interest on the Old
U.S. Dollar 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 Old U.S. Dollar
Notes is computed on the basis of a 360-day year comprised of 12 30-day months.

RANKING

The Old 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 New U.S. Dollar Notes, (iii) the Old DM Notes and the New DM Notes
(collectively, the 'DM Notes') and (iv) 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.

REDEMPTION

The Old 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:

OLD U.S. DOLLAR SENIOR NOTES

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 104.562%
2004................................................................................ 103.042%
2005................................................................................ 101.521%
2006 and thereafter................................................................. 100.000%
</TABLE>

OLD U.S. DOLLAR SENIOR DISCOUNT NOTES

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 105.062%
2004................................................................................ 103.375%
2005................................................................................ 101.687%
2006 and thereafter................................................................. 100.000%
</TABLE>

In addition, at any time on or before March 1, 2001, in the event the
Guarantor receives net cash proceeds from the public or private sale of its
common 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
up to 33 1/3% of the aggregate principal amount at maturity of the Old U.S.
Dollar Notes at a redemption price equal to 109.125% of the principal amount
thereof, in the case of the Old U.S. Dollar Senior Notes, and 110.125% of the
accreted value, in the case of the Old U.S. Dollar 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 Old U.S.
Dollar Senior Notes or Old U.S. Dollar Senior Discount Notes, as applicable,
remains outstanding immediately after such redemption.

109

<PAGE>

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.

OLD DM NOTES

GENERAL

On March 15, 1998, the Issuer issued the Old DM Notes pursuant to an
Indenture, dated as of March 16, 1998 (the 'DM Notes Indenture,' and, together
with the U.S. Dollar Notes Indentures, the 'Indentures'), between the Issuer,
RSL Communications, Ltd., as guarantor, and The Chase Manhattan Bank, as trustee
(the 'DM Notes Trustee,' and, together with the Senior Notes Trustee and the
Senior Discount Notes Trustee, the 'Trustee'). The Old DM Notes are
unconditionally guaranteed by the Guarantor.

PRINCIPAL, MATURITY AND INTEREST

The Old 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 Old 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 12 30-day months.

RANKING

The Old 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
Old U.S. Dollar Notes and the New U.S. Dollar Notes (collectively, the 'U.S.
Dollar Notes'), (iii) the New DM Notes and (iv) 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 DM Notes are subject to redemption, at the option of the Issuer, in
whole or in part, at any time on or after March 15, 2003 and prior to maturity,
in principal amounts of DM1,000 or an integral multiple of DM1,000, 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

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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
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 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, Old 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 Old DM Notes, provided, however, that Old DM Notes in an amount equal to
at least 66 2/3% of the aggregate principal amount at maturity of the Old 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.

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 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.

Under existing Commission interpretations, the New Notes would in general
be freely transferable after the Exchange Offers without further registration
under 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.

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<PAGE>

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 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 U.S. Dollar Senior Notes and the Accreted Value (as defined) of the Old U.S.
Dollar Senior Discount Notes and the Old DM Notes (collectively, the Old Senior
Discount 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.

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<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 June 11, 1998; 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 U.S. Dollar Senior Notes, $328,084,000 principal amount at maturity of
Old U.S. Dollar Senior Discount Notes and DM296,000,000 principal amount at
maturity of Old DM Notes are outstanding. This Prospectus, together with the
Letters of Transmittal, is first being sent on or about June 11, 1998 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 (i) certificates
of such Old Notes must be received by the Exchange Agent along with the Letter
of Transmittal, or (ii) 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 in the case of the Old U.S. Dollar Notes, or Euroclear and Cedel,
in the case of the Old DM Notes (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 (iii)
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 (as defined) 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 (as defined) in effecting such
book-entry exchange. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENT 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
NOTE SHOULD BE SENT TO THE ISSUER.

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<PAGE>

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 (i) by a registered holder of the Old Notes who
has not completed the box entitled 'Special Issuance Instructions' or 'Special
Delivery Instructions' on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). 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 which acceptance 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 holders 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
(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.' The Letters of Transmittal state that by so
acknowledging and by

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delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an 'underwriter' within the meaning of the Securities Act.

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 of 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 any Exchange Offers are not consummated or a Shelf Registration Statement
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 (i) 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, (ii) a properly completed and duly executed
Letter of Transmittal or an Agent's Message in lieu thereof and (iii) 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 applicable 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
such Book-Entry Transfer Facility's systems may make book-entry delivery of Old
Notes by causing such Book-Entry Transfer Facility to transfer such Old Notes
into the account of the Book-Entry Depositary (as defined) at the Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures for transfer. However, although delivery of Old Notes may be effected
through book-entry transfer at the applicable 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

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transfer cannot be completed on a timely basis, a tender may be effected if (i)
the tender is made through an Eligible Institution, (ii) prior to the Expiration
Date, the Exchange Agent received from such Eligible Institution a 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 (iii) 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 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 such 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 a
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 5:00 p.m., New York City time, on the
Expiration Date.

CERTAIN CONDITIONS TO THE EXCHANGE OFFERS

Each Exchange Offer shall be subject to the following conditions: (i)
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,
(ii) the due tendering of Old Notes in accordance with such Exchange Offer,
(iii) 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, (iv) 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, (v) there shall not have been
declared by U.S. federal or New York State authorities a

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banking moratorium which, in the Issuer's judgment, would reasonably be expected
to impair the ability of the Issuer to proceed with such Exchange Offer and (vi)
each holder of Old Notes (other than participating broker-dealers) 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 Number: By Hand:

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, Trust Attn: Robert S. Peschler,
Officer Trust Officer

Confirm by Telephone: By Overnight Courier:
The Chase Manhattan Bank
Global Trust Services
(212) 946-3084 450 West 33rd Street
15th Floor
New York, NY 10001
Attn: Robert S. Peschler,
Trust Officer
</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 Exchange will not have engaged in, and does not intend to engage in, a
distribution of New Notes and 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 offer and sale of the New
Notes to 'qualified institutional buyers' (as such term is defined under Rule
144A of the Securities Act) is generally exempt from registration or
qualification under state securities laws. 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.

118

<PAGE>

DESCRIPTION OF THE NEW NOTES AND THE NEW NOTES GUARANTEES

The New U.S. Dollar Senior Notes will be issued under the Senior Notes
Indenture, the New U.S. Dollar Senior Discount Notes will be issued under the
Senior Discount Notes Indenture and the New DM Notes will be issued under the DM
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 U.S. DOLLAR SENIOR NOTES

GENERAL

The New U.S. Dollar Senior Notes will be senior unsecured obligations of
the Issuer initially limited to $200,000,000 aggregate principal amount and will
mature on March 1, 2008. The New U.S. Dollar Senior Notes will bear interest at
the rate of 9.125% per annum from February 27, 1998 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
payable semi-annually on March 1 and September 1 of each year, commencing
September 1, 1998 to the Book-Entry Depositary (in the case of Global Notes) or
to the Person in whose name the New U.S. Dollar Senior Note (or any predecessor
New U.S. Dollar Senior Note) is registered (in the case of Definitive Registered
Notes) at the close of business on the preceding February 15 and August 15, as
the case may be. Interest on the New U.S. Dollar Senior Notes will be computed
on the basis of a 360-day year of twelve 30-day months (see Sections 301, 307
and 310). The terms 'Book-Entry Depositary' and 'Definitive Registered Notes'
are defined below in '--Book-Entry; Delivery and Form'.

