<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check theappropriate box:
[_] Preliminary proxy statement
[_] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
RSL COMMUNICATIONS, LTD.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:1
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ----------
(1) set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
The annual general meeting of shareholders of RSL COMMUNICATIONS, LTD.
(the "Company"), a Bermuda company, will be held at the offices of Conyers, Dill
& Pearman, Clarendon House, Church Street, Hamilton HM CX, Bermuda, on June 8,
1999 at 10:00 A.M., for the following purposes:
1. To elect eight directors to serve on the Company's Board of
Directors;
2. To approve a proposal to amend the Company's 1997 Stock
Incentive Plan to expand the existing group of participants to
whom options and other awards may be granted to include all
employees of the Company and its subsidiaries;
3. To approve a proposal to amend the Company's 1997 Stock
Incentive Plan to increase by 5,000,000 to 8,100,000 the
number of shares with respect to which options or other awards
may be granted;
4. To approve a proposal to amend the Company's bye-laws;
5. To receive and adopt the financial statements of the Company
for its fiscal year ended December 31, 1998, together with the
auditors' report thereon; and
6. To appoint Deloitte & Touche LLP as auditors for the Company
and to delegate to the Company's audit committee the authority
to fix the auditors' fee for the current fiscal year.
Only shareholders of record at the close of business on April 19, 1999
are entitled to notice of and to vote at the meeting and any adjournments
thereof.
Proposals 2 and 3 above are interdependent. If either Proposal 2 or
Proposal 3 is not approved and adopted at the meeting, the Company's 1997 Stock
Incentive Plan will continue to remain in effect in its present form. The
approval and adoption of Proposals 1, 4, 5 and 6 are independent of one another
and are independent of the approval and adoption of Proposal 2 and Proposal 3.
It is important that all shareholders be represented at the meeting.
Shareholders of record may vote by either: (1) signing and returning promptly
the enclosed proxy card in the accompanying envelope; (2) attending the meeting
and voting in person; or (3) voting by telephone or via the Internet as directed
on the enclosed proxy card. Voting by written proxy, by telephone or via the
Internet will not limit a shareholder's right to vote at the meeting if he or
she attends in person.
By Order of the Board of Directors,
Michael Ashford
Secretary
Hamilton, Bermuda
April 30, 1999
<PAGE>
RSL COMMUNICATIONS, LTD.
--------------------------------------
PROXY STATEMENT FOR ANNUAL
GENERAL MEETING OF SHAREHOLDERS
June 8, 1999
--------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of RSL COMMUNICATIONS, LTD. (the
"Company"), a Bermuda company, for use at the annual general meeting of
shareholders of the Company (the "Meeting") to be held at the offices of
Conyers, Dill & Pearman, Clarendon House, Church Street, Hamilton HM CX,
Bermuda, on June 8, 1999 at 10:00 A.M., and at any adjournments thereof.
The Company's headquarters and registered office is located at
Clarendon House, Church Street, Hamilton HM CX, Bermuda. The Company also
maintains offices at 767 Fifth Avenue, Suite 4300, New York, New York 10153. The
approximate date on which this Proxy Statement and the enclosed form of proxy
was first sent to shareholders was April 30, 1999.
The Company will bear the cost of preparing, assembling and mailing the
enclosed form of proxy, this Proxy Statement and other materials which may be
sent to shareholders in connection with this solicitation. It is important that
all shareholders be represented at the Meeting. Shareholders of record may vote
by either: (1) signing and returning promptly the enclosed proxy card in the
accompanying envelope; (2) attending the Meeting and voting in person; or (3)
voting by telephone or via the Internet as directed on the enclosed proxy card.
The method by which a shareholder votes prior to the Meeting will not limit his
or her right to vote at the Meeting if he or she attends in person. Officers and
other employees of the Company may solicit proxies by mail, telephone, telegraph
and personal interview, for which no additional compensation will be paid. The
Company may reimburse persons holding shares in their names or in the names of
nominees for their reasonable expenses in sending proxies and proxy material to
their principals.
Shareholders who have voted -- whether by telephone, Internet or mail
- -- retain the right to revoke such instructions at any time (1) by subsequently
voting by the same or a different method, (2) by notice in writing to the
Secretary of the Company or (3) by revocation in person at the Meeting. All
shares that have been properly voted at the Meeting -- whether by telephone,
Internet or mail -- and not revoked will be voted at the Meeting in accordance
with the instructions given therein. If the Company receives more than one set
of instructions from a shareholder before the date of the Meeting, it will vote
such shareholder's shares once and in accordance with the instructions that the
Company last receives. If a shareholder holding shares registered in the name of
a brokerage firm or bank votes via the Internet or if any shareholder signs a
proxy card but, in either case, does not give voting instructions with respect
to a particular matter, such shareholder's shares will be voted as recommended
by the Company's Board of Directors (the "Board of Directors") with respect to
such matter. A shareholder who votes by telephone and a shareholder with shares
registered in his or her own name who votes via the Internet must vote with
respect to each matter to be presented at the Meeting in order for his or her
votes to be recognized with respect to any matter.
Shareholders of record of the Company's Class A common shares, par
value $.00457 per share (the "Class A Common Stock"), at the close of business
on April 19, 1999 are entitled to one vote for each share then held.
Shareholders of record of the Company's Class B common shares, par value $.00457
per share (the "Class B Common Stock" and, together with the Class A Common
Stock, the "Common Stock"), at the close of business on April 19, 1999
<PAGE>
are entitled to 10 votes for each share then held. Holders of shares of Class A
Common Stock and holders of shares of Class B Common Stock vote together as a
single class. On April 19, 1999, there were issued and outstanding 26,945,691
shares of Class A Common Stock and 26,245,315 shares of Class B Common Stock.
Shareholders vote at the Meeting by casting ballots (in person or by
proxy) which are tabulated by a person who is appointed by the Board of
Directors before the Meeting to serve as inspector of election at the Meeting
and who has executed and verified an oath of office. The presence, in person or
by proxy, of shareholders entitled to cast at least a majority of the total
number of votes entitled to be cast on each matter to be voted upon at the
Meeting constitutes a quorum as to each such matter. Abstentions and broker
"non-votes" are included in the determination of the number of shares present at
the Meeting for quorum purposes, but abstentions and broker "non-votes" are not
counted in the tabulations of the votes cast on proposals presented to
shareholders. Broker "non-votes" are not counted in the tabulations of the votes
cast on proposals presented to the shareholders because shares held by a broker
are not considered to be entitled to vote on matters as to which brokers lack
(or elect not to exercise) discretionary power. A broker "non-vote" occurs when
a nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial owner
or has discretionary power but elects not to exercise it.
The Board of Directors does not intend to present and knows of no other
person who intends to present at the Meeting any matter or business other than
those set forth in the accompanying Notice of Annual General Meeting of
Shareholders.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 19, 1999
with respect to the beneficial ownership of the Common Stock and also sets forth
certain information with respect to voting power as of such date by each
director and nominee for director of the Company, by the Company's Chief
Executive Officer, by each of the Company's four other most highly compensated
executive officers for the fiscal year ended December 31, 1998, and by all
directors, nominees for director and current executive officers as a group and
by each shareholder known by the Company to beneficially own more than 5% of any
class of the Company's outstanding voting securities. Each of the shareholders
identified in the table has sole voting and investment power over the shares
beneficially owned by such person, except as otherwise noted in the footnotes to
the table.
<TABLE>
<CAPTION>
Overall Voting Power and
Beneficial Ownership Ownership of Common Stock
-------------------------------------------------------- -------------------------
Class A Common Stock(1) Class B Common Stock
------------------------- ---------------------------
% of
Voting %
Number Percent Number Percent Power(2) Ownership(2)
------ ------- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald S. Lauder (3)............ 3,657 (4) * 16,606,427 (5)(6) 62.2 56.5 31.0
Itzhak Fisher (3)............... -- -- 4,171,205 (7) 15.9 14.4 7.8
Leonard A. Lauder (3)........... 1,983 (8) * 5,733,176 (6)(9) 21.9 19.8 10.8
RSL Investments Corporation (3). -- -- 9,496,295 36.2 32.8 17.9
EL/RSLG Media, Inc. (3)......... -- -- 1,814,579 (6) 6.9 6.3 3.4
Jacob Z. Schuster (3)........... 41,656 (10) * 1,646,559 (10) 6.3 5.7 3.2
Gustavo A. Cisneros (11)........ 1,410,612 (12) 5.2 -- -- * 2.7
Coral Gate Investments Ltd.(11). 1,408,629 (13) 5.2 -- -- * 2.7
Nir Tarlovsky .................. 740,757 (14) 2.7 270,301 (15) 1.0 1.2 1.9
Nesim N. Bildirici ............. 619,642 (16) 2.3 87,958 * * 1.3
Eugene A. Sekulow .............. 45,783 (17) * -- -- * *
Fred H. Langhammer.............. 14,209 (18) * -- -- * *
Richard E. Williams............. 350,400 1.3 -- -- * *
Nicolas G. Trollope ............ 1,000 (19) * -- -- * *
All current directors and
executive officers as a group
(20 persons).................. 3,548,872 (20) 13.0 26,245,315 100.0 91.8 56.1
Metro Holding AG (21)........... 3,214,284 18.7 -- * 1.1 6.1
Essex Investment Management
Company (22)................. 1,792,045 7.23 -- * * 3.4
Putnam Investments, Inc. (23)... 6,116,202 11.8 -- -- 2.1 11.6
Janus Capital Corporation (24).. 1,589,215 8.8 -- -- * 3.0
Neuberger Berman LLC (25)....... 1,154,600 6.41 -- -- * 2.2
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise noted in a footnote to this table, the foregoing
does not include (i) 26,245,315 shares of Class A Common Stock issuable
upon the conversion of currently outstanding shares of Class B Common
Stock, (ii) 459,900 shares of Class A Common Stock issuable upon the
conversion of 459,900 shares of Class B Common Stock issuable pursuant
to certain warrants issued to Ronald S. Lauder (the "Lauder Warrants"),
which warrants became exercisable on October 3, 1997 at an exercise
price of $.00457 and expire on October 3, 2007, (iii) 164,250
restricted shares of Class A Common Stock granted pursuant to the
Company's 1997 Stock Incentive Plan (the "1997 Plan") and (iv) grants
to certain executive officers of the Company of equity interests in
certain of the Company's subsidiaries, which upon exercise generally
gives such executive the right to receive cash or to acquire shares of
Class of Common Stock at the Company's discretion. Shares of Class B
Common Stock are convertible at any time into shares of Class A Common
Stock for no additional consideration on a share-for-share basis.
(2) Represents the percentage of total voting power and the aggregate
percentage ownership of the Class A Common Stock and the Class B Common
Stock combined beneficially owned as of April 19, 1999 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 2,510 shares of Class A Common Stock issuable to Ronald S.
Lauder upon the exercise of a like number of currently exercisable
options, granted to Mr. Lauder under the Company's 1997 Directors'
Compensation Plan (the "Directors' Plan").
(Footnotes continued on following page)
3
<PAGE>
(Footnotes continued from previous page)
(5) Consists of (a) 9,496,295 shares of Class B Common Stock owned by RSL
Investments Corporation, a corporation wholly owned by Ronald S.
Lauder, (b) 1,814,579 shares of Class B Common Stock owned by EL/RSLG
Media, Inc. ("EL/RSLG") (see note 6), (c) 907,290 shares of Class B
Common Stock owned by RAJ Family Partners L.P., of which Mr. Lauder is
a limited partner and a shareholder of the general partner, and (d)
3,928,363 shares of Class B Common Stock owned directly by Mr. Lauder,
and (e) 459,900 shares of Class B Common Stock issuable upon exercise
of the Lauder Warrants.
(6) The 1995 Estee Lauder RSL Trust, of which Ronald S. Lauder is a trustee
and the beneficiary, and the 1995 Estee Lauder LAL Trust, of which
Leonard A. Lauder is a trustee and the beneficiary, each own 50% of
EL/RSLG's outstanding common stock. As such, Ronald S. Lauder and
Leonard A. Lauder may each be deemed to beneficially own all of the
shares of Class B Common Stock owned by EL/RSLG. Ronald S. Lauder and
Leonard A. Lauder each disclaim beneficial ownership of some of such
shares. Such shares, however, are only included once in the computation
of shares beneficially owned by directors and executive officers as a
group.
(7) Such shares are owned by Fisher Investment Partners, L.P., of which
Itzhak Fisher is the sole general partner and the Fisher 1997 Family
Trust is the sole limited partner. Mr. Fisher disclaims beneficial
ownership of such shares.
(8) Includes 836 shares of Class A Common Stock issuable upon the exercise
of a like number of currently exercisable options, granted to Leonard
A. Lauder under the Directors' Plan.
(9) Consists of (a) 2,658,056 shares of Class B Common Stock owned
directly by Leonard A. Lauder, (b) 4,866 shares of Class B Common
Stock owned by Mr. Lauder's wife, (c) 348,385 shares of Class B Common
Stock owned by LAL Family Partners, L.P., of which Mr. Lauder is a
general partner, (d) 1,814,579 shares of Class B Common Stock owned by
EL/RSLG (see note 6), and (e) 907,290 shares of Class B Common Stock
owned by LWG Family Partners, L.P., a partnership whose managing
partner is a corporation which is one-third owned by Mr. Lauder. Mr.