The guarantee by the Guarantor in respect of payments in respect of the New
U.S. Dollar Senior Notes (the 'New Senior Notes Guarantee') will rank pari passu
with the Guarantor's unsecured unsubordinated obligations, including its
obligations under (i) the Old U.S. Dollar Senior Notes, (ii) the New U.S. Dollar
Senior Discount Notes and the Old U.S. Dollar Senior Discount Notes
(collectively, the 'U.S. Dollar Senior Discount Notes') and (iii) the DM Notes.

Subject to the covenants described below under 'Covenants' and applicable
law, the Issuer may issue additional senior notes (all of which will have the
same terms, including interest rate, maturity and redemption provisions, as the
U.S. Dollar Senior Notes) in accordance with the Senior Notes Indenture;
provided, that no additional senior note may be issued at a price that would
cause such senior note to have 'original issue discount' within the meaning of
Section 1273 of the Internal Revenue Code. The Old U.S. Dollar Senior Notes, the

New U.S. Dollar Senior Notes offered hereby and any additional senior notes
subsequently issued will be treated as a single class for all purposes under the
Senior Notes Indenture.

OPTIONAL REDEMPTION

The New U.S. Dollar Senior Notes are subject to redemption, at the option
of the Issuer, in whole or in part, at any time on or after March 1, 2003 and
prior to maturity, upon not less than 30 nor more than 60 days' notice mailed to
each holder of New U.S. Dollar Senior Notes to be redeemed at such holder's
address appearing in the Note Register, 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

119

<PAGE>

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.................................................. 104.562%
2004.................................................. 103.042%
2005.................................................. 101.521%
2006 and thereafter................................... 100.000%
</TABLE>

(see Sections 203, 1101, 1105 and 1107)

In addition, at any time prior to 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 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 U.S. Dollar Senior Notes in a principal amount of up to
an aggregate amount equal to 33 1/3% of the original principal amount of the New
U.S. Dollar Senior Notes, provided, however, that New U.S. Dollar Senior Notes
in an amount equal to at least 66 2/3% of the aggregate original principal
amount of the New U.S. Dollar Senior 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 U.S. Dollar Senior 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 109.125% of the
original principal amount of the New U.S. Dollar Senior 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 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 U.S. Dollar Senior 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 Senior 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
U.S. Dollar Senior 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 U.S. Dollar Senior Notes are to be redeemed, the
Trustee shall select, in such manner as it shall deem fair and appropriate, the
particular New U.S. Dollar Senior Notes to be redeemed or any portion thereof
that is an integral multiple of $1,000. (Section 1104)

The New U.S. Dollar Senior Notes do not have the benefit of any sinking
fund.

Other Applicable Terms

For a description of other terms applicable to the New U.S. Dollar Senior
Notes and the other New 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.'

120

<PAGE>

THE NEW U.S. DOLLAR SENIOR DISCOUNT NOTES

GENERAL

The New U.S. Dollar Senior Discount Notes will be senior unsecured
obligations of the Issuer and will mature on March 1, 2008. Although for U.S.
federal income tax purposes a significant amount of original issue discount,
taxable as ordinary income, will be recognized by a holder as such discount
accrues from the issue date of the New U.S. Dollar Senior Discount Notes, no
interest will be payable on the New U.S. Dollar Senior Discount Notes prior to

September 1, 2003. From and after March 1, 2003, interest on the New U.S. Dollar
Senior Discount Notes will accrue at the rate shown on the front cover of this
Prospectus on the stated principal amount of such Senior Discount Notes from
March 1, 2003 or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, payable semiannually on March 1 and
September 1 of each year, commencing September 1, 2003 to the Book-Entry
Depositary (in the case of Global Notes) or to the Person in whose name the New
U.S. Dollar Senior Discount Note (or any predecessor New U.S. Dollar Senior
Discount Note) is registered (in the case of Definitive Registered Notes) at the
close of business on the preceding February 15 and August 15, as the case may
be. Interest on the New U.S. Dollar Senior Discount Notes will be computed on
the basis of a 360-day year of twelve 30-day months. (see Sections 301, 307 and
310)

The guarantee by the Guarantor in respect of payments in respect of the New
U.S. Dollar Senior Discount Notes (the 'New Senior Discount Notes Guarantee')
will rank pari passu with the Guarantor's unsecured unsubordinated obligations,
including its obligations under (i) the Old U.S. Dollar Senior Discount Notes,
(ii) the New U.S. Dollar Senior Notes and the Old U.S. Dollar Senior Notes
(collectively, the 'U.S. Dollar Senior Notes') and (iii) the DM Notes.

OPTIONAL REDEMPTION

The New U.S. Dollar Senior Discount Notes are subject to redemption, at the
option of the Issuer, in whole or in part, at any time on or after March 1, 2003
and prior to maturity, upon not less than 30 nor more than 60 days' notice
mailed to each holder of New U.S. Dollar Senior Discount Notes to be redeemed at
such holder's address appearing in the applicable Note Register, 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.................................................. 105.062%
2004.................................................. 103.375%
2005.................................................. 101.687%
2006 and thereafter................................... 100.000%
</TABLE>

(see Sections 203, 1101, 1105 and 1107)

In addition, at any time prior to March 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 U.S. Dollar Senior Discount Notes 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 New U.S. Dollar
Senior Discount Notes, provided, however, that New U.S. Dollar Senior Discount
Notes in an amount equal to at least 66 2/3% of the aggregate original principal
amount at maturity of the New U.S. Dollar Senior Discount 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 U.S. Dollar Senior Discount 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 110.125% of the Accreted Value of the New U.S. Dollar Senior
Discount Notes plus accrued interest to but excluding the Redemption Date.

121

<PAGE>

If less than all the New U.S. Dollar Senior Discount Notes are to be
redeemed, the Trustee shall select, in such manner as it shall deem fair and
appropriate, the particular New U.S. Dollar Senior Discount 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 U.S. Dollar Senior Discount 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 Senior Discount 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 U.S. Dollar Senior Discount 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 U.S. Dollar Senior Discount Notes do not have the benefit of any
sinking fund.

'Accreted Value' is defined to mean, with respect to the New U.S. Dollar
Senior Discount 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 Senior Discount 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>
September 1, 1998........................................... $ 641.16
March 1, 1999............................................... $ 673.62
September 1, 1999........................................... $ 707.72
March 1, 2000............................................... $ 743.55
September 1, 2000........................................... $ 781.19
March 1, 2001............................................... $ 820.74
September 1, 2001........................................... $ 862.29
March 1, 2002............................................... $ 905.95
September 1, 2002........................................... $ 951.81
March 1, 2003............................................... $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) $609.60; and (b) an
amount equal to the product of (x) the Accreted Value for the first
Semiannual Accrual Date less $609.60 multiplied by (y) a fraction, the
numerator of which is the number of days from the issue date of the Old
U.S. Dollar Senior Discount 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 U.S. Dollar Senior Discount
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

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<PAGE>

(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 U.S. Dollar Senior
Discount Notes and the other New 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 DM NOTES

GENERAL

The New DM Notes will be senior unsecured obligations of the Issuer and
will mature on March 15, 2008. Although for U.S. federal income tax purposes a
significant amount of original issue discount, taxable as ordinary income, will
be recognized by a holder as such discount accrues from the issue date of the
New DM Notes, no interest will be payable on the New DM Notes prior to September
15, 2003. From and after March 15, 2003, interest on the New DM Notes will
accrue at the rate shown on the front cover of this Prospectus on the stated
principal amount of such New DM Notes from March 15, 2003 or from the most
recent Interest Payment Date to which interest has been paid and duly provided
for, payable semiannually on March 15 and September 15 of each year, commencing
September 15, 2003 to the Book-Entry Depositary (in the case of Global Notes) or
to the Person in whose name the DM Note (or any predecessor DM Note) is
registered (in the case of Definitive Registered Notes) at the close of business
on the preceding March 1 and September 1, as the case may be. Interest on the
New DM Notes will be computed on the basis of a 360-day year of twelve 30-day
months (see Sections 301, 307 and 310).

The guarantee by the Guarantor in respect of payments in respect of the New
DM Notes (the 'New DM Notes Guarantee,' and together with the New Senior Notes
Guarantee and the New Senior Discount Notes Guarantee, the 'New Notes
Guarantees') will rank pari passu with the Guarantor's unsecured unsubordinated
obligations, including its obligations under the U.S. Dollar Notes.

OPTIONAL REDEMPTION

The New DM Notes are subject to redemption, at the option of the Issuer, in
whole or in part, at any time on or after March 15, 2003 and prior to maturity,
upon not less than 30 nor more than 60 days' notice mailed to each holder of New
DM Notes to be redeemed at such holder's address appearing in the Notes
Register, in principal amounts of DM1,000 or an integral multiple of DM1,000, 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 on 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>

(see Sections 203, 1101, 1105 and 1107)

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 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, New DM Notes in a

123

<PAGE>

principal amount at maturity of up to an aggregate amount equal to 33 1/3% of
the aggregate principal amount at maturity of the New DM Notes, provided,
however, that New DM Notes in an amount equal to at least 66 2/3% of the
aggregate principal amount at maturity of the New DM Notes remain outstanding
immediately 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 Notes to be redeemed at such holder's
address appearing in the applicable Note Register, in amounts of DM1,000 or an
integral multiple of DM1,000 at a redemption price equal to 110.000% of the
Accreted Value of the New DM 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 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 DM 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 the
holders under the DM 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 DM 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.'

If less than all the New DM Notes are to be redeemed, the Trustee shall
select, in such manner as it shall deem fair and appropriate, the particular New
DM Notes to be redeemed or any portion thereof that is an integral multiple of
DM1,000. (Section 1104)

The New DM Notes do not have the benefit of any sinking fund.

'Accreted Value' is defined to mean, with respect to the New DM Notes, for
any 'Specified Date', the amount calculated pursuant to clauses (i), (ii), (iii)
or (iv) below for each DM1,000 principal amount at maturity of DM Notes:

(i) if the Specified Date occurs on one or more of the following dates
(each a 'DM Notes Semiannual Accrual Date'), the Accreted Value will equal
the amount set forth below for such DM Notes Semiannual Accrual Date:

<TABLE>
<CAPTION>
DM NOTES
SEMIANNUAL ACCRETED
ACCRUAL DATE VALUE
- ---------------------------------------------------------- ----------
<S> <C>
September 15, 1998........................................ DM644.61
March 15, 1999............................................ DM676.84
September 15, 1999........................................ DM710.68
March 15, 2000............................................ DM746.21
September 15, 2000........................................ DM783.53
March 15, 2001............................................ DM822.70
September 15, 2001........................................ DM863.84
March 15, 2002............................................ DM907.03
September 15, 2002........................................ DM952.38
March 15, 2003............................................ DM1,000.00
</TABLE>

(ii) if the Specified Date occurs before the first DM Notes Semiannual
Accrual Date, the Accreted Value will equal the sum of (a) DM614.08; and
(b) an amount equal to the product of (x) the Accreted Value for the first
DM Notes Semiannual Accrual Date less DM614.08 multiplied by (y) a
fraction, the numerator of which is the number of days from the issuance
date of the Old DM Notes to the Specified Date, using a 360-day year of
twelve 30-day months, and the denominator of

124

<PAGE>

which is the number of days elapsed from the issue date of the Old DM
Notes to the first DM Notes Semiannual Accrual Date, using a 360-day year
of twelve 30-day months;

(iii) if the Specified Date occurs between two DM Notes Semiannual
Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted
Value for the DM Notes Semiannual Accrual Date immediately preceding such
Specified Date and (b) and amount equal to the product of (x) the Accreted
Value for the immediately following DM Notes Semiannual Accrual Date less
the Accreted Value for the immediately preceding DM Notes Semiannual
Accrual Date multiplied by (y) a fraction, the numerator of which is the
number of days from the immediately preceding DM Notes 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 DM Notes Semiannual
Accrual Date, the Accreted Value will equal DM1,000.

SUBSTITUTION OF CURRENCY

Under the treaty on the European Economic and Monetary Union (the
'Treaty'), to which the Federal Republic of Germany is a signatory, on or before
January 1, 1999, and subject to the fulfillment of certain conditions, the
'Euro' may replace al or some of the currencies of the Member States of the EU,
including the Deutsche mark. If, pursuant to the Treaty, the Deutsche mark is
replaced by the Euro, the payment of principal of, premium, if any, and interest
on, the New DM Notes will be effected in Euro in conformity with legally
applicable measures taken pursuant to, or by virtue of, the Treaty. In addition,
the regulations of the EU relating to the Euro will apply to the New DM Notes
and the DM Notes Indenture. The circumstances and consequences described in this
paragraph do not entitle the Issuer or any holder of the New DM Notes to early
redemption, rescission, notice, repudiation, adjustment or renegotiation of the
terms and conditions of the New DM Notes or the DM Notes Indenture or to raise
other defenses to or to request any compensation claim, nor will they affect any
of the other obligations of the Issuer or the Guarantor under the New DM Notes
or the DM Notes Indenture.

CURRENCY INDEMNITY

Deutsche mark is the sole currency of account and payment for all sums
payable by the Issuer or the Guarantor under or in connection with the New DM
Notes or the DM Notes Guarantee, including damages. Any amount received or
recovered in a currency other than Deutsche mark (whether as a result of, or the
enforcement of, a judgment or order of a court of any jurisdiction, in the
winding-up or dissolution of the Issuer or the Guarantor or otherwise) by any
holder of a New DM Note in respect of any sum expressed to be due to it from the
Issuer or the Guarantor shall only constitute a discharge to the Issuer or the
Guarantor to the extent of the Deutsche mark amount which the recipient is able
to purchase with the amount so received or recovered in that other currency on
the date of that receipt or recovery (or, if it is not practicable to make the
purchase on that date, on the first date on which it is practicable to do so).
If that Deutsche mark amount is less than the Deutsche mark amount expressed to
be due to the recipient under any New DM Note, the Issuer or the Guarantor shall
indemnify it against any loss sustained by it as a result. In any event, the
Issuer or the Guarantor shall indemnify the recipient against the cost of making
any such purchase. For the purposes of this paragraph, it will be sufficient for
the holder of a New DM Note to certify in a satisfactory manner (indicating the

sources of information used) that it would have suffered a loss had an actual
purchase of Deutsche mark been made with the amount so received in that other
currency on the date of receipt or recovery (or, if a purchase of Deutsche mark
on such date had not been practicable, on the first day on which it would have
been practicable, it being required that the need for a change of date be
certified in the manner mentioned above). These indemnities constitute a
separate and independent obligation from the other obligations of the Issuer and
the Guarantor, shall give rise to a separate and independent cause of action,
shall apply irrespective of any indulgence granted by any holder of a New DM
Note and shall continue in full force and effect despite any other judgment,
order, claim or proof for a liquidated amount in respect of any sum due under
any New DM Note. But see '--Substitution of Currency.'