Lauder disclaims beneficial ownership of all of the shares of Class B
Common Stock owned by his wife and some of the shares owned by LWG
Family Partners, L.P.
(10) Such shares are owned by Schuster Family Partners I, L.P, of which
Jacob Z. Schuster is the sole general partner and the limited partners
are certain of his children. Mr. Schuster disclaims beneficial
ownership of such shares.
(11) The business address of each of Gustavo A. Cisneros and Coral Gate
Investments Ltd. ("Coral Gate") is c/o Highgate Properties, 36 East
61st Street, New York, New York 10021.
(12) Consists of (a) 836 shares of Class A Common Stock issuable upon the
exercise of a like number of currently exercisable options, granted to
Gustavo A. Cisneros under the Directors' Plan, (b) 1,147 shares of
Class A Common Stock issued to Mr. Cisneros under the Directors' Plan
and (c) 1,408,629 shares of Class A Common Stock owned by Coral Gate,
an international business company organized under the laws of the
British Virgin Islands, which is indirectly beneficially owned by Mr.
Cisneros and his brother, Ricardo Cisneros.
(13) Such shares are indirectly beneficially owned by Gustavo A. Cisneros
and his brother, Ricardo Cisneros. Mr. G. Cisneros disclaims beneficial
ownership of some of such shares.
(14) Consists of (a) 668,614 shares of Class A Common Stock owned by
Tarlovsky Investment Partners, L.P. ("Tarlovsky Investment Partners"),
of which Nir Tarlovsky is the sole general partner and the Tarlovsky
1997 Family Trust is the sole limited partner and (b) 72,143 shares of
Class A Common Stock issuable upon the exercise of a like number of
currently exercisable options granted to Mr. Tarlovsky under the 1997
Plan.
(15) Represents shares of Class B Common Stock owned by Tarlovsky
Investment Partners.
(16) Consists of (a) 547,499 shares of Class A Common Stock and (b) 72,143
shares of Class A Common Stock issuable upon the exercise of a like
number of currently exercisable options granted to Mr. Bildirici under
the 1997 Plan.
(17) Consists of (a) 836 shares of Class A Common Stock issuable upon the
exercise of a like number of currently exercisable options, granted to
Eugene Sekulow under the Directors' Plan, (b) 1,147 shares of Class A
Common Stock issued to Mr. Sekulow under the Directors' Plan and (c)
43,800 shares of Class A Common Stock issuable upon the exercise of a
like number of currently exercisable options granted to Mr. Sekulow
under the Company's 1995 Stock Option Plan, as amended (the "1995
Plan").
(18) Consists of (a) 836 shares of Class A common stock issuable upon the
exercise of a like number of currently exercisable options, granted to
Fred Langhammer under the Directors' Plan, (b) 1,147 shares of Class A
Common Stock issued to Mr. Langhammer under the Directors' Plan and (c)
12,226 shares of Class A Common Stock owned directly by Mr. Langhammer.
(19) Such shares are owned by The Proverbs Trust, a Bermuda trust, of which
Mr. Trollope and his wife are the trustees and beneficiaries.
(20) Includes 302,470 shares of Class A Common Stock issuable upon the
exercise of a like number of currently exercisable options granted to
certain of the directors and executive officers as a group.
(21) Information as to the shares owned by Ligapart AG, a wholly owned
subsidiary of Metro Holding AG, is as of July 22, 1998, and is taken
from a Schedule 13G filed with the Securities and Exchange Commission
(the "Commission") on July 28, 1998. The address of Metro Holding AG is
Neuhofstrasse 4, CH-6340 Baar, Switzerland.
(22) Information as to the shares owned by Essex Investment Management
Company, an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940 (the "1940 Act"), is as of December 31,
1998, and is taken from a Schedule 13G/A filed with the Commission on
January 8, 1999. The address of Essex Investment Management Company is
125 High Street, Boston, Massachusetts 02110.
(Footnotes continued on next page)
4
<PAGE>
(Footnotes continued from previous page)
(23) Putnam Investments, Inc. ("PI"), which is a wholly owned subsidiary of
Marsh & McLennan Companies, Inc. ("M&MC"), wholly owns two registered
investment advisers: Putnam Investment Management, Inc., which is the
investment adviser to the Putnam family of mutual funds and The Putnam
Advisory Company, Inc., which is the investment adviser to Putnam's
institutional clients. Both subsidiaries have dispository power over
the shares as investment managers, but each of the mutual fund's
trustees have voting power over the shares held by each fund, and The
Putnam Advisory Company, Inc. has shared voting power over the shares
held by the institutional clients. Pursuant to Rule 13d-4 of the
Securities Exchange Act of 1934 (the "Exchange Act"), M&MC and PI have
disclaimed beneficial ownership of such shares. Information as to the
shares owned by PI and such affiliates of PI, is as of December 31,
1998, and is taken from a Schedule 13G/A filed with the Commission on
February 11, 1999. The address of PI is One Post Office Square,
Boston, Massachusetts 02109.
(24) Information as to the shares owned by Janus Capital Corporation
("Janus"), an investment adviser registered under Section 203 of the
1940 Act, is as of December 31, 1998, and is taken from a Schedule 13G
jointly filed by Janus and Thomas Bailey with the Commission on
February 12, 1999. Mr. Bailey owns approximately 12.2% of Janus and
serves as its President and Chairman of the Board of Directors of
Janus, and, accordingly, as a result of such ownership and positions
may be deemed a beneficial owner of such shares. The address of each of
Janus and Mr. Bailey is 100 Fillmore Street, Denver, Colorado 80206.
(25) Information as to the shares owned by Neuberger Berman LLC ("Neuberger
LLC"), is as of December 31, 1998 and is taken from a Schedule 13G
jointly filed by Neuberger LLC and Neuberger Management Inc. ("NBMI")
with the Commission on February 12, 1999. Each of Neuberger LLC and
NBMI is (i) a broker/dealer registered under Section 15 of the Exchange
Act, (ii) an investment adviser registered under Section 203 of the
1940 Act and (iii) an investment company registered under Section 8 of
the Investment Company Act. The address of each of Neuberger LLC and
NBMI is 605 Third Avenue, New York, New York 10158.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who beneficially own greater than 10% of a registered
class of the Company's equity securities to file certain reports ("Section 16
Reports") with the Commission with respect to ownership and changes in ownership
of the Common Stock and other equity securities of the Company. Based solely on
the Company's review of the Section 16 Reports furnished to the Company and
written representations from certain reporting persons, the Company believes
that, during the fiscal year ended December 31, 1998, all filing requirements
under Section 16(a) of the Exchange Act applicable to its officers, directors
and greater-than-10% beneficial owners were complied with on a timely basis
except that Mr. Eugene Sekulow, a director of the Company, filed late one Form 5
Annual Statement of Changes in Beneficial Ownership covering one transaction.
Also, Mr. Edmond Thomas, an executive officer of the Company, filed late his
Form 3 Initial Statement of Beneficial Ownership of Securities with respect to
(i) reporting his ownership of shares of Class A Common Stock and (ii) the
receipt of restricted units granted to him by the Company. In addition, Mr.
Coote, an executive officer of the Company, is filing late one Form 5 Annual
Statement of Changes in Beneficial Ownership covering one transaction.
5
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
At the Meeting, eight directors will be elected to the Board of
Directors to serve until the Company's next annual general meeting of
shareholders.
Vote Required; Recommendation
The election of directors requires the affirmative vote of a majority
of the votes cast, in person or by proxy, at the Meeting, provided that a quorum
is present in person or by proxy. If a shareholder holding shares registered in
the name of a brokerage firm or bank votes via the Internet or if any
shareholder signs a proxy card but, in either case, does not give voting
instructions with respect to a particular matter, such shareholder's shares will
be voted FOR the election of persons listed below. A shareholder who votes by
telephone and a shareholder with shares registered in his or her own name who
votes via the Internet must vote with respect to each matter to be presented at
the Meeting in order for his or her votes to be recognized with respect to any
matter.
At this time, the Board of Directors knows of no reason why any nominee
might be unable to serve. All nominees are currently directors. There is no
arrangement or understanding between any director and any other person pursuant
to which such person was selected as a director except that the Company is
obligated under Mr. Fisher's employment agreement to use its best efforts to
ensure that Mr. Fisher continues to serve as a director. For additional
information relating to Mr. Fisher's employment agreement with the Company, see
the discussion on page 12 of this Proxy Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
ELECTION OF THE EIGHT NOMINEES TO THE BOARD OF DIRECTORS.
<TABLE>
<CAPTION>
YEAR
BECAME A
NAME OF NOMINEE POSITION(S) AGE DIRECTOR
- --------------- ----------- --- --------
<S> <C> <C> <C>
Ronald S. Lauder Director and non-executive Chairman of the Board 55 1994
Itzhak Fisher Director, President and Chief Executive Officer 43 1994
Jacob Z. Schuster Director, Executive Vice President and Assistant Secretary 50 1994
Gustavo A. Cisneros Director 53 1997
Fred H. Langhammer Director 55 1997
Leonard A. Lauder Director 66 1997
Eugene A. Sekulow Director 67 1995
Nicolas G. Trollope Director 51 1996
</TABLE>
- --------------------------------
Set forth below is certain information with respect to the nominees to
the Board of Directors.
Ronald S. Lauder, a co-founder of the Company, has served as its
non-executive 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 Directors of Central European Media
Enterprises Ltd. ("CME"), the leading commercial television company in Central
and Eastern Europe since 1994. Mr. Lauder is a principal shareholder of The
Estee Lauder Companies Inc. ("Estee Lauder") and has served as Chairman of Estee
Lauder International, Inc. and Chairman of Clinique Laboratories, Inc. since
returning to the private sector from government service in 1987. From 1983 to
1986, Mr. Lauder served as Deputy Assistant Secretary of Defense for European
and NATO affairs. From 1986 to 1987, Mr. Lauder served as U.S. Ambassador to
Austria. Mr. Lauder is a director of Estee Lauder. He is Chairman of the Board
of Trustees of the Museum of Modern Art, Chairman of the Council of Presidents
of American Jewish Organizations, Chairman of the International Public Committee
of the World Jewish Restitution Organization, President of the Jewish National
Fund, Treasurer of the World Jewish Congress, a member of the Board of Governors
of the
6
<PAGE>
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
Telecommunication Corp. Ltd., Israel's national telecommunications company. Mr.
Fisher previously was a consultant to Mobil Oil Corporation, in the
telecommunications field. In addition, Mr. Fisher co-founded Medic Media, Inc.,
a company engaged in the business of renting telephone and television systems in
hospitals throughout Israel, and was a director and its President and Chief
Executive Officer.
Jacob Z. Schuster has been a director, Executive Vice President and
Assistant Secretary of the Company since 1994. Mr. Schuster served as the
Treasurer of the Company from 1994 through 1998 and had been Chief Financial
Officer of the Company from February 1997 until December 1998. 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.
Gustavo A. Cisneros has been a director of the Company since March
1997. For more than the past 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 U.S.,
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.
Mr. Cisneros is a member of the Board of Directors of each of Univision
Communications Inc., a Spanish-language television broadcasting company, since
May 1994, Spalding Holdings Corporation, a global manufacturer and marketer of
branded consumer products serving the sporting goods markets, since 1984, and
Panamerican Beverages Company, Inc., which bottles soft drink products for The
Coca-Cola Company in diverse markets in Latin America, including a substantial
part of central Mexico, greater Sao Paulo, Campinas and Santos in Brazil, most
of Costa Rica and most of Colombia, since 1996.
Fred H. Langhammer, a director of the Company since September 1997, has
been President of Estee Lauder since 1995, Chief Operating Officer of Estee
Lauder since 1985, and a director of Estee Lauder since January 1996, and was
Executive Vice President of Estee Lauder from 1985 until 1995. Mr. Langhammer
joined Estee Lauder in 1975 as President of its operations in Japan. In 1982, he
was appointed Managing Director of Estee Lauder's operations in Germany. Prior
to joining Estee Lauder, Mr. Langhammer was General Manager of Dodwell (Japan),
a global trading company. He is a member of the Board of Directors of each of
RJR Nabisco Holdings Corp., the operating subsidiaries of which comprise tobacco
and food companies, the Cosmetics, Toiletries and Fragrance Association, an
industry group, and the American Institute for Contemporary German Studies at
Johns Hopkins University. He is also a Senior Fellow of the Foreign Policy
Association.
Leonard A. Lauder has been a director of the Company since March 1997.
Mr. Lauder is a principal shareholder and, since 1982, has served as Chief
Executive Officer of Estee Lauder and was President of Estee Lauder from 1972
until 1995. He became Chairman of the Board of Directors of Estee Lauder in
1995. He has been a director of Estee Lauder since 1958. Mr. Lauder formally
joined Estee Lauder in 1958 after serving as an officer in the U.S. Navy. He is
Chairman of the Board of Trustees of the Whitney Museum of American Art, a
Charter Trustee of the University of Pennsylvania and a Trustee of The Aspen
Institute. He also served as a member of the White House Advisory Committee on
Trade Policy and Negotiations under President Reagan.
Eugene A. Sekulow has been a director of the Company since September
1995. Until his retirement in December 1993, Mr. Sekulow served as Executive
Vice President--International of NYNEX Corporation, having served as President
of NYNEX International Company from 1985 to 1993. Prior to joining NYNEX
International Company, Mr. Sekulow had served as President of RCA International,
Ltd. since 1973. Mr. Sekulow has been a
7
<PAGE>
member of the Board of Directors of USN Communications, Inc., a competitive
local exchange carrier, since 1995. Mr. Sekulow is also Chairman of the German
American Chamber of Commerce, a member of the Council on Foreign Relations, and
an Adjunct Professor at Columbia University Graduate School of Business. Mr.
Sekulow previously served as a member of the U.S. 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. Mr. Trollope has served as Secretary and a
director of Delphi International Ltd., which provides insurance services through
a wholly-owned subsidiary, since September 1997.
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.
Number of Directors
The Board of Directors believes that it is in the best interests of the
Company and its shareholders that the Company have independent directors with
outstanding achievement in their personal careers, broad business experience and
skills, an understanding of the Company's business environment and an ability to
make independent analytical inquiries and who can provide the Company with the
benefit of their insights and devote adequate time to Board of Directors'
duties. To this end, in September 1997, shareholders of the Company approved and
adopted a proposal to increase the maximum number of directors to 11. The Board
of Directors intends to continue to seek out additional candidates for
appointment to the Board of Directors and, when appropriate, to fill the three
vacancies that presently exist on the Board of Directors. At this Meeting, the
proxies cannot be voted for a greater number of persons than the number of
nominees set forth above.
Committees and Meetings of the Board of Directors
During the fiscal year ended December 31, 1998, the Board of Directors
met, or acted by unanimous written consent, on eight occasions. Each member of
the Board of Directors attended at least 75% of the aggregate number of meetings
of the Board of Directors and the committees of the Board of Directors on which
they serve. The compensation of directors is described on page 11 of this Proxy
Statement.
The Board of Directors has an Executive Committee (the "Executive
Committee"), a Compensation Committee (the "Compensation Committee") and an
Audit Committee. The Company does not have a standing nominating committee.
Executive Committee
The Executive Committee is currently composed of Ronald S. Lauder,
Itzhak Fisher, Jacob Z. Schuster, Fred H. Langhammer and Eugene A. Sekulow. All
of the current members, other than Mr. Langhammer, served on the Executive
Committee during 1998. Mr. Langhammer has served on the Executive Committee
since March 1999. Prior to the annual general meeting of shareholders of the
Company held in May 1998, Mr. Andrew Gaspar (a former director of the Company
who did not stand for re-election to the Board of Directors in May 1998) also
served as a member of the Executive Committee. 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. The Executive Committee
met, or acted by unanimous written consent, 11 times in 1998.
8
<PAGE>
Compensation Committee
The Compensation Committee is currently composed of Ronald S. Lauder,
Gustavo A. Cisneros and Eugene A. Sekulow. The Compensation Committee is
responsible for determining executive compensation policies and guidelines and
for administering the Company's stock option and compensation plans, including
the 1995 Plan, the 1997 Plan, the Directors' Plan and the Company's 1997
Performance Incentive Plan (the "Performance Plan"). The Compensation Committee
met, or acted by unanimous written consent, three times in 1998. For more
information regarding the Compensation Committee, see page 16 of this Proxy
Statement.
Audit Committee
The Audit Committee is currently composed of Jacob Z. Schuster, Eugene
A. Sekulow and Fred H. Langhammer and 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
1998 and a portion of 1999, Mr. Ronald S. Lauder served as a member of the Audit
Committee. The Audit Committee met one time in 1998.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes all plan and non-plan compensation
awarded to, earned by or paid to the Company's Chief Executive Officer and four
other most highly compensated executive officers for services rendered in all
capacities to the Company in the last three fiscal years (together, the "Named
Executive Officers"). For additional information relating to compensation of
certain of the Named Executive Officers, see "--Employment Contracts,
Termination of Employment and Change-in-Control Arrangements."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL ------
COMPENSATION SECURITIES
---------------------- UNDERLYING
SALARY BONUS (1) OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#)
--------------------------- ---- -------- --------- -------------
<S> <C> <C> <C> <C>
1998 400,000 650,000 --
Itzhak Fisher 1997 400,000 650,000 432,856
President and Chief Executive Officer.................. 1996 350,000 150,000 --
1998 318,100 -- (3) 216,428
Richard E. Williams (2) 1997 240,000 165,000 350,400(4)
President and Chief Executive Officer of RSL COM Europe, 1996 172,000 50,000 --
Ltd....................................................
1998 350,000 350,000 --
Jacob Z. Schuster 1997 350,000 100,000 --
Executive Vice President and Assistant Secretary(5).... 1996 -- -- --
1998 250,000 250,000 216,428
Nir Tarlovsky 1997 187,500 300,000 --
Vice President--Business Development................... 1996 178,000 75,000 --
1998 250,000 250,000 216,428
Nesim N. Bildirici (6) 1997 185,000 300,000 --
Vice President--Mergers and Acquisitions............... 1996 165,000 75,000 --
</TABLE>
- ---------------------
(1) Annual bonuses received are reported in the year earned and paid in the
first quarter of the following year upon receipt of the audit results
for the prior year.
(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 each of the periods covered.
(Footnotes continued on following page)
9
<PAGE>
(Footnotes continued from previous page)
(3) Mr. Williams' bonus for 1998 has not been determined at this time. Mr.
Williams' bonus for 1998 will be pro-rated on the basis of his average
base salary as in effect during the year.
(4) Pursuant to an agreement between Mr. Williams and the Company, dated as
of September 30, 1997, Mr. Williams agreed to waive all of his rights
to receive certain options to purchase shares of RSL COM Europe, Ltd.
("RSL Europe"), a wholly owned subsidiary of the Company, granted to
him pursuant to an employment agreement between RSL Europe and Mr.
Williams, dated August 9, 1995, in exchange for the grant of options to
purchase an aggregate of 350,400 shares of Class A Common Stock.
(5) Mr. Schuster is currently a director, Executive Vice President and
Assistant Secretary of the Company and is President and Treasurer of
RSL Management. In 1996, Mr. Schuster received compensation only for
his services to RSL Management. In 1997 and 1998, Mr. Schuster received
compensation from RSL Management and the Company for services provided
by him to each of RSL Management and the Company. See "Compensation
Committee Interlocks and Insider Participation." Compensation paid to
Mr. Schuster by the Company only is reported for 1997 and 1998 in
connection with Mr. Schuster's employment with the Company as its Chief
Financial Officer, Executive Vice President, Treasurer and Assistant
Secretary. Mr. Schuster resigned as the Company's Chief Financial
Officer and Treasurer in December 1998. Mr. Schuster continues to act
as the Company's Executive Vice President, Assistant Secretary and
serves as a member of the Board of Directors and Executive Committee.
(6) Mr. Bildirici is employed by the Company but, during 1996, was employed
by both the Company and R.S. Lauder, Gaspar & Co., L.P. For purposes of
this Proxy Statement, he is treated as an employee of the Company only
for the relevant periods.
No other annual compensation, restricted stock awards, stock
appreciation rights ("SARs") 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 any of the
Company's last three fiscal years. While it is the Company's policy to review
performance after the end of each year and grant options in the first quarter of
the following year, in light of the Company's decision to increase the number of
employees eligible to receive options under the 1997 Plan and request
shareholder approval of the increase in authorization, the 1998 grants to Named
Executive Officers were limited to those persons whose employment agreements
were renegotiated in 1998, namely Messrs. Williams, Tarlovsky and Bildirici.
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, 1998. No SARs were granted by
the Company to the Named Executive Officers in 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
NUMBER OF % OF TOTAL EXERCISE
SECURITIES OPTIONS/ SARs OR
UNDERLYING GRANTED TO BASE
OPTIONS/SARS EMPLOYEES PRICE
GRANTED IN FISCAL ($ PER EXPIRATION GRANT DATE
NAME (#) YEAR (1) SHARE) DATE PRESENT VALUE($)(2)
- ---- ------------ ------------- ---------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Itzhak Fisher...................... -- -- -- -- --
Richard E. Williams................ 216,428 (3) 33.1 22.00 11/13/05 3,609,610
Jacob Z. Schuster.................. -- -- -- -- --
Nir Tarlovsky...................... 216,428 (4) 33.1 22.00 11/13/05 3,609,610
Nesim N. Bildirici................. 216,428 (4) 33.1 22.00 11/13/05 3,609,610
</TABLE>
- ---------------
(1) Reflects the percentage of total stock options granted to employees in
1998 only and excludes SARs included in certain restricted units and
incentive units granted to persons other than the Named Executive
Officers under the 1997 Plan.
(2) The grant date present value has been calculated as of each grant date:
November 13, 1998 for each of Nir Tarlovsky, Nesim N. Bildirici and
Richard E. Williams, respectively, using a variant of the Black-Scholes
pricing model. In applying the model, the Company assumed a three-month
volatility of 123%, a 4.935% risk-free rate of return and a seven-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.
(3) Shares of Class A Common Stock issuable upon the exercise of an option
granted under the 1997 Plan. The exercise price per share is $22.00,
and the option is exercisable in three equal installments on August 31,
1999, August 31, 2000 and August 31, 2001. See "--Employment Contracts,
Termination of Employment and Change-in-Control Arrangements."
(4) Shares of Class A Common Stock issuable upon the exercise of an option
granted under the 1997 Plan. The exercise price per share is $22.00,
and the option is exercisable in three equal installments on February
1, 1999, January 1, 2000 and January 1, 2001. See "--Employment
Contracts, Termination of Employment and Change-in-Control
Arrangements."
10
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information with respect to each
exercise of stock options during the fiscal year ended December 31, 1998 by the
Named Executive Officers and the value at December 31, 1998 of unexercised stock
options held by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE FY-END (#) FY-END($)(2)
NAME EXERCISE (#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Itzhak Fisher....... 0 0 0/432,856 0/3,246,420
Richard E. Williams. 350,400 9,765,799 0/216,428 0/1,623,210
Jacob Z Schuster.... 0 0 0/0 0/0
Nir Tarlovsky....... 192,127 7,588,929 0/216,428 0/1,623,210
Nesim N. Bildirici 344,938 9,356,286 0/216,428 0/1,623,210
</TABLE>
- ------------------------
(1) Represents the difference between the closing price of the Class A
Common Stock on the date of exercise (as quoted on The Nasdaq National
Market, as published in The Wall Street Journal) and the option
exercise price multiplied by the number of shares underlying the
options exercised.
(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,
1998 ($29.50 per share, as quoted on The Nasdaq National Market, as
published in The Wall Street Journal) and the option exercise price.
Compensation of Directors
The Company believes that the interests of its non-employee directors
should be aligned with the interests of the Company's shareholders. To this end,
the Company encourages such directors to make investments in the Class A Common
Stock and compensates such directors for their services to the Company 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).
Directors' Plan
The purposes of the Directors' Plan are to enable the Company to
attract, maintain 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 and options to purchase the Company's shares.
Under the Directors' Plan, on the first business day following each
annual general meeting of the Company's shareholders during the 10-year term of
the Directors' Plan, each non-employee director (including, Ronald S. Lauder as
the non-executive Chairman of the Board of Directors) (a "Non-Employee
Director"), will be granted a number of options to acquire a number of shares of
Class A Common Stock with an aggregate fair market value on the date of grant
equal to $50,000 ($150,000 in the case of the Chairman of the Board of Directors
and $75,000 in the case of a Vice Chairman of the Board of Directors so long as
such person does not receive compensation for services to the Company other than
as a non-executive chairman or vice-chairman, as the case may be). Each such
option will have a 10-year term. The exercise price of the options will
initially equal the fair market value of the Class A Common Stock on the date of
grant and will be increased on the first day of each calendar quarter by an
amount, compounded annually, based on the yield to maturity of U.S. Treasury
Securities having a maturity approximately equal to the term of such options.
The options become exercisable in five equal annual installments commencing on
the first anniversary of the date of grant. In addition, on the date of the
annual general meeting of the Company's shareholders occurring in each of 1998
through 2007, each Non-Employee Director will be granted a number of shares of
Class A Common Stock with an aggregate fair market value on the date of grant
equal to $30,000 The maximum number of shares that may be issued under the
Directors' Plan is 250,000. As of December 31, 1998, the Company has granted
options to acquire an aggregate of 29,295 shares of Class A Common Stock under
the Directors' Plan.