125

<PAGE>

Other Applicable Terms

For a description of other terms applicable to the New DM Notes and the
other New 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,' '--Medication and
Waiver,' '--The Trustee,' '--Additional Amounts,' '--Consent to Jurisdiction and
Service' and '--Governing Law.'

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. (see Sections 301, 305 and 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
(or DM1,000 in the case of New DM Notes) and any integral multiples of $1,000 or
DM1,000 in the case of New DM Notes) 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 and
transfer 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.'

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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 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 December 31, 1997, on a pro forma basis after giving effect to the
sale of the Notes and the Equity Clawback, (i) the total amount of outstanding
liabilities of the Guarantor and the Issuer (excluding their subsidiaries),
including trade payables, would have been approximately $714.9 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 $161.8
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 February 27, 1998, in the case
of the U.S. Dollar Notes (the 'U.S. Dollar Notes Deposit Agreement'), and as of
March 16, 1998, in the case of the DM Notes (the 'DM Notes Deposit Agreement'
and together with the U.S. Dollar 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').

In the case of the New U.S. Dollar Notes, the Book-Entry Depositary will
issue a certificateless interest for each Global Note issued with respect to the
New U.S. Dollar Notes (a 'U.S. Dollar Global Note'), representing a 100%
interest in the respective underlying U.S. Dollar Global Note, to 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 U.S. Dollar
Global Notes 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. In the case of the New DM Notes, the
Book-Entry Depositary will issue a certificated depositary interest for each
Global Note issued with respect to the New DM Notes (a 'DM Global Note'),
representing a 100% interest in the respective underlying DM Global Note, in the
name of The Chase Manhattan Bank, as common depositary for Euroclear and Cedel
(the 'Common Depositary'). Beneficial interests in the DM Global Notes will be
shown on, and transfers thereof will be effected only through, records

maintained in book-entry form by Euroclear and Cedel (with respect to their
participants) and their participants. All interests in the DM Global Notes will
be subject to the procedures and requirements of Euroclear or Cedel, as the case
may be. Such beneficial interests in

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the U.S. Dollar Global Notes and the DM Global Notes are collectively referred
to herein as 'Book-Entry Interests.'

DEFINITIVE REGISTERED NOTES

Under the terms of the Deposit Agreement and the Indentures, owners of
Book-Entry Interests in the Global Notes will receive definitive Notes in
registered form ('Definitive Registered Notes') (i) if, with respect to the New
U.S. Dollar Notes, 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, (ii) with respect to the New DM
Notes, Euroclear and Cedel each notifies the Issuer or the Book-Entry Depositary
in writing that it (or its nominee) is unwilling or unable to continue to act
as, or ceases to be, a clearing agency, and in either case, a successor
registered as a clearing agency under the Exchange Act is not appointed by the
Issuer within 90 days, (iii) 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 Depositary Interest
or Book-Entry Interest are, or would become, subject to any deduction or
withholding for taxes, (iv) 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, in the case of the New U.S. Dollar Notes, to
DTC and through DTC to the Book-Entry Depositary and the Trustee, or in the case
of the New DM Notes, to Euroclear or Cedel and through Euroclear or Cedel to the
Book-Entry Depositary and the Trustee, or (v) 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 (or DM1,000 in the case of the New DM Notes) principal
amount and integral multiples thereof. In the case of the New U.S. Dollar Notes,
any Definitive Registered Notes will be registered in such name or names as DTC
shall instruct the Trustee, through the Book-Entry Depositary. In the case of
the New DM Notes, any Definitive Registered Notes will be registered in such
name or names as Euroclear or Cedel shall instruct the Trustee, through the
Book-Entry Depositary. In the case of the New U.S. Dollar Notes, it is expected
that DTC's instructions will be based upon directions received by DTC from its
participants (including Euroclear and Cedel Bank) reflecting the beneficial

ownership of Book-Entry Interests. In the case of the New DM Notes, it is
expected that such instructions will be based upon directions received by
Euroclear and Cedel from its participants 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 AS SET FORTH UNDER 'CERTAIN UNITED
KINGDOM TAX CONSIDERATIONS FOR U.S. HOLDERS OF NOTES.' A U.S. HOLDER OF

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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 U.S. Dollar 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. Upon receipt of the DM Global Notes, the Book Entry
Depositary will issue a certificated depositary interest for each such Global
Note, representing a 100% interest in the respective underlying Global Note, in
the name of the Common Depositary for Euroclear and Cedel. In the case of the
New U.S. Dollar Notes, ownership of Book-Entry Interests will be limited to
persons who have accounts with DTC, including Euroclear and Cedel Bank ('DTC
participants'), or persons who have accounts through DTC participants ('DTC
indirect participants'). In the case of the New DM Notes, ownership of
Book-Entry Interests will be limited to persons who have accounts with Euroclear
or Cedel ('Euroclear/Cedel participants,' and together with DTC participants,

'participants'), or persons who have accounts through Euroclear/Cedel
participants ('Euroclear/Cedel indirect participants,' and together with DTC
indirect participants, 'indirect participants'). Upon such issuance of interests
in such Global Notes to DTC or Euroclear and Cedel, as applicable, each of DTC,
Euroclear and Cedel, as applicable, will credit, on its internal book-entry
registration and transfer system, its participants' accounts with the respective
interests owned by such participants. Such accounts initially will be designated
by or on behalf of the Purchasers. Ownership of Book-Entry Interests will be
shown on, and the transfer of such ownership will be effected only through, in
the case of the New U.S. Dollar Notes, records maintained by DTC or its nominee,
or, in the case of the New DM Notes, records maintained by Euroclear or Cedel
(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 limits and 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, Euroclear and Cedel, as
applicable, and, if such person is an indirect participant in DTC, Euroclear or
Cedel, on the procedures of the participant in DTC, Euroclear or Cedel 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
participants or indirect participants, they will be issued in registered form,
as described above. Unless and until Book-Entry Interests related to the New
U.S. Dollar 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. Unless and until
Book Entry Interests related to the DM Notes are exchanged for definitive
registered notes, the certificated depositary interest held by the Common
Depositary may not be transferred except as a whole between Euroclear or Cedel
and the Common Depositary, between nominees of Euroclear or Cedel, or by
Euroclear or Cedel or any such nominee to a successor of Euroclear or Cedel a
successor of such nominee.