11
<PAGE>
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
Each of the Company and RSL COM North America, Inc. ("RSL North
America"), a wholly owned subsidiary of the Company formerly known as
International Telecommunications Group, Ltd., has entered into an employment
agreement with Itzhak Fisher, which commenced on October 6, 1997, the date of
the closing of the Company's initial public offering (the "IPO") and will
terminate on December 31, 2002. The employment agreements provide that Mr.
Fisher is to serve as President and Chief Executive Officer of each of the
Company and RSL North America and specify certain of his other duties and
reporting responsibilities. The Company is obligated to use its best efforts to
ensure that Mr. Fisher continues to serve as a director and member of the
Executive Committee of the Company, and RSL North America is obligated to use
its best efforts to ensure that Mr. Fisher continues to serve as a director of
RSL North America. Under the employment agreements, Mr. Fisher is entitled to
receive, in the aggregate, a base salary of $400,000, increased by not less than
$50,000 on each January 1, commencing January 1, 1999, plus an additional amount
based on the increase in the "Consumer Price Index." Pursuant to the employment
agreements, Mr. Fisher's aggregate base salary for 1999 is $450,000. 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
Performance Plan. In addition, Mr. Fisher is eligible to receive cash bonuses of
$1,500,000 and $1,000,000 if the total return to the Company's shareholders from
the date of the IPO to December 31, 2000 and December 31, 2002, respectively,
exceeds the return to common shareholders of (i) the companies included in the
peer group or line of business index in the Company's proxy statement for that
period (see page 20 of this Proxy Statement) or (ii) if not included in such
proxy statement, a group of companies agreed to by the Executive and
Compensation Committees as representing 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" or by Mr. Fisher without "Good
Reason," Mr. Fisher is entitled to a pro-rated bonus if the total return
objective is achieved through the date of such termination. Pursuant to the
employment agreements, upon the closing of the IPO, Mr. Fisher was granted an
option under the 1997 Plan to purchase 432,856 shares of Class A Common Stock
which represented 1.0% of the then outstanding Common Stock on a fully-diluted
basis. Forty percent of such option will be exercisable on December 31, 2000, an
additional 30% on December 31, 2001 and the remaining 30% on December 31, 2002,
except that the entire option 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" (including in the event of a "Change
in Control") or by reason of his death or "Disability." 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 agreements or for at least 12 months, whichever is longer, plus an
amount equal to his bonus under the 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' aggregate
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 would 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.
RSL Europe, a wholly owned subsidiary of the Company, has entered into
an employment agreement with Richard Williams, which commenced on August 14,
1998 and will terminate on August 31, 2001. The employment agreement provides
that Mr. Williams is to serve as President and Chief Executive Officer of RSL
Europe and specifies certain of his other duties and reporting responsibilities.
Under the employment agreement, Mr. Williams is entitled to receive a base
salary of (pound)238,000, increased on each September 1, commencing September 1,
1999, by an amount equal to the base salary then in effect, multiplied by the
increase in the "Cost of Living Index" during the preceding year. Mr. Williams'
base salary is currently (pound)238,000. See "Executive Compensation--Summary
Compensation Table" which sets forth Mr. Williams' base salary as converted to
U.S. dollars. Mr. Williams' base salary, as adjusted for cost of living
increases, may be further increased at the option and in the discretion of RSL
Europe's board of directors. The employment agreement also provides that Mr.
Williams is eligible to receive an annual bonus of up to 40% of his base salary
based on acceptable performance as determined by the Company's Chief Executive
Officer and as approved by the Compensation Committee (although the bonus could
be higher if the performance of RSL Europe exceeds targets established annually
by the Board of Directors). Mr. Williams' bonus for 1998, once determined, will
be pro-rated on
12
<PAGE>
the basis of his average base salary as in effect during the year. In addition,
pursuant to Mr. Williams' employment agreement he was granted an option to
purchase 216,428 shares of Class A Common Stock under the 1997 Plan (the
"Williams Option"). The Williams Option will become exercisable in three equal
installments on August 31, 1999, August 21, 2000 and August 31, 2001, provided
Mr. Williams is employed by RSL Europe on such date, and once any installment
becomes exercisable, such installment will remain exercisable until the
expiration of seven years from the date of grant, subject to certain limitations
described below. The Williams Option will be immediately terminated upon a
termination of Mr. Williams' employment by RSL Europe for "Cause." The Williams
Option will become immediately exercisable in full in the event that Mr.
Williams' employment with RSL Europe is terminated: (i) by RSL Europe other than
for "Cause," (ii) by Mr. Williams for "Good Reason" or (iii) by reason of the
death or "Disability" of Mr. Williams. Additionally, the Williams Option will
become immediately exercisable in full upon a "Change in Control." The Williams
Option will, following any termination of Mr. Williams' employment (other than
for "Cause"), remain exercisable for the lesser of two years and the remaining
term of the Williams Option. Under Mr. Williams' employment agreement, RSL
Europe provides Mr. Williams with life insurance in value of four times his base
salary and Mr. Williams is entitled to participate in a suitable personal
pension program designated by him and approved by the Board of Inland Revenue of
the U.K., equal to 12.5% of his base salary. If Mr. Williams' employment is
terminated by RSL Europe without "Cause" or by Mr. Williams for "Good Reason,"
the employment agreement provides that Mr. Williams is entitled to receive
previously earned but unpaid salary, vested benefits and a payment equal to his
base salary as in effect immediately prior to the termination date. In the event
of Mr. Williams' 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. Williams'
employment is terminated for any other reason, he is entitled to his earned
salary and vested benefits.
The Company has entered into an employment agreement with Nesim
Bildirici, which commenced on January 1, 1998 and will terminate on December 31,
2000. The employment agreement provides that Mr. Bildirici is to serve as Vice
President--Mergers and Acquisitions of the Company and specifies certain of his
other duties and reporting responsibilities. Under his employment agreement, Mr.
Bildirici is entitled to receive a base salary of $250,000, increased on each
January 1, commencing January 1, 1999, by an amount equal to the base salary
then in effect, multiplied by the increase in the "Cost of Living Index" during
the preceding year. As a result, Mr. Bildirici's base salary was increased to
$254,000 for the current year. Mr. Bildirici's base salary, as adjusted for cost
of living increases, may be further increased at the option and in the
discretion of the Board of Directors. The employment agreement also provides
that he is to be a participant in the Performance Plan. Additionally, pursuant
to Mr. Bildirici's employment agreement, he was granted an option to purchase
216,428 shares of Class A Common Stock under the 1997 Plan (the "Bildirici
Option"). The Bildirici Option becomes exercisable, in three equal installments,
provided Mr. Bildirici is employed by the Company on the applicable vesting
date, and once any installment becomes exercisable, such installment will remain
exercisable until the expiration of seven years from the date of grant, except
as described below. One-third of the Bildirici Option became exercisable on
February 1, 1999. The remaining installments will become exercisable on January
1, 2000 and January 1, 2001, respectively. The Bildirici Option will be
immediately terminated upon a termination of Mr. Bildirici's employment by the
Company for "Cause." The Bildirici Option will become immediately exercisable in
full in the event that Mr. Bildirici's employment with the Company is
terminated: (i) by the Company other than for "Cause," (ii) by Mr. Bildirici for
"Good Reason" or (iii) by reason of the death or "Disability" of Mr. Bildirici.
Additionally, the Bildirici Option will become immediately exercisable in full
upon a "Change in Control." The Bildirici Option will, following any termination
of Mr. Bildirici's employment (other than for "Cause"), remain exercisable for
the lesser of two years and the remaining term of the Bildirici Option. If Mr.
Bildirici's employment is terminated by the Company without "Cause" or by Mr.
Bildirici for "Good Reason," the employment agreement provides that Mr.
Bildirici is entitled to receive previously earned but unpaid salary, vested
benefits and a payment equal to his base salary as in effect immediately prior
to the termination date. In the event of Mr. Bildirici'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. Bildirici's employment is terminated for any other reason, he is entitled
to his earned salary and vested benefits.
Each of the Company and RSL North America has entered into an
employment agreement with Nir Tarlovsky, which commenced on January 1, 1998 and
will terminate on December 31, 2000. Mr. Tarlovsky's employment agreements
provide that he is to serve as Vice President--Business Development of each of
the Company and RSL North America and specify certain of his other duties and
reporting responsibilities. Under his employment agreement,
13
<PAGE>
Mr. Tarlovsky is entitled to receive an aggregate base salary of $250,000,
increased on each January 1, commencing January 1, 1999, by an amount equal to
the base salary then in effect, multiplied by the increase in the "Cost of
Living Index" during the preceding year. As a result, Mr. Tarlovsky's aggregate
base salary was increased to $254,000 for the current year. Mr. Tarlovsky's base
salary, as adjusted for cost of living increases, may be further increased at
the option and in the discretion of the Board of Directors. The employment
agreements also provide that Mr. Tarlovsky is to be a participant in the
Performance Plan. Additionally, pursuant to Mr. Tarlovsky's employment agreement
with the Company, he was granted an option to purchase 216,428 shares of Class A
Common Stock under the 1997 Plan (the "Tarlovsky Option"). The Tarlovsky Option
becomes exercisable in three equal installments, provided Mr. Tarlovsky is
employed by the Company on the applicable vesting date, and once any installment
becomes exercisable, such installment will remain exercisable until the
expiration of seven years from the date of grant, except as described below.
One-third of the Tarlovsky Option became exercisable on February 1, 1999. The
remaining installments will become exercisable on January 1, 2000 and January 1,
2001, respectively. The Tarlovsky Option will be immediately terminated upon a
termination of Mr. Tarlovsky's employment by the Company for "Cause." The
Tarlovsky Option will become immediately exercisable in full in the event that
Mr. Tarlovsky's employment with the Company is terminated: (i) by the Company
other than for "Cause," (ii) by Mr. Tarlovsky for "Good Reason" or (iii) by
reason of the death or "Disability" of Mr. Tarlovsky. Additionally, the
Tarlovsky Option will become immediately exercisable in full upon a "Change in
Control." The Tarlovsky Option will, following any termination of Mr.
Tarlovsky's employment (other than for "Cause"), remain exercisable for the
lesser of two years and the remaining term of the Tarlovsky Option. If Mr.
Tarlovsky's employment is terminated by either the Company or RSL North America
without "Cause" or by Mr. Tarlovsky for "Good Reason," his employment agreements
provide that Mr. Tarlovsky is entitled to receive previously earned but unpaid
salary, vested benefits and a payment equal to his base salary as in effect
immediately prior to the termination date. In the event of Mr. Tarlovsky'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' aggregate salary (reduced, in the case of "Disability," by
any disability benefits he receives). If Mr. Tarlovsky's employment is
terminated for any other reason, he is entitled to his earned salary and vested
benefits.
The Company has also entered into an employment agreement with Donald
Shassian, which commenced on January 1, 1999 and will terminate on December 31,
2002. The employment agreement provides that Mr. Shassian will serve as
Executive Vice President and Chief Financial Officer of the Company and
specifies certain of his other duties and reporting responsibilities. Under his
employment agreement, Mr. Shassian is entitled to receive a base salary of
$325,000, increased on each January 1, commencing January 1, 2000, by an amount
equal to the base salary then in effect, multiplied by the increase in the "Cost
of Living Index" during the preceding year. Mr. Shassian's base salary, as
adjusted for cost of living increases, may be further increased at the option
and in the discretion of the Board of Directors. The employment agreement also
provides that he is to be a participant in the Performance Plan. Additionally,
pursuant to Mr. Shassian's employment agreement, he was granted an option to
purchase 250,000 shares of Class A Common Stock under the 1997 Plan (the
"Shassian Option"). The Shassian Option will become exercisable in three equal
installments on January 1, 2000, January 1, 2001 and January 1, 2002, at an
exercise price of $28.25 per share, provided Mr. Shassian is employed by the
Company on each such date, and once any installment becomes exercisable, such
installment will remain exercisable until the expiration of seven years from the
date of grant, except as described below. The Shassian Option will be
immediately terminated upon a termination of Mr. Shassian's employment by the
Company for "Cause." The Shassian Option will become immediately exercisable in
full in the event that Mr. Shassian's employment with the Company is terminated:
(i) by the Company other than for "Cause," (ii) by Mr. Shassian for "Good
Reason" (including in the event of a "Change in Control") or (iii) by reason of
the death or "Disability" of Mr. Shassian. The Shassian Option will, following
any termination of Mr. Shassian's employment (other than for "Cause"), remain
exercisable for the lesser of two years and the remaining term of the Shassian
Option. Additionally, Mr. Shassian is entitled to receive additional grants of
options to purchase Class A Common Stock to the extent approved by the
Compensation Committee and the Board of Directors. Such future grants will be
commensurate with Mr. Shassian's position with the Company and with stock
options awarded to other senior executives of the Company. Under Mr. Shassian's
employment agreement, the Company provides Mr. Shassian with life insurance
coverage of no less than $1,000,000. If Mr. Shassian's employment is terminated
by the Company without "Cause" or by Mr. Shassian for "Good Reason" (including
in the event of a "Change in Control"), the employment agreement provides that
Mr. Shassian is entitled to receive previously earned but unpaid salary, vested
benefits and a payment equal to his base salary for the remainder of the term
but in no event less than 12 months, and an amount equal to Mr. Shassian's
award, if any, under the Performance Plan for the year immediately preceding the
year in which Mr. Shassian was terminated. In the case of a termination by Mr.
Shassian for "Good Reason" as a result of a "Change in Control," such payment
will be paid within five days after the termination date. In the event of Mr.
Shassian's death or
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<PAGE>
"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. Shassian's employment is terminated for any other reason,
he is entitled to his earned salary and vested benefits.
Each of the employment agreements described above contains
noncompetition provisions applicable during the term of the relevant employment
agreement and for nine months thereafter, in the case of Messrs. Williams,
Tarlovsky and Bildirici, and for one year thereafter in the case of Messrs.
Fisher and Shassian.
The Company has entered into an agreement with Codan Services Limited,
a corporate service company, located in Bermuda, of which Michael Ashford, the
Company's Secretary and a resident of Bermuda, is a manager. Mr. Ashford
serves as the Company's Secretary pursuant to such agreement.
The Company has also entered into, or is in the process of entering
into, employment agreements with other executive officers of the Company and the
country managers of most of its local operations in various countries.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the fiscal year ended
December 31, 1998 were Ronald S. Lauder, Gustavo A. Cisneros and Eugene A.
Sekulow.
RSL Management, which is wholly owned by Ronald S. Lauder, the Chairman
of the Board and the principal and controlling shareholder of the Company,
subleases an aggregate of 10,000 square feet of office space to the Company at
an annual rent of $521,000. RSL Management subleases such space from Estee
Lauder. Ronald S. Lauder is a principal shareholder of Estee Lauder and Leonard
A. Lauder, a director of the Company, is the Chief Executive Officer of Estee
Lauder. Fred H. Langhammer, a director of the Company, is the President and
Chief Operating Officer of Estee Lauder. In addition, RSL Management provided
payroll and benefits services to the Company for an annual fee of $9,000 through
1998, which the Company believes is less than such services would cost if
obtained from third parties. (Ronald S. Lauder abstained from discussions
relating to maintaining such services.) Jacob Z. Schuster, a director, Executive
Vice President and Assistant Secretary 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 the respective services provided by him to each of RSL
Management and the Company. From January 1, 1998 until December 31, 1998, Mr.
Schuster devoted approximately 75% of his time to the Company and approximately
25% of his time to RSL Management and was compensated by each of the Company and
RSL Management on that basis. See "Executive Compensation--Summary Compensation
Table."
The Company provides telecommunications services to Estee Lauder at
rates comparable to those provided to preferred customers. In 1998, Estee Lauder
paid approximately $38,900 to the Company for such services.
15
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for recommending to the Board
of Directors the overall executive compensation strategy of the Company and for
the ongoing monitoring of the strategy's implementation. In addition to
recommending and reviewing the compensation of the executive officers, it is the
responsibility of the Compensation Committee to recommend new incentive
compensation plans and to implement changes and improvements (such as the
proposed amendments to the 1997 Plan) to existing compensation plans, including
the 1997 Plan, the Performance Plan and the Directors' Plan. The Compensation
Committee makes its compensation determinations based upon its own analysis of
information it compiles and the business experience of the members.
Overall Policy
The Compensation Committee believes that the Company's executive
officers constitute a highly qualified and motivated management team and are
largely responsible for the Company's growth and success to date. The
Compensation Committee further believes that the stability of the management
team, as well as the Company's ability to continue to incentivize management and
to attract and retain highly qualified executives for its expanding operations,
will be a contributing factor to the Company's continued growth and success. In
order to promote stability, growth and performance, and to attract new
executives, the Company's strategy is to compensate its executives with an
overall package that the Company believes is competitive with those offered by
similarly situated companies and which consists of (i) a stable base salary set
at a sufficiently high level to retain and motivate these officers but generally
targeted to be in the lower half of its peer group comparables, (ii) an annual
bonus linked to the Company's overall performance each year and which could
represent a potentially significant portion of the executive officer's annual
compensation and (iii) equity-related compensation, which aligns the financial
interests of the Company's executive officers with those of the Company's
shareholders by promoting stock ownership and stock performance through the
grant of stock options and SARs, restricted stock and other equity and
equity-based interests under the Company's various plans.
Executive officers are also entitled to customary benefits generally
available to all employees of the Company, including group medical and life
insurance. Base salary, bonuses and benefits are paid by the Company and its
subsidiaries.
Federal Income Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the amount of compensation a publicly held corporation may
deduct as a business expense for Federal income tax purposes. The limit, which
applies to a company's chief executive officer and the four other most highly
compensated executive officers, is $1 million (the "Deductibility Limit"),
subject to certain exceptions. The exceptions include the general exclusion of
performance-based compensation from the calculation of an executive officer's
compensation for purposes of determining whether his or her compensation exceeds
the Deductibility Limit. The Compensation Committee has determined that
compensation payable to the executive officers should generally meet the
conditions required for full deductibility under section 162(m) of the Code.
While the Company does not expect to pay its executive officers compensation in
excess of the Deductibility Limit, the Compensation Committee also recognizes
that in certain instances it may be in the best interest of the Company to
provide compensation that is not fully deductible.
With respect to the Performance Plan described below, because the
Performance Plan was in existence prior to the completion of the IPO, the
Deductibility Limit generally will not apply to payments under such plan until
the Company's annual general meeting of shareholders to be held in 2001, the
first meeting of the Company's shareholders at which directors will be elected
after the close of the third calendar year following the calendar year in which
the IPO was closed.
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<PAGE>
Base Salary
With the exception of Jacob Z. Schuster, the Named Executive Officers'
base salaries are based upon employment agreements between the Company and such
officers. See "-- Employment Contracts, Termination of Employment and
Change-in-Control Arrangements." With respect to Mr. Schuster and other senior
executives, base salaries were and are influenced by a variety of objective and
subjective factors.
Annual Incentive Bonuses
The Company has established the 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
Performance Plan is effective through and including the year 2000, unless
extended or earlier terminated by the Board of Directors. The Compensation
Committee may determine that any bonus payable under the Performance Plan be
paid in cash, in shares of Class A Common Stock or in any combination thereof,
provided that at least 50% of such bonus is required to be paid in cash. In
addition, the Performance Plan permits a participant to elect to defer payment
of his or her 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 Performance Plan.
Under the 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 the exception of bonus amounts awarded for 1997, bonus amounts are
determined as follows: if 100% of the pre-established targets are achieved,
participants will generally be eligible to receive a bonus equal to their base
salary for such year. If 120% of such targets are achieved, the bonus
potentially payable to participants will generally equal twice their base salary
for such year and, if 80% of such targets are achieved, the bonus potentially
payable to participants will generally equal 25% of their base salary for such
year. 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 targets are achieved,
250% of base salary if 120% of the targets are achieved and 25% of such base
salary if 80% of the targets are achieved. To the extent the Company's results
exceed 80% of the targets but is less that 120% of the targets, 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 targets are achieved. Up to
an additional 50% of such amount will be payable in the discretion of the
Compensation Committee. In addition, the Performance Plan permits the
Compensation Committee to grant discretionary bonuses to participants,
notwithstanding that a bonus would not otherwise be payable under the
Performance Plan, to recognize extraordinary individual performance.
With respect to 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 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 Performance Plan, the awards were paid in
1998, 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 1998, the Company achieved 100% of the pre-established
targets set by the Compensation Committee (after giving pro forma effect to
adjustments for acquisitions) and, under the Performance Plan, $650,000 was
awarded to Mr. Itzhak Fisher. In addition, $1,835,000 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 $850,000 paid to the other Named Executive Officers other
than Mr. Williams whose
17
<PAGE>
bonus has not yet been determined). Pursuant to the terms of the Performance
Plan, the awards were paid in the current year, promptly following the
completion of the audit of the Company's 1998 financial statements. The
Compensation Committee determined that all such bonuses for 1998 were to be paid
in cash.
The Chief Executive Officer's bonus compensation is based upon
employment agreements between each of the Company and RSL North America, on one
hand, and Mr. Fisher, on the other hand, which provides for Mr. Fisher's
participation in the Performance Plan, as well as other long-term bonus
compensation based on the Company's stock performance over time. For additional
information relating to the employment agreements with the Chief Executive
Officer, see the discussion on page 12 of this Proxy Statement.
Long-Term Incentive Compensation
The Company reinforces the importance of producing satisfactory returns
to shareholders over the long term through the operation of the 1997 Plan and
the Directors' Plan. (For a discussion relating to the Directors' Plan, refer to
page 11 of this Proxy Statement.) Grants of stock, stock options, stock unit
awards and SARs under such plans provide executives with the opportunity to
acquire an equity interest in the Company and align the executive's interest
with that of the shareholders to create shareholder value as reflected in growth
in the market price of the Class A Common Stock.
1997 Plan
The 1997 Plan was adopted in conjunction with the Company's IPO. 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 by all employees if
the proposals to amend the 1997 Plan are approved and adopted at the Meeting)
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.
Under the 1997 Plan, the Compensation Committee is authorized to grant
options for up to 3,100,000 shares of Class A Stock (to be increased by
5,000,000 to 8,100,000 shares if the proposals to amend the 1997 Plan are
approved and adopted at the Meeting). This represented, at the time of the IPO,
approximately 7% of the outstanding shares of the Company, on a fully-diluted
basis. It was intended that the options granted under the 1997 Plan were to be
granted only to the Company's key employees. Since such time, the Company has
experienced tremendous growth through numerous acquisitions in various countries
in which the Company now operates. The Company has, in the past, attempted to
focus its employees in each of its local operations to grow only the local
country market, respectively. In order to provide a greater incentive to the
Company's employees in each of its local operations to focus on decisions that,
not only affect the local operation, but more importantly, affect the Company as
a whole, the Company has determined that a broader distribution of stock options
to its employees generally is desirable. The Company believes that the annual
incentive bonuses will focus employees on improving their local operations, and
the long-term compensation awards, in the form of stock options, will focus
employees on contributing value to the Company as a whole. Accordingly, the
Company is proposing an increase by 5,000,000 to 8,100,000 the number of shares
with respect to which options or other awards may be granted. If the increased
authorization is approved and adopted at the Meeting, it would constitute
approximately 7.5% of the outstanding shares of the Company on a fully-diluted
basis. It is anticipated that the Company would not need to request an
additional increase of shares subject to the 1997 Plan for approximately four to
five years. For more information relating to the proposals to amend the
Company's 1997 Plan, see the discussion beginning at page 22 of this Proxy
Statement.
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) 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. The maximum number of
shares for which options or SARs may be granted to any one participant in a
calendar year is 500,000. As of December 31, 1998, the Company has granted
options to acquire an aggregate of 1,093,020 shares of Class A Common Stock and
164,250 shares of restricted stock under the 1997 Plan which vests over three
years. The Company also granted restricted units and incentive units under the
1997 Plan to certain employees which generally are convertible into shares of
Class A Common Stock or cash, at the Company's discretion. As of December 31,
1998, the approximate total number of shares
18
<PAGE>
of Class A Common Stock into which all outstanding restricted units and
incentive units may be converted, based on the valuations attributed to the
Company's subsidiaries and the average closing price of the Class A Common Stock
on September 30, 1998, is estimated to be 1,331,813. As of December 31, 1998,
vested and exercisable restricted units and incentive units which may be
converted, based on the valuations attributed to the Company's subsidiaries and
the average closing price of the Class A Common Stock on September 30, 1998, is
estimated to be 436,021.
1995 Plan
In April 1995, the Board of Directors authorized, and the shareholders
of the Company approved, the 1995 Plan (which was later amended and restated).
Under the 1995 Plan, the Compensation Committee was authorized to grant options
for up to 2,847,000 shares of Class A Common Stock. As of December 31, 1998, the
Company had granted options to purchase 2,716,617 shares of Class A Common Stock
under the 1995 Plan of which 760,998 remain outstanding (and 392,770 are
currently exercisable). In general, options granted under the 1995 Plan
terminate on the tenth anniversary of the date of grant. The 1995 Plan was
developed to provide incentives to employees of the Company and to attract new
employees and non-employee directors. In connection with the IPO, the 1995 Plan
was replaced by the 1997 Plan, the Performance Plan and the Directors' Plan. The
Company has not granted further options under the 1995 Plan since the IPO, and
will not grant further options under the 1995 Plan.
Chief Executive Officer's Fiscal 1998 Compensation
Mr. Itzhak Fisher, a co-founder of the Company and the Company's Chief
Executive Officer led the Company to a successful year in 1998. The Company met
its performance criteria set by the Compensation Committee and completed several
significant acquisitions and alliances with strategic partners. Under the terms
of his employment agreements with the Company and RSL North America, Mr. Fisher
received an aggregate annual base salary of $400,000 and his required
participation in the Performance Plan resulted in bonus compensation for 1998 in
the amount of $650,000, which was paid in March 1999. The terms of Mr. Fisher's
employment agreements are described in detail on page 12 of this Proxy
Statement. The Compensation Committee believes Mr. Fisher's performance in 1998,
and his ability and dedication to increase the long-term value of the Company
for its shareholders through leadership and vision, was excellent.