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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 (and The Chase Manhattan Bank,
Luxembourg S.A., in the case of the New DM Notes), 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, in the case of the New U.S. Dollar
Notes, or in Deutsche Marks, in the case of the New DM Notes. Upon receipt of
any such amounts in respect of the Global Notes, the Book-Entry Depositary will
pay such amounts to DTC, Euroclear or Cedel, as applicable, in proportion to its
respective interests, as shown on the Book-Entry Depositary's records.

The Issuer expects that DTC or its nominee, in the case of the New U.S.
Dollar Notes, or Euroclear or Cedel, in the case of the New DM Notes, 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, in the case of the New U.S. Dollar Notes, or
Euroclear or Cedel, in the case of the New DM Notes. The Issuer expects that
payments by 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, in the case of the New U.S. Dollar
Notes, or Euroclear or Cedel, in the case of the New DM Notes, 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 Interest 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 DTC, in the case of the New U.S. Dollar Notes,
or Euroclear or Cedel, in the case of the New DM Notes, if fewer than all of the
Notes are to be redeemed at any time, DTC, in the case of the New U.S. Dollar
Notes, or Euroclear or Cedel, in the case of the New DM Notes, will credit
participants' accounts on a proportionate basis (with adjustments to prevent
fractions) or by lot or on such other basis as DTC, in the case of the New U.S.
Dollar Notes, or Euroclear or Cedel, in the case of the New DM Notes, deems fair
and appropriate; provided that no beneficial interests of less than $1,000 (or
DM1,000, in the case of the New DM Notes) principal amount at maturity may be
redeemed in part.

TRANSFERS

Pursuant to the Deposit Agreement, the Global Notes may be transferred only
to the successor to the Book-Entry Depositary.

All transfers of Book-Entry Interests between participants in DTC will be
effected by DTC pursuant to customary procedures established by DTC and its
participants. Transfers between participants in Euroclear and Cedel Bank 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

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DTC, or Euroclear and Cedel, as applicable, 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, or
Euroclear and Cedel, as applicable, 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, the Book-Entry Depositary will forward to DTC, or Euroclear
and Cedel, as applicable, all materials pertaining to any such solicitation,
request, offer or other action. Upon the written request of DTC, or Euroclear
and Cedel, as applicable, 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, or Euroclear and Cedel, as applicable, may grant
proxies or otherwise authorize participants or 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. With respect to the New U.S. Dollar Notes, under
its usual procedures, DTC would mail an omnibus proxy to the Issuer and the
Book-Entry Depositary assigning Euroclear's and Cedel Bank'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, and Euroclear or Cedel Bank, 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 Bank 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. With respect to the New DM Notes,
Euroclear or Cedel will take any action permitted to be taken by a holder under
the DM Notes Indenture on behalf of a Euroclear or Cedel participant only in
accordance with its relevant rules and procedures and subject to the Book-Entry
Depositary's ability to effect such actions on its behalf. 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 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, in the case of the
New U.S. Dollar Notes, or Euroclear and Cedel, in the case of the New DM Notes,
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, in the case of the New U.S. Dollar
Notes, or Euroclear or Cedel, in the case of the New DM Notes, 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, in the case of the New U.S. Dollar
Notes, or Euroclear or Cedel, in the case of the New DM Notes, 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, in the case of the New U.S. Dollar Notes, or Euroclear
or Cedel, in the case of the New DM Notes, is unwilling or unable to continue as
a depositary for the Book-Entry Interests and a

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successor depositary is not appointed by the Issuer within 90 days, DTC, in the
case of the New U.S. Dollar Notes, or Euroclear or Cedel, in the case of the New
DM Notes, 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 AGREEMENT

The Deposit Agreements may be amended by the Issuer and the Book-Entry
Depositary without notice to or consent of DTC, or Euroclear and Cedel, as
applicable, 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, in the case of the U.S. Dollar Notes Deposit
Agreement, or Euroclear and Cedel, in the case of the DM Notes Deposit
Agreement, 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 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, in the case of the U.S. Dollar Notes Deposit
Agreement, or Euroclear and Cedel, in the case of the DM Notes Deposit
Agreement, 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, in the case of the
U.S. Dollar Notes Deposit Agreement, or Euroclear and Cedel, in the case of the
DM Notes Deposit Agreement, may be made without the consent of DTC, in the case
of the U.S. Dollar Notes Deposit Agreement, or Euroclear and Cedel, in the case
of the DM Notes Deposit Agreement, 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 U.S. Dollar Notes, the U.S. Dollar
Notes Deposit Agreement will terminate. Upon the issuance of Definitive
Registered Notes in exchange for Book-Entry Interests constituting the entire
principal amount of DM Notes, the DM Notes Deposit Agreement will terminate. The
Deposit Agreements 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 Securities Exchange
Act of 1934, as amended. 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 (including the Purchasers), 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

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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 Bank 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 U.S. Dollar 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.

Book-Entry Interests 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 U.S.
Dollar 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.

The Book-Entry Interest related to New DM Notes will trade through the
participants of Euroclear or Cedel, and will 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 Notes Guarantees in respect thereof) 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

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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 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.

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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
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

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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 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 Note 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

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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.

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

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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 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

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New Senior Discount Notes and the Old Senior Discount Notes (collectively, the
'Senior Discount Notes'), the Accreted Value of such Senior Discount 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 Senior Discount Notes, the Accreted Value of such Senior Discount 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 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

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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 Senior Discount Notes, the Accreted Value of such 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 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

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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 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,

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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.

'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

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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.

'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)

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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) 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

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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 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 asssets as of

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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 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 the 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;

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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 (or
DM1,000, in the case of the DM Notes) 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 (or DM1,000, in
the case of the DM Notes) 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;

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 DM1,000, in the case of the DM Notes) 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.

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'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 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

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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.

'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

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(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; 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 U.S. Dollar Senior Notes, the New U.S. Dollar Senior Discount
Notes and the New DM Notes, when and as the same shall become

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due and payable, whether at the stated maturity, by declaration of acceleration,
upon redemption or otherwise; provided that the New Notes Guarantees shall not
be enforceable against the Guarantor at the time that determination of such net
worth is, under applicable law, relevant to the enforceability of such New Notes
Guarantees. The obligations of the Guarantor under the New Senior Notes
Guarantee, the New Senior Discount Notes Guarantee and the New DM 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 Senior Notes Guarantee, the New Senior Discount Notes Guarantee and the New
DM 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
U.S. Dollar Senior Notes, U.S. Dollar Senior Discount Notes or DM 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 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 U.S.
Dollar Senior Notes, U.S. Dollar Senior Discount Notes or DM Notes, as
applicable, may accelerate the principal amount of the U.S. Dollar Senior Notes,
the Accreted Value of the U.S. Dollar Senior Discount Notes or the Accreted
Value of the DM 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 U.S. Dollar Senior Notes, U.S. Dollar Senior Discount
Notes or DM 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'.

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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 U.S. Dollar Senior
Notes, U.S. Dollar Senior Discount Notes or DM 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 U.S. Dollar Senior Notes, U.S. Dollar Senior Discount Notes or DM
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) 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 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 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

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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 Note Guarantee with respect to such
payments will remain in effect.