Submitted By:
Ronald S. Lauder
Gustavo A. Cisneros
Eugene A. Sekulow
19
<PAGE>
COMPARISION OF 15 MONTH CUMULATIVE TOTAL RETURN*
AMONG RSL COMMUNICATINS, LTD.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND A PEER GROUP
[GRAPH APPEARS HERE]
10/1/97 12/97 3/98 6/98 9/98 12/98
------- ----- ---- ---- ---- -----
RSL COMMUNICATIONS, LTD. $100 $100 $105 $136 $123 $134
PEER GROUP 100 131 195 146 106 170
NASDAQ STOCK MARKET (U.S. & FOREIGN) 100 93 109 112 100 129
* $100 INVESTED ON 10/1/97 IN STOCK OR ON 9/30/97
IN INDEX - INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31,
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the yearly percentage change
in the total shareholder return on the Class A Common Stock during the period
beginning on October 1, 1997 (the date on which the Class A Common Stock began
trading publicly on The Nasdaq National Market) and ending on December 31, 1998
with the cumulative total return on The Nasdaq National Market - U.S. and
Foreign Index and a self-determined peer group. The companies included in the
self-determined peer group are Esprit Telecom Group PLC, Primus
Telecommunications Group, Inc.,* Telegroup, Inc., Viatel, Inc., Pacific Gateway
Exchange, Inc., and Star Telecommunications, Inc. The comparison assumes that
$100 was invested on October 1, 1997 in the Class A Common Stock and in the
foregoing indices and assumes the reinvestment of dividends. The performance
shown is not necessarily indicative of future performance.
COMPARISON OF FIFTEEN-MONTH CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
-------------------------------------------------------------
Cumulative Total Return($)
-------------------------------------------------------------
CRSP Total Returns Index for: 10/1/97 12/97 3/98 6/98 9/98 12/98
- ----------------------------- ------- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
RSL Communications, Ltd. 100 100 105 136 123 134
Nasdaq Stock Market (U.S. & Foreign) 100 93 109 112 100 129
Self-Determined Peer Group 100 131 195 146 106 170
RSL Communications, Ltd.
Closing Sale Price** $24.125 $22.00 $23.00 $30.00 $27.125 $29.50
</TABLE>
- ----------
* In June 1998, Primus Telecommunications Group, Inc. acquired Trescom
International, Inc. a corporation previously included in the Company's
self-determined peer group.
** As quoted on The Nasdaq National Market System, as published in the Wall
Street Journal, for (unless otherwise stated) the last trading day of the
period.
20
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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, 1998 and will continue to be so
engaged for the current fiscal year. Mr. Trollope does not receive compensation
as a director; Conyers, Dill & Pearman was paid $90,000 in 1998.
The Company has entered into an agreement with Codan Services Limited
("Codan"), a corporate service company, located in Bermuda, of which Michael
Ashford, the Company's Secretary and a resident of Bermuda, is a manager. Mr.
Ashford serves as the Company's Secretary pursuant to such agreement. The
agreement with Codan also provides that it will furnish the Company with
corporate administrative services including the services of a registered office,
maintenance of statutory records and registers and associated clerical and
secretarial services.
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 the discussion at page 15 of this
Proxy Statement under the heading "Compensation Committee Interlocks and Insider
Participation."
21
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PROPOSAL 2
AMENDMENT TO THE COMPANY'S 1997 STOCK INCENTIVE PLAN TO EXPAND THE
EXISTING GROUP OF PARTICIPANTS TO WHOM OPTIONS AND OTHER AWARDS MAY BE
GRANTED TO INCLUDE ALL EMPLOYEES OF THE COMPANY AND ITS SUBSIDIARIES
In connection with the IPO, the Company adopted the 1997 Plan. The
Compensation Committee is authorized under the 1997 Plan to grant options or
other awards to officers of the Company within the meaning of Rule 16a-1(f) of
the Exchange Act and key employees of the Company and its subsidiaries (the
"Subsidiaries"). On March 1, 1999, the Board of Directors unanimously approved
an amendment to the 1997 Plan to expand significantly the existing group of
participants to whom options and other awards may be granted to include all
employees of the Company and the Subsidiaries.
The Board of Directors believes that the proposed amendment would
promote the Company's interests and those of its shareholders by strengthening
the Company's ability to attract and retain employees at all levels who can make
substantial contributions to the success of the Company and by providing all
employees with a direct personal interest in the Company's continued success and
progress and in the market price of the Class A Common Stock. This is a change
in the Company's approach, which had been to grant options only to key
employees.
Vote Required; Recommendation
Approval of this proposal requires the affirmative vote of a majority
of the votes cast, in person or by proxy, at the Meeting, provided that a quorum
is present in person or by proxy. This proposal and Proposal 3 (described below)
are interdependent and, therefore, unless both Proposal 2 and Proposal 3 are
approved and adopted at the Meeting, the 1997 Plan will remain in effect in its
present form. If a shareholder holding shares registered in the name of a
brokerage firm or bank votes via the Internet or if any shareholder signs a
proxy card but, in either case, does not give voting instructions with respect
to a particular matter, such shareholder's shares will be voted FOR the proposal
to amend the 1997 Plan to expand the existing group of participants to whom
options and other awards may be granted to include all employees of the Company
and the Subsidiaries. A shareholder who votes by telephone and a shareholder
with shares registered in his or her own name who votes via the Internet must
vote with respect to each matter to be presented at the Meeting in order for his
or her votes to be recognized with respect to any matter.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
AMENDMENT TO THE 1997 PLAN TO EXPAND THE EXISTING GROUP OF PARTICIPANTS TO WHOM
OPTIONS AND OTHER AWARDS MAY BE GRANTED TO INCLUDE ALL EMPLOYEES OF THE COMPANY
AND THE SUBSIDIARIES.
See the discussion beginning at page 23 of this Proxy Statement for a
description of the material features of the 1997 Plan and the proposed
amendments thereto. The complete text of the 1997 Plan , as modified by the
proposed amendments, is set forth in Exhibit A to this Proxy Statement.
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PROPOSAL 3
AMENDMENT TO THE COMPANY'S 1997 STOCK INCENTIVE PLAN TO
INCREASE BY 5,000,000 TO 8,100,000 THE NUMBER OF SHARES WITH RESPECT TO
WHICH OPTIONS OR OTHER AWARDS MAY BE GRANTED
The Compensation Committee is authorized to grant options or other
awards for up to 3,100,000 shares of Class A Common Stock under the 1997 Plan.
The number of shares subject to the 1997 Plan was, at the time of the IPO,
approximately 7% of the outstanding shares of the Company, on a fully-diluted
basis. At that time, the Company intended that the number of shares subject to
the 1997 Plan would meet the Company's needs for three to five years. As a
result of the Company's change in compensation philosophy as described in
Proposal 2 above, the Company needs significantly more options to be authorized.
On March 1, 1999, the Board of Directors unanimously approved an amendment to
the 1997 Plan to increase by 5,000,000 the number of shares with respect to
which options or other awards may be granted pursuant to the 1997 Plan. This
would result in an increase in the number of shares of Class A Common Stock with
respect to which options and other awards may be granted under the 1997 Plan
from 3,100,000 to 8,100,000. The additional 5,000,000 shares subject to the 1997
Plan represents approximately 7.5% of the outstanding shares of the Company, on
a fully-diluted basis. All together, the 8,100,000 shares would represent
approximately 12% of the outstanding shares of the Company, on a fully-diluted
basis. The purpose of this amendment is to authorize sufficient shares for
issuance under the 1997 Plan to meet the needs of the 1997 Plan if Proposal 2,
which calls for the expansion of the group of participants to whom options and
other awards may be granted under the 1997 Plan, is approved and adopted at the
Meeting. See the discussion set forth above for more information relating to
Proposal 2.
Vote Required; Recommendation
Approval of this proposal requires the affirmative vote of a majority
of the votes cast, in person or by proxy, at the Meeting, provided that a quorum
is present in person or by proxy. This proposal and Proposal 2 (described above)
are interdependent and, therefore, unless both Proposal 2 and Proposal 3 are
approved and adopted at the Meeting, the 1997 Plan will remain in effect in its
present form. If a shareholder holding shares registered in the name of a
brokerage firm or bank votes via the Internet or if any shareholder signs a
proxy card but, in either case, does not give voting instructions with respect
to a particular matter, such shareholder's shares will be voted FOR the proposal
to amend the 1997 Plan to increase by 5,000,000 to 8,100,000 the number of
shares with respect to which options or awards may be granted. A shareholder who
votes by telephone and a shareholder with shares registered in his or her own
name who votes via the Internet must vote with respect to each matter to be
presented at the Meeting in order for his or her votes to be recognized with
respect to any matter.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
AMENDMENT TO THE 1997 PLAN TO INCREASE BY 5,000,000 TO 8,100,000 THE NUMBER OF
SHARES WITH RESPECT TO WHICH OPTIONS OR OTHER AWARDS MAY BE GRANTED.
Set forth below is a description of the material features of the 1997
Plan and the proposed amendments thereto. The complete text of the 1997 Plan, as
modified by the proposed amendments, is set forth in Exhibit A to this Proxy
Statement.
Nature and Purpose of Plan
The purpose of the 1997 Plan is to foster and promote the long-term
financial success of the Company and materially increase shareholder value by
(a) motivating superior performance by means of performance-related incentives,
(b) encouraging and providing for the acquisition of an ownership interest in
the Company by executive officers and key employees of the Company and the
Subsidiaries and (c) enabling the Company to attract and retain the services of
an outstanding management team upon whose judgment, interest and special effort
the successful conduct of its operations is largely dependent. As discussed
above, Proposal 2 seeks approval of an amendment to the 1997 Plan that would
permit all employees of the Company and the Subsidiaries to receive Awards (as
defined below) under the 1997 Plan.
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The 1997 Plan provides for the grant of (i) incentive stock options
("ISOs") and non-incentive stock options ("NSOs") to purchase Class A Common
Stock; (ii) SARs, which may be granted in tandem with stock options, in addition
to stock options, or freestanding; (iii) restricted stock and restricted units;
(iv) incentive stock and incentive units; (v) deferred stock units; and (vi)
stock in lieu of cash (hereinafter referred to as "Awards").
Administration
The 1997 Plan is administered by the Compensation Committee.
Duration and Modification
The 1997 Plan will terminate not later than October 6, 2007. The Board
of Directors or the Compensation Committee may amend, suspend or terminate the
1997 Plan or any portion thereof at any time, provided that no amendment shall
be made without shareholder approval if such amendment would (i) increase the
number of shares of Class A Common Stock subject to the 1997 Plan, (ii) change
the price at which Awards may be granted, or (iii) remove the administration of
the 1997 Plan from the Compensation Committee.
Securities Subject to 1997 Plan; Market Price
3,100,000 shares of Class A Common Stock have been reserved for
issuance upon exercise of Awards granted under the 1997 Plan. If Proposal 3,
which seeks approval of an amendment to the 1997 Plan to increase the number of
shares subject to the 1997 Plan, is approved and adopted at the Meeting, such
amount will be increased by 5,000,000 to 8,100,000.
The closing bid price of the Class A Common Stock on The Nasdaq
National Market on April 19, 1999 was $29.75 per share.
Eligibility and Extent of Participation
The 1997 Plan provides for discretionary grants of Awards to officers
of the Company within the meaning of Rule 16a-1(f) of the Exchange Act and key
employees of the Company and the Subsidiaries. Directors of the Company who are
not employees are specifically prohibited from participating in the 1997 Plan.
As of December 31, 1998, approximately 35 people were eligible to receive Awards
under the 1997 Plan. If Proposal 2, which seeks approval of an amendment to the
1997 Plan to expand the group of employees eligible to participate in the 1997
Plan, is approved and adopted at the Meeting, all employees of the Company and
the Subsidiaries will be eligible for grants of Awards under the 1997 Plan. If
the 1997 Plan, as modified by the amendments, was in effect as of December 31,
1998, approximately 2,000 people would have been eligible to receive Awards
under the 1997 Plan. The maximum number of shares for which options or SARs may
be granted to any one participant in a calendar year is 500,000.
Stock Options
Under the 1997 Plan, the exercise price of the options generally
initially equal the fair market value of the Class A Common Stock on the date of
grant. The exercise price cannot be less than fair market value on the date of
grant. It was originally intended that the Company would, with respect to
pricing stock options, take into account the "cost of capital," either by (i) an
increasing exercise price, (ii) indexing the exercise price against a peer
group, or (iii) establishing a fixed price (but at a premium). The Company has
determined that it is unable to attract or retain top-quality employees with
this option pricing policy in place. Therefore, the Company anticipates its
stock options will be granted at a fixed price equal to the fair market value of
its Class A Common Stock on the date of grant. (The Company is maintaining the
original pricing mechanism for grants of stock options to non-employee directors
under the Director's Plan.)
The options generally will have a term of seven years and generally
will become exercisable in three equal annual installments commencing on the
first anniversary of the date of grant.
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The Compensation Committee may provide that a participant who delivers
shares of Class A Common Stock to exercise an option when the market value of
the Class A Common Stock exceeds the exercise price of the Option will be
automatically granted new options for the number of shares delivered to exercise
the option ("Reload Options"). Reload Options will be subject to the same terms
and conditions as the related option except that the exercise price is the fair
market value on the date the Reload Option is granted and such Reload Options
will not be exercisable for six months.
Stock Appreciation Rights
The 1997 Plan authorizes the Compensation Committee to grant SARs in
tandem with a stock option, in addition to a stock option, or freestanding and
unrelated to a stock option. SARs entitle the participant to receive the excess
of the fair market value of a stated number of shares of Class A Common Stock on
the date of exercise over the base price of the SAR. The base price may not be
less than 100% of the fair market value of the Class A Common Stock on the date
the SAR is granted. The Compensation Committee will determine when an SAR is
exercisable, the method of exercise, and whether settlement of the SAR is to be
made in cash, shares of Class A Common Stock or a combination of the foregoing.
Restricted Stock and Restricted Units
The 1997 Plan authorizes the Compensation Committee to grant Awards in
the form of restricted stock and restricted units. For purposes of the 1997
Plan, restricted stock is an Award of Class A Common Stock and a restricted unit
is a contractual right to receive Class A Common Stock (or cash based on the
fair market value of Class A Common Stock). Such Awards are subject to such
terms and conditions, if any, as the Compensation Committee deems appropriate.
Unless otherwise determined by the Compensation Committee, participants are
entitled to receive either currently or at a future date, dividends or other
distributions paid with respect to restricted stock and, if and to the extent
determined by the Compensation Committee, either to be credited with or receive
currently an amount equal to dividends paid with respect to the corresponding
number of shares covered by restricted units. Restricted stock and restricted
units become vested and nonforfeitable and the restricted period shall lapse
upon the third anniversary of the date of grant unless the Compensation
Committee determines otherwise. If a participant's employment terminates because
of death, disability, early retirement (with the Compensation Committee's
consent) or normal retirement, during the period in which the transfer of shares
is restricted, the restricted stock or restricted units become vested and
nonforfeitable as to that percentage of the shares based upon the days worked as
a percentage of total days in the restricted period. Unless nonforfeitable on
the date of termination or otherwise determined by the Compensation Committee, a
restricted stock or restricted unit Award is forfeited on termination.
Incentive Stock and Incentive Units
The 1997 Plan allows for the grant of Awards in the form of incentive
stock and incentive units. For purposes of the 1997 Plan, incentive stock is an
Award of Class A Common Stock and an incentive unit is a contractual right to
receive Class A Common Stock. Such Awards will be contingent upon the
attainment, in whole or in part, of certain performance objectives over a period
to be determined by the Compensation Committee. With regard to a particular
performance period, the Compensation Committee has the discretion, subject to
the 1997 Plan's terms, to determine the terms and conditions of such Awards,
including the performance objectives to be achieved during such period and the
determination of whether and to what degree such objectives have been attained.
Unless otherwise determined by the Compensation Committee, participants are
entitled to receive, either currently or at a future date, all dividends and
other distributions paid with respect to the incentive stock and, if and to the
extent determined by the Compensation Committee, either to be credited with or
receive currently an amount equal to dividends paid with respect to the
corresponding number of shares covered by the incentive units. If a
participant's employment terminates because of death, disability, early
retirement (with the Compensation Committee's consent) or normal retirement
during the measurement period, an Award of incentive stock or incentive units
will become vested and nonforfeitable as to that percentage of the Award that
would have been earned based on the attainment of performance objectives for the
days employed as a percentage of total days in the performance period. Unless
nonforfeitable on the date of termination, any incentive stock or incentive unit
Award is forfeited on termination.
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Deferred Stock
An Award of deferred stock confers upon a participant the right to
receive shares of Class A Common Stock at the end of a specified deferral
period. On such date or dates established by the Compensation Committee and
subject to such terms and conditions as the Compensation Committee will
determine, a participant may be permitted to defer receipt of all or a portion
of his annual compensation and/or annual incentive bonus ("Deferred Annual
Amount") and receive the equivalent amount in elective stock units based on the
fair market value of the Class A Common Stock on the date of grant. To the
extent determined by the Compensation Committee, a participant may also receive
supplemental stock units for a percentage of the Deferred Annual Amount. If the
participant elects to receive any portion of a bonus in Class A Common Stock in
lieu of cash as allowed by the 1997 Plan, the Compensation Committee may grant
an Award of deferred stock as free standing stock units, in such number and on
such terms as the Compensation Committee may determine. Deferred stock units
carry no voting rights until the shares have been issued. The Compensation
Committee will determine whether any dividend equivalents attributable to
deferred units are paid currently or credited to the participant's account and
deemed reinvested in deferred stock units. Deferred stock units and dividend
equivalents with respect thereto are fully vested at all times. Unless the
Compensation Committee provides otherwise, supplemental stock units and dividend
equivalents with respect thereto will become fully vested on the third
anniversary of the date the corresponding deferred amount would have been paid
and free standing stock units and dividend equivalents with respect thereto will
become fully vested on the third anniversary of the corresponding Class A Common
Stock in lieu of a cash Award. Free standing units may be forfeited if the
corresponding Class A Common Stock is not held for a specified holding period.
Stock in Lieu of Cash
The 1997 Plan authorizes the Compensation Committee to grant Awards of
Class A Common Stock to executive officers in lieu of all or a portion of an
Award otherwise payable in cash pursuant to any bonus or incentive compensation
plan of the Company, based on the fair market value of the Class A Common Stock.
Change in Control
Under the 1997 Plan, the Compensation Committee has discretion at the
time of grant or thereafter to modify the vesting schedule of an Award granted
to a participant. On March 1, 1999, the Compensation Committee unanimously
determined that with respect to Awards previously granted and Awards granted in
the future, in the event of a Change in Control (as defined below), 100% of
Awards granted will immediately become fully vested and exercisable or, at the
Compensation Committee's sole discretion, such Award may be canceled in exchange
for a payment to a participant in cash of an amount equal to the excess of the
Change in Control Price (as defined below) over the exercise price for such
Award; provided, however, no cancellation, acceleration of exercisability or
vesting will occur with respect to an Award granted under the 1997 Plan if the
Compensation Committee determines prior to the occurrence of a Change in Control
that such Award will be honored or assumed, or, subject to certain conditions, a
new stock option substituted therefor (such honored, assumed or substituted
option referred to below as an "Alternative Option") by such participant's new
employer (or the parent or a subsidiary of such employer) immediately following
the Change in Control.
The Compensation Committee also determined that if the employment of an
employee of the Company is involuntarily terminated by the Company, other than
for Cause (as defined under the 1997 Plan), or constructively terminated
following a Change in Control, the Alternative Option shall become immediately
vested and exercisable as of the date of such termination, unless with respect
to such a Change-in-Control transaction (a) initial discussions occurred on or
prior to March 1, 2000 and (b) the Board of Directors determines that it is
intended that "pooling of interests" accounting be available for a transaction
giving rise to, or directly related to, such Change in Control.
For purposes of the preceding two paragraphs, "Change in Control" means
the occurrence of (i) a sale or other disposition of stock of the Company, or an
issuance of stock of the Company as a result of which any "person" (as such term
is used in Section 13(d) and 14(d) of the Exchange Act), other than Ronald S.
Lauder, is or becomes the beneficial owner of more than 50% of the total voting
power of the Company and those persons who are members of the Board of Directors
of the Company immediately prior to the closing of such transaction constitute
less than one half of the membership of the Board of Directors of
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the Company immediately following the closing of such transaction, (ii) any
merger, consolidation or reorganization following which those persons who are
members of the Board of Directors of the Company immediately prior to the
closing of such transaction constitute less than one half of the membership of
the board of directors of the surviving entity immediately following the closing
of such transaction, (iii) a transaction pursuant to which more than 50% of the
total value of the assets of the Company and its consolidated subsidiaries are
transferred and the transferee of such assets is not Mr. Lauder or a company
controlled by him, or (iv) a complete liquidation of the Company.
"Change in Control Price" means the highest price per share of Class A
Common Stock paid in conjunction with any transaction resulting in a Change in
Control (as defined above) (as determined in good faith by the Compensation
Committee if any part of the offered price is payable other than in cash) or, in
the case of a Change in Control occurring solely by reason of a transaction
described in (iii) above, the highest fair market value of the Class A Common
Stock on any of the 30 trading days immediately preceding the date on which such
Change in Control occurs.
United States Income Tax Consequences
The following discussion of the U.S. income tax consequences of the
granting and exercise of options and the issuance and acquisition of shares
under the 1997 Plan, and the sale of shares of Class A Common Stock acquired as
a result thereof, is based on an analysis of the Code as currently in effect,
existing laws, judicial decisions and administrative rulings and regulations,
all of which are subject to change. In addition to being subject to the U.S.
income tax consequences described below, a participant may also be subject to
state and/or local income tax consequences in the jurisdiction in which he or
she works and/or resides.
Non-Statutory Stock Options. No income will be recognized by a
participant at the time a NSO is granted. Ordinary income will be recognized by
a participant at the time a NSO is exercised, and the amount of such income will
be equal to the excess of the fair market value on the exercise date of the
shares issued to the participant over the exercise price. This ordinary income
will also constitute wages subject to withholding and the Company will be
required to make whatever arrangements are necessary to ensure that the amount
of the tax required to be withheld is available for payment in money.
The Company generally will be entitled to a deduction for U.S. income
tax purposes in the same amount as the amount that the participant is required
to include in income upon exercise of his or her NSO, subject to the usual rules
as to reasonableness of compensation and provided that the Company timely
complies with the applicable information reporting requirements.
If a participant makes payment of the exercise price by delivering
shares of Class A Common Stock, the participant generally will not recognize any
gain as a result of such delivery, but the amount of gain, if any, which is not
so recognized will be excluded from his or her basis in the new shares received.
Capital gain or loss on a subsequent sale or other disposition of the
shares of Class A Common Stock acquired upon exercise of a NSO will be measured
by the difference between the amount realized on the disposition and the tax
basis of such shares. The tax basis of the shares acquired upon the exercise of
any NSO will be equal to the sum of the exercise price of such NSO and the
amount included in income with respect to such option. The holding period will
be measured from the date of exercise. Depending on whether the shares are held
12 months or less, or longer than 12 months, capital gain or loss will be either
short- or long-term.
Incentive Stock Options. An ISO is an option which meets the
requirements of Code section 422(b). In general, neither the grant nor the
exercise of an ISO will result in taxable income to a participant or a deduction
to the Company for U.S. tax purposes. However, for purposes of the alternative
minimum tax, the spread on the exercise of an ISO will be considered as part of
the participant's income.
The sale of the shares of Class A Common Stock received pursuant to the
exercise of an ISO which satisfies the holding period rules generally will
result in capital gain to a participant and will not result in a tax deduction
to the Company. To receive ISO treatment as to the shares acquired upon exercise
of an ISO, a participant must neither dispose of such shares within two years
after the option is granted nor within one year after the exercise of such ISO.
In addition, a participant generally must be an employee of the Company (or a
Subsidiary) at all times between the date of grant and the date three months
before exercise of the option.
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If the holding period rules are not satisfied, the portion of any gain
recognized on the disposition of the shares acquired upon the exercise of an ISO
that is equal to the lesser of (a) the fair market value of the shares on the
date of exercise minus the exercise price or (b) the amount realized on the
disposition minus the exercise price, will be treated as ordinary income, with
any remaining gain being treated as capital gain. The Company will be entitled
to a deduction for U.S. tax purposes equal to the amount of such ordinary
income.
If a participant makes payment of the exercise price by delivering
shares of Class A Common Stock, the participant generally will not recognize any
gain with respect to such shares as a result of such delivery but the amount of
gain, if any, which is not so recognized will be excluded from his or her basis
in the new shares received. However, the use by a participant of shares
previously acquired pursuant to the exercise of an ISO to exercise an option
will be treated as a taxable disposition if the transferred shares were not held
by the participant for the requisite holding period.
Restricted Stock and Incentive Stock. Absent an election under Code
section 83(b), a participant generally will only recognize ordinary income at
the times when the restrictions with respect to the restricted stock or
incentive stock allocated to the participant lapse (or terminate) pursuant to
the 1997 Plan, and the amount of such income will be equal to the fair market
value of such restricted stock or incentive stock at such times.