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 U.S. Dollar Senior
Notes, U.S. Dollar Senior Discount Notes or DM Notes, as applicable; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding U.S. Dollar Senior Note, U.S. Dollar Senior Discount
Note or DM Note affected thereby, (a) change the due date of any installment of
principal or interest on any U.S. Dollar Senior Notes, U.S. Dollar Senior
Discount Notes or DM Notes as applicable, (b) reduce the principal amount (or
Accreted Value with respect to the Senior Discount Notes) of, (or the premium)
or interest on, any U.S. Dollar Senior Notes, U.S. Dollar Senior Discount Notes
or DM Notes, as applicable, (c) change the currency of payment of principal of,
(or premium) or interest on, any U.S. Dollar Senior Notes, U.S. Dollar Senior
Discount Notes or DM Notes, as applicable, (d) impair the right to institute
suit for the enforcement of any payment on or with respect to any U.S. Dollar
Senior Notes, U.S. Dollar Senior Discount Notes or DM Notes, as applicable, (e)
reduce the above-stated percentage of outstanding U.S. Dollar Senior Notes, U.S.
Dollar Senior Discount Notes or DM 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 U.S. Dollar Senior
Notes, U.S. Dollar Senior Discount Notes or DM Notes,

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<PAGE>

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 U.S. Dollar Senior Notes, U.S. Dollar Senior Discount Notes or DM
Notes, as applicable, on behalf of all holders of U.S. Dollar Senior Notes, U.S.
Dollar Senior Discount Notes or DM 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 U.S. Dollar Senior Notes, U.S. Dollar Senior Discount Notes
or DM Notes, as applicable, on behalf of all holders of U.S. Dollar Senior
Notes, U.S. Dollar Senior Discount Notes or DM 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
U.S. Dollar Senior Notes, U.S. Dollar Senior Discount Notes or DM 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;

(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); or

(f) in the case of the Senior Notes, to issue any additional
securities in accordance with the Senior Notes Indenture.

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, 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

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<PAGE>

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 Note Guarantee to any holder who is not the
sole beneficial owner of such Note or Note 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 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.'

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<PAGE>

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 Note 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.

CERTAIN UNITED KINGDOM TAX CONSIDERATIONS FOR U.S. HOLDERS OF NOTES

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.

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<PAGE>

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 effective
the registration statement on Form S-4 in connection with the Exchange Offers
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.

LEGAL MATTERS

Certain matters relating to the New Notes are being passed upon for the
Company by Debevoise & Plimpton, New York, New York and 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, Andrew
Gaspar, 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 Mark S. Hirschhom, 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

157

<PAGE>

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 February 24, 1998, in the
case of the New U.S. Dollar Notes, and March 11, 1998, in the case of the New DM
Notes. The Notes Guarantees were authorized by unanimous written consent of the
Executive Committee of the Board of Directors of the Guarantor February 24,
1998, in the case of the Senior Notes Guarantee and the Senior Discount Notes
Guarantee, and dated March 11, 1998 in the case of the DM Notes Guarantee.

5. Application will be made to list the New Notes on the Luxembourge 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 U.S. Dollar Senior Notes, the New U.S. Dollar Senior
Discount Notes and the New DM Notes will, so long as the 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 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.

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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, 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 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.

159

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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 Cashflows for the Years Ended December 31, 1995, December 31, 1996 and December
31, 1997................................................................................................ F-6
Notes to Consolidated Financial Statements................................................................ F-7

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD. AND SUBSIDIARIES
Independent Auditors' Report.............................................................................. F-26
Consolidated Statement of Operations and Accumulated Deficit for the Nine Months Ended September 30,
1995.................................................................................................... F-27
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995......................... F-28
Notes to Consolidated Financial Statements................................................................ F-29
</TABLE>

F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders of
RSL Communications, Ltd.

We have audited the accompanying consolidated balance sheets of RSL
Communications, Ltd., a Bermuda corporation, and its subsidiaries (together, the
'Company'), as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
consolidated financial statement schedules listed in the Index as Item 21(b).
These consolidated financial statements and the consolidated financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and the
consolidated financial statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company and
its subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for the three years ended December 31, 1997 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such consolidated financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.

DELOITTE & TOUCHE LLP
NEW YORK, NEW YORK
FEBRUARY 18, 1998

F-2

<PAGE>

RSL COMMUNICATIONS, LTD.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................................... $104,068 $ 144,894
Accounts receivable............................................................. 26,479 70,610
Marketable securities--available for sale....................................... 67,828 13,858
Prepaid expenses and other current assets....................................... 3,969 16,073
------------ ------------
Total current assets.............................................................. 202,344 245,435
------------ ------------
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

Cost of services.................................................. 17,510 98,461 265,321
------------ ------------ ------------

Gross profit.................................................... 1,107 14,796 35,475

Selling, general and administrative expenses...................... 9,639 38,893 94,712

Depreciation and amortization..................................... 849 6,655 21,819
------------ ------------ ------------

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 FOREIGN
COMMON STOCK COMMON STOCK STOCK WARRANTS ADDITIONAL CURRENCY DEFERRED
-------------- -------------- -------------- -------------- PAID-IN ACCUMULATED TRANSLATION FINANCING
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT COSTS
------ ------ ------ ------ ------ ------ ------ ------ ---------- ----------- ---------- ---------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1995..... -- $ -- -- $ -- -- $ -- -- $ -- $ -- $ (98) $ -- $ --
Issuance of Preferred
Stock............... -- -- -- -- 9,244 93 -- -- 13,261 -- -- --
Issuance of Common
Stock............... -- -- 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 -- -- -- (1,544)
Issuance of Common
Stock............... -- -- 4,118 19 -- -- -- -- 49,981 -- -- --
Foreign Currency
Translation
Adjustment.......... -- -- -- -- -- -- -- -- -- -- (622) --
Net loss............. -- -- -- -- -- -- -- -- -- (38,240) -- --
------ ------ ------ ------ ------ ------ ------ ------ ---------- ----------- ---------- ---------

BALANCE,
December 31, 1996... -- -- 10,529 48 9,244 93 1,117 5,544 65,064 (47,740) (622) (1,544)
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.......... -- -- -- -- -- -- -- -- -- -- (4,666) --
Amortization of
deferred financing
costs............... -- -- -- -- -- -- -- -- -- -- -- 1,544
Net loss............. -- -- -- -- -- -- -- -- -- (100,199) -- --
------ ------ ------ ------ ------ ------ ------ ------ ---------- ----------- ---------- ---------
BALANCE
December 31, 1997... 10,873 $ 49 30,761 $141 -- $ -- 1,117 $5,544 $274,192 $(147,939) $ (5,288) $ --
------ ------ ------ ------ ------ ------ ------ ------ ---------- ----------- ---------- ---------
------ ------ ------ ------ ------ ------ ------ ------ ---------- ----------- ---------- ---------

TOTAL
---------
<S> <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............ --
Issuance of Common
Stock............... 50,000
Foreign Currency
Translation
Adjustment.......... (622)
Net loss............. (38,240)
---------

BALANCE,
December 31, 1996... 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)
Amortization of
deferred financing
costs............... 1,544
Net loss............. (100,199)
---------

BALANCE
December 31, 1997... $ 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 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

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.

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.

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.

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)

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. The investment in Maxitel is accounted
for under the equity method of accounting.

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.

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.

Other

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.

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 connection with the purchase
of Belnet/RSL, the Company recorded approximately $15.6 million of goodwill.

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)

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 International Telecommunications Group,
Ltd. ('ITG') (the 'Purchased Shares'). In addition, 3,333 voting shares of ITG
currently held by Incom were exchanged for an equal number of non-voting shares.
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 ITG and RSL COM U.S.A., Inc. (formerly known as International
Telecommunications Corporation) ('RSL USA'), pursuant to which the Company

initially purchased from ITG 66,667 shares of ITG's Series A convertible
preferred stock (which represented 25% of ITG's then outstanding stock,
including common and preferred shares) for $4.8 million. The Company
subsequently purchased additional shares of ITG'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, $25.0 million, and $87.3 million at December 31, 1995, 1996 and 1997,
respectively, resulting in recorded goodwill of $85.5 million. At December 31,
1996 and 1997, the Company's investment in ITG was $54.2 million and $87.3
million, respectively, which represented in excess of 87% (at December 31, 1996)
and 100% (at December 31, 1997) of the outstanding shares of ITG.

Effective September 1, 1995, ITG's subsidiary RSL USA, purchased 51% of the
capital stock of Cyberlink, Inc. ('Cyberlink'). During the period August 1996
through December 1996, RSL USA purchased 1,023,807 shares of the capital stock
of Cyberlink for approximately $7.2 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.

Accounting Treatment

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 the acquired assets and
liabilities acquired in the 1997 acquisitions is preliminary and as a result,
the allocation of the acquisition costs among the tangible and intangible assets
may change.

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)

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. The Company has included 100% of certain subsidiaries' operating
losses since the minority interests' investments have been reduced to zero.
Minority interest represents another entity's ownership interest in Belnet/RSL
at December 31, 1996 and Belnet/RSL, RSL Com Austria, RSL Com Italy, and RSL Com
Venezuela at December 31, 1997. All material intercompany accounts and
transactions have been eliminated. Each of the Company's subsidiaries has a year
end of December 31.

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

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)

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 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.

Goodwill and Related Amortization--Goodwill represents the excess of cost
over the fair value of the net assets of acquired entities, and is being
amortized using the straight-line method over fifteen years. The Company
periodically reviews the value of its goodwill to determine if an impairment has
occurred. The Company measures the potential impairment of recorded goodwill by
the undiscounted value of expected future cash flows in relation to its net
capital investment in the subsidiary. Based on its review, the Company does not
believe that an impairment of its goodwill has occurred.

Deferred Financing Costs--The deferred financing costs incurred in
connection with the Senior Notes are being amortized on a straight line basis
over ten years.

Deposits and Other Assets--Deposits consist principally of amounts paid to
the Company's carrier vendors.

Revenue Recognition and Deferred Revenue--The Company records revenue based
on minutes (or fractions thereof) of customer usage. The Company records
payments received in advance for prepaid calling card services and services to
be supplied under contractual agreements as deferred revenues until such related
services are provided.

Cost of Services--Cost of services is comprised primarily of transmission
costs.

Selling Expenses--Selling costs such as commissions, marketing costs, and
other customer acquisition costs are treated as period costs. Such costs are
recorded in selling, general and administrative expenses in the Company's
consolidated statement of operations.

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

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)

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 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. 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.

F-12

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

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.

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.

F-13

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

6. INCOME TAXES--(CONTINUED)

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.

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.

At December 31, 1996 and 1997, the Company is in compliance with the above
restrictive covenants.

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--(CONTINUED)

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.

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.

Other Financing

In connection with the September 1996 purchase of additional shares of
ITG's common stock, the Company issued secured notes totaling approximately
$9,328,000. Such notes and interest 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.

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)

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.

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 and other............................................... $ 80,358 $216,858
Deferred financing costs......................................... 10,988 11,655
------------ --------
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.

F-16

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

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 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, ITG's Founder and former Chairman elected to exchange his
shares in ITG, 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 ITG and recorded approximately $32,575,000 as additional paid in capital.

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.

F-17

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

10. CAPITAL LEASE OBLIGATIONS

Future minimum annual payments applicable to assets held under capital
lease obligations for years subsequent to December 31, 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>

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

F-18

<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)

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 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.

F-19

<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 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.

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
exercise price of the options 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 1997 Directors'
Plan provides for

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)

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.

<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>

The following table summarizes information concerning the remaining options
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

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)

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>

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.

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--(CONTINUED)

The Company is committed to pay for transmission capacity under certain
operating leases. The minimum annual lease payments with respect to these
agreements is as follows (in thousands):

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.

In connection with certain acquisitions, the Company has entered into
agreements whereby the minority shareholders have the right to put their
remaining shares to the Company.

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-23

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

16. REVENUES BY GEOGRAPHIC AREA

The following table provides certain geographic data on the Company's
operations for the years ended December 31, 1995, 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
Corporate and other.................................................... 156 (2,412) 15,312
-------- ------------- ------------
$ 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 and other.................................................... -- (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
Gross Profit...................................................... 14,796 30,992
Net Loss.......................................................... (34,309) (95,824)
</TABLE>

F-24

<PAGE>

RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

18. SUBSEQUENT EVENTS

In January 1998, the Company purchased 90% of Telecenter Oy, a Finnish
agent customer base. The Company paid approximately $10.0 million in cash with a
purchase price adjustment based on future results to be calculated in two years.

On February 8, 1998, the Board of Directors authorized the issuance of
$200,000,000 Senior Notes (collectively, '1998 Notes') due 2008 and Senior
Discount Notes (collectively, '1998 Discount Notes') with a discounted value of
approximately $200,000,000.

Such issuance is expected to occur on February 23, 1998. Both the 1998
Notes and the 1998 Discount Notes are guaranteed as to payment of principal and
interest by RSL Communications, Ltd.

19. SUPPLEMENTAL FINANCIAL INFORMATION

The following table sets forth selected unaudited quarterly financial
information for the years ended December 31, 1997 and 1996.

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
YEAR ENDED DECEMBER 31, 1997 FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 42,168 $ 67,193 $ 83,243 $108,192
-------- -------- -------- --------
-------- -------- -------- --------
Gross profit.................................................. $ 5,199 $ 7,366 $ 8,837 $ 14,073
-------- -------- -------- --------
-------- -------- -------- --------
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
-------- -------- -------- --------
-------- -------- -------- --------
Gross profit.................................................. $ 1,180 $ 2,927 $ 4,530 $ 6,159
-------- -------- -------- --------
-------- -------- -------- --------
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.

F-25

<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-26

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 1995

<TABLE>
<S> <C>
Revenues......................................................................................... $ 26,351,634

Cost of Services................................................................................. 24,614,337
------------

Gross Profit................................................................................... 1,737,297

Selling, General and Administrative Expenses..................................................... 6,299,188
------------

Loss from Operations............................................................................. (4,561,891)

Interest Income.................................................................................. 56,148

Interest Expense................................................................................. (345,212)
------------

Net Loss......................................................................................... (4,850,955)

Accumulated Deficit, January 1, 1995............................................................. (5,153,000)
------------

Accumulated Deficit, September 30, 1995.......................................................... $(10,003,955)
------------
------------
</TABLE>

See notes to consolidated financial statements.