If, on the other hand, a participant were to make an election under
Code section 83(b) (which election must be made within 30 days after the date of
issuance of the restricted stock or incentive stock to the participant), then
the participant generally will recognize ordinary income at the time of such
issuance, in an amount equal to the fair market value of all of the restricted
stock or incentive stock granted to the participant at such time (determined
without regard to the restrictions). If such election were made, any subsequent
appreciation in the value of the restricted stock or incentive stock from the
date of issuance will be taxed only as and when the participant disposes of all
or part of his or her restricted stock or incentive stock and, as discussed
below, generally will be taxed as capital gain. It is noted, however, that the
income inclusion resulting from the Code section 83(b) election would occur even
though the participant did not, or could not, dispose of the restricted stock or
incentive stock and, thus, did not have sales proceeds with which to pay the
taxes on such income. In addition, if such election were made, and all or part
of the restricted stock or incentive stock were subsequently required to be
redelivered to the Company pursuant to the 1997 Plan (e.g., because a
participant leaves the employ or service of the Company or any of the
Subsidiaries for any or no reason, other than his or her death or permanent
disability, prior to the termination of the restrictions with respect to such
restricted stock or incentive stock), then no deduction would be allowed to the
participant for the amount required to be included in his or her income as a
result of the Code section 83(b) election.
A participant will have a tax basis in his or her restricted stock or
incentive stock equal to the amount included in his or her income with respect
to the restricted stock or incentive stock (either by reason of the making of a
Code section 83(b) election or the lapse of the restrictions). On a sale or
other taxable disposition of all or a part of the restricted stock or incentive
stock (after the restrictions with respect to such shares lapse), the
participant generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition and his or her tax
basis in such shares.
The ordinary income required to be recognized by a participant with
respect to his or her restricted stock or incentive stock will also constitute
wages subject to the withholding of income tax, and the Company will be required
to make whatever arrangements the Company deems necessary to ensure that the
amount of the tax required to be withheld is available for payment to the
Internal Revenue Service.
In general, the Company or the applicable Subsidiary will be entitled
to a deduction for U.S. income tax purposes at such time as a participant
includes an amount in ordinary income with respect to his or her restricted
stock or incentive stock and in the same amount, subject to the usual rules as
to reasonableness of compensation and provided that the Company or the
applicable Subsidiary timely complies with applicable information reporting
requirements.
Restricted Units and Incentive Units. A participant will recognize
ordinary income at the times when the shares attributable to the restricted
units or incentive units allocated to the participant pursuant to the 1997 Plan
are distributed to him or her, and the amount of such income will be equal to
the fair market value of such shares.
The ordinary income required to be recognized by the participant with
respect to his or her shares will constitute wages subject to the withholding of
income tax, and the Company will be required to make whatever
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arrangements the Company deems necessary to ensure that the amount of the tax
required to be withheld is available for payment to the Internal Revenue
Service.
In general, the Company or the applicable Subsidiary will be entitled
to a deduction for U.S. income tax purposes at such time as a participant
includes an amount in ordinary income with respect to his or her shares and in
the same amount, subject to the usual rules as to reasonableness of compensation
and provided that the Company or the applicable Subsidiary timely complies with
applicable information reporting requirements.
SARs and Deferred Stock Awards. A participant will recognize ordinary
income at such time as the value of a right or Award is actually paid (although
for Social Security purposes, the amount of a right or Award will be treated as
received when it becomes vested). If and to the extent that a right or Award is
distributed in stock, any gain or loss on the subsequent sale of the stock from
the value of the stock on the date of distribution is capital gain or loss with
the holding period being measured from the date of the distribution.
The Company will have a deduction for U.S. tax purposes in the amount
and at the time that the participant is deemed to be in receipt of ordinary
income.
The foregoing does not discuss all tax consequences that may be
applicable to a participant under the 1997 Plan or to the Company and the
Subsidiaries (including, for example, the effects under state and/or local
income tax laws). Accordingly, participants are urged to consult their own tax
advisors, including with respect to the advisability and manner of making a Code
section 83(b) election in their own personal tax situations.
New Plan Benefits
It cannot be determined what grants would have been made in 1998 if the
proposed amendments to the 1997 Plan were in place during such period. Also, it
cannot be determined at this time what grants will be made to any person or
group of persons under the 1997 Plan if the amendments to the 1997 Plan are
approved and adopted at the Meeting. However, the Compensation Committee has
determined that if Proposal 2 and Proposal 3 are approved and adopted at the
Meeting, it will grant options to employees (including certain executive
officers of the Company other than the Named Executive Officers) to purchase up
to 2,300,000 shares of Class A Common Stock.
PROPOSAL 4
AMENDMENT TO THE COMPANY'S BYE-LAWS
Under the proxy rules promulgated by the Commission, shareholder
proposals received by a company more than 120 days prior to the mailing date of
the prior year's proxy statement must be included in the next year's proxy
statement (unless excludable pursuant to Rule 14a-8(i) of the Exchange Act,
subject to certain exceptions). Shareholder proposals received within the
120-day period are not required to be included in the next year's proxy
statement. However, unless otherwise provided for in a company's governing
documents, if a company has notice of a matter intended to be submitted by a
shareholder at the next year's annual meeting of shareholders and it has such
notice more than 45 days before the next year's annual meeting, a company does
not have discretionary authority to vote uninstructed shareholder proxies with
regard to such matter unless a company includes certain disclosure in the proxy
statement and/or if the proponent fails to taken certain actions itself.
Currently, neither the Company's bye-laws nor Bermuda law provide for any
procedures for a shareholder to follow in order to introduce an item of business
in advance of a meeting at an annual general meeting of shareholders. The
Company believes that the 45-day notice deadline is onerous because, as a
practical matter, the Company would not be able to finalize its proxy statement
until after the applicable date, thereby potentially disrupting the normal proxy
preparation and Commission review process and limiting the Company's ability to
provide shareholders with a greater number of days notice of the annual general
meeting.
In April 1999, the Board of Directors unanimously approved an amendment
to the Company's bye-laws to add a provision that provides that no business may
be brought before an annual general meeting of shareholders except by a
shareholder entitled to vote who has complied with the notice and manner
provisions set forth in the proxy rules promulgated by the Commission in
connection with shareholder proposals for inclusion in proxy statements. If the
amendment to the Company's bye-laws was currently in effect, no business could
be brought before an annual general
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meeting of shareholders except by a shareholder entitled to vote who has
delivered notice to the Company not less than 120 days prior to the mailing date
of the prior year's proxy statement. For example, the mailing date of this Proxy
Statement is April 30, 1999; however, if the date of an annual general meeting
has been changed by more than 30 days from the date of the Company's previous
year's annual general meeting, then such deadline is a reasonable time before
the Company begins to print and mail its proxy materials.
Bermuda law requires that shareholders approve all amendments to the
Company's bye-laws, and shareholders are encouraged to read the text of the
proposed amendment, which is set forth in Exhibit B to this Proxy Statement,
before voting on this matter.
Vote Required; Recommendation
Approval of this proposal requires the affirmative vote of a majority
of the votes cast, in person or by proxy, at the Meeting, provide that a quorum
is present in person or by proxy. If this amendment is not approved and adopted
at the Meeting, the Company's bye-laws will continue to be in effect in its
present form. If a shareholder holding shares registered in the name of a
brokerage firm or bank votes via the Internet or if any shareholder signs a
proxy card but, in either case, does not give voting instructions with respect
to a particular matter, such shareholder's shares will be voted FOR the proposal
to amend the Company's bye-laws. A shareholder who votes by telephone and a
shareholder with shares registered in his or her own name who votes via the
Internet must vote with respect to each matter to be presented at the Meeting in
order for his or her votes to be recognized with respect to any matter.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
AMENDMENT TO THE COMPANY'S BYE-LAWS.
PROPOSAL 5
ADOPTION OF FINANCIAL STATEMENTS
The Audit Committee has approved the audited financial statements for
the Company's fiscal year ended December 31, 1998 (the "Financial Statements"),
together with the auditors' report thereon, for presentation to the shareholders
at the Meeting. Under Bermuda law, shareholders of Bermuda companies are
requested to adopt the Financial Statements, together with the auditors' report
thereon. The adoption of the Financial Statements by the shareholders does not
affect any rights that the shareholders may have with respect to the Financial
Statements. The Board of Directors recommends that the shareholders adopt the
Financial Statements together with the auditors' report thereon.
Vote Required; Recommendation
The adoption of the Financial Statements and the auditors' report
thereon for the fiscal year ended December 31, 1998, requires the affirmative
vote of a majority of the votes cast, in person or by proxy, at the Meeting,
provided that a quorum is present in person or by proxy. If a shareholder
holding shares registered in the name of a brokerage firm or bank votes via the
Internet or if any shareholder signs a proxy card but, in either case, does not
give voting instructions with respect to a particular matter, such shareholder's
shares will be voted FOR the adoption of the Financial Statements and the
auditors' report thereon. A shareholder who votes by telephone and a shareholder
with shares registered in his or her own name who votes via the Internet must
vote with respect to each matter to be presented at the Meeting in order for his
or her votes to be recognized with respect to any matter.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
ADOPTION OF THE FINANCIAL STATEMENTS AND THE AUDITORS' REPORT THEREON.
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PROPOSAL 6
APPOINTMENT OF AUDITORS
At the recommendation of the Audit Committee, the Board of Directors
recommends to the shareholders that Deloitte & Touche LLP be appointed as the
independent auditors of the Company for the fiscal year ending December 31,
1999. If an appointment is not so made, Deloitte & Touche LLP, as the auditors
in office shall continue in office until a successor is appointed. In addition,
the Board of Directors recommends to the shareholders that the shareholders
delegate to the Audit Committee the authority to fix the auditors' fee for the
current fiscal year.
Vote Required; Recommendation
The appointment of Deloitte & Touche LLP as independent auditors of the
Company for the current fiscal year and the delegation to the Audit Committee of
the authority to fix the auditors' fee for the current fiscal year requires the
affirmative vote of a majority of the votes cast, in person or by proxy, at the
Meeting, provided that a quorum is present in person or by proxy. If a
shareholder holding shares registered in the name of a brokerage firm or bank
votes via the Internet or if any shareholder signs a proxy card but, in either
case, does not give voting instructions with respect to a particular matter,
such shareholder's shares will be voted FOR the appointment of the auditors and
the delegation to the Audit Committee of the authority to fix the auditors' fee
for the current fiscal year. A shareholder who votes by telephone and a
shareholder with shares registered in his or her own name who votes via the
Internet must vote with respect to each matter to be presented at the Meeting in
order for his or her votes to be recognized with respect to any matter.
Representatives of Deloitte & Touche LLP are expected to be present at
the Meeting, will have an opportunity to make a statement if they so desire and
will be available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S AUDITORS AND THE
DELEGATION TO THE AUDIT COMMITTEE OF THE AUTHORITY TO FIX THE AUDITORS' FEE FOR
THE CURRENT FISCAL YEAR.
SHAREHOLDER PROPOSALS
Any eligible shareholder of the Company who wishes to submit a proposal
for action at the next annual general meeting of shareholders of the Company and
desires that such proposal be considered for inclusion in the Company's proxy
statement and form of proxy relating to such meeting must provide a written copy
of the proposal to the Company at its principal executive offices prior to
December 31, 1999 and must otherwise comply with the rules of the Commission,
Bermuda law and the Company's governing documents relating to shareholder
proposals.
The proxy or proxies designated by the Company will have discretionary
authority to vote on any matter properly presented by an eligible shareholder of
the Company for action at the next annual general meeting of shareholders of the
Company but not submitted for inclusion in the proxy materials for such meeting
unless notice of the matter is received by the Company at its principal
executive office prior to March 16, 2000 and certain conditions of the
applicable rules of the Commission are satisfied. However, if the shareholders
of the Company approve and adopt the proposal to amend the Company's bye-laws,
the date referred to in the preceding sentence will be December 31, 1999.
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MISCELLANEOUS
Under Bermuda law, no matter or business other than those set forth in
the accompanying Notice of Annual General Meeting of Shareholders is permitted
to be presented at the Meeting.
Copies of the Annual Report to shareholders with respect to the fiscal
year ended December 31, 1998 are being mailed simultaneously with this Proxy
Statement. If you want to save the Company the cost of mailing more that one
Annual Report to the same address, the Company will discontinue, at your request
to the Secretary of the Company, mailing of the duplicate copy to the account or
accounts you select.
A copy of the Company's Annual Report on Form 10-K including the
financial statements and the financial statements schedules attached thereto for
the fiscal year ended December 31, 1998 may be obtained without charge upon
written request to the attention of Mr. Michael Ashford, Secretary, at the
Company's headquarters at Clarendon House, Church Street, Hamilton HM CX,
Bermuda.
By Order of the Board of Directors,
Michael Ashford
Secretary
Hamilton, Bermuda
April 30, 1999
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Exhibit A
RSL COMMUNICATIONS, LTD.
1997 STOCK INCENTIVE PLAN
(amended through March 1, 1999)
1. Purpose
The purpose of the Plan is to foster and promote the long-term
financial success of the Company and materially increase shareholder value by
(a) motivating superior performance by means of performance-
related incentives;
(b) encouraging and providing for the acquisition of an ownership
interest in the Company by Eligible Employees; and
(c) enabling the Company to attract and retain the services of an
outstanding management team and other qualified and dedicated
employees upon whose judgment, interest and special effort