F-27

<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-28

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995

1. BUSINESS DESCRIPTION

International Telecommunications Group Ltd. and its subsidiaries ('ITG')
operate a domestic and international communications network which provides
international and domestic long distance telephone services for businesses and
individuals in the United States and abroad.

2. ACQUISITION

Effective September 1, 1995, ITG's subsidiary International
Telecommunications Corporation ('RSL USA') (collectively, 'ITG') consummated a
stock purchase agreement with Cyberlink, Inc. ('Cyberlink') and Cyberlink's
principal stockholder.

The agreement provided for the purchase of 51% of the capital stock of
Cyberlink. The purchase price consisted of $1,500,000 paid to Cyberlink and
assumption of net liabilities of $14,131,000. In connection with the purchase of
Cyberlink, the Company recorded approximately $15,631,000 of goodwill as of
September 30, 1995.

In connection with the acquisition of Cyberlink, the 49% minority
stockholders of Cyberlink may sell their shares to RSL USA at fair market value
if RSL USA consummates an initial public offering of its securities. RSL USA can
call the 49% minority stockholders shares at any time after December 31, 1996
for a price equal to 49% of the sum of eight times Cyberlink's average monthly
revenues of the last quarter prior to exercise date plus cash minus long-term
liabilities.

The acquisition has been accounted for by the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. The excess of the purchase price over the estimated fair
values of the net assets acquired has been recorded as goodwill, which will be
amortized over fifteen years.

The accompanying consolidated statements of operations and accumulated
deficit and cash flows include the results of Cyberlink from its date of
acquisition through September 30, 1995.

The following presents the unaudited pro forma consolidated statement of
operations of the Company for the nine months ended September 30, 1995, assuming
the Company had purchased Cyberlink at January 1, 1995. The consolidated
statement does not necessarily represent what the Company's results of
operations would have been had such acquisition actually occurred on such date,
or of results to be achieved in the future:

<TABLE>
<CAPTION>
PRO FORMA FOR THE NINE
MONTHS ENDED SEPTEMBER
30, 1995
----------------------
(UNAUDITED)
<S> <C>
Revenue.................................................... $ 40,504,172
Cost of services........................................... 37,087,243
----------------------
Gross Profit............................................... 3,416,929
Selling, general and administrative expenses............... 23,555,216
----------------------
Loss from operations....................................... (20,138,287)
Interest income............................................ 56,148
Interest expense........................................... (738,496)
----------------------
Net loss................................................... $(20,820,635)
----------------------
----------------------
</TABLE>

F-29

<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-30

<PAGE>

INTERNATIONAL TELECOMMUNICATIONS GROUP LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1995

4. CONCENTRATION OF CREDIT RISK

The Company is subject to significant concentrations of credit risk which
consist principally of trade accounts receivable. The Company sells a
significant portion of its services to other carriers and, as a result,
maintains significant receivable balances with certain carriers. If the
financial condition and operations of these customers deteriorate below critical
levels, the Company's operating results could be adversely affected. During
1995, one of the Company's customers, which represented approximately 18% of the
Company's sales for the nine months ended September 30, 1995, failed to meet
minimum payments schedules and, as a result, the Company terminated services to
this customer. Consequently, the customer refused to pay outstanding receivable
balances totaling approximately $4,653,000. At September 30, 1995, the Company
had written off the entire $4,653,000. The Company has commenced legal
proceedings to recover amounts owed to the Company.

The Company now performs ongoing credit evaluations of its customer's
financial condition and requires collateral in the form of deposits in certain
circumstances.

5. INCOME TAXES

No provision for income taxes has been made because the Company has
sustained cumulative losses since the commencement of its operations in 1994.
For the nine months ended September 30, 1995, the Company had net operating loss
carryforwards generated primarily in the United States of approximately
$10,000,000. The net operating loss carryforwards will expire at various dates
beginning in 2009 through 2010 if not utilized.

In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as follows:

<TABLE>
<S> <C>
Deferred tax assets....................................... $ 8,120,000
Less valuation allowance.................................. (8,120,000)
-----------
Net deferred tax assets................................. $ --
-----------
-----------
</TABLE>

The Company's net operating losses and legal reserves generated the
deferred tax assets. At September 30, 1995, a valuation allowance of $8,120,000
is provided as the realization of the deferred tax benefits is not likely.

6. NOTES PAYABLE AND LONG-TERM DEBT

RSL USA has a series of notes payable to different vendors in the amount of
$1,136,712 which bear interest at rates from 8% to 14.5%, of which $874,066 is
current.

Cyberlink has a credit agreement which provides for up to $5,000,000 in
committed credit lines to finance its accounts receivable. Interest is payable
at 2 1/4% over the prime rate of interest (prime being 8.75% at September 30,
1995). A second credit line provides for up to $2,000,000 in capital expenditure
financing with interest payable at 2 1/2% over the prime rate. The total amounts
outstanding at September 30, 1995 from the above credit lines are $1,713,296 and
$0, respectively. The credit lines terminate on August 31, 1998.

Cyberlink has a long-term note payable to a vendor in the amount of
$1,000,000 which bears interest at the rate of 10%, commencing January 1, 1997.

ITG's notes payable had fair values that approximated their carrying
amounts.

Interest expense on the above notes was approximately $190,603 for the nine
months ended September 30, 1995.

F-31

<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:

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-32

<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>
------------------------------------------------------------
------------------------------------------------------------

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to sell or the solicitation of an offer to buy any
securities other than the securities to which it relates or an offer to sell or
the solicitation of an offer to buy such securities in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information........................................... 3
Summary......................................................... 5
Risk Factors.................................................... 19
Use of Proceeds................................................. 33
Capitalization.................................................. 33
Selected Consolidated Financial Data............................ 34
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 36
Business........................................................ 48
Management...................................................... 94
Certain Relationships and Related Transactions.................. 104
Principal Shareholders.......................................... 105
Description of Certain Indebtedness............................. 107
Registration Rights Agreements for Old Notes....................
The Exchange Offers.............................................
Description of the New Notes and the New Notes Guarantees....... 119
Certain United States Federal Income Tax Considerations For U.S.
Holders of Notes.............................................. 156
Certain United Kingdom Tax Considerations For U.S. Holders of
Notes......................................................... 156
Plan of Distribution............................................ 157
Legal Matters................................................... 157
General Information............................................. 157
Experts......................................................... 159
Service of Process and Enforcement of Liabilities............... 159
Index to Consolidated Financial Statements...................... F-1
</TABLE>
------------------------------------------------------------
------------------------------------------------------------

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

RSL COMMUNICATIONS PLC
$200,000,000
9 1/8% SENIOR EXCHANGE NOTES
DUE 2008

$328,084,000
10 1/8% SENIOR DISCOUNT EXCHANGE NOTES DUE 2008

DM296,000,000
10% SENIOR DISCOUNT EXCHANGE NOTES DUE 2008

GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY
RSL COMMUNICATIONS, LTD.

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[LOGO]

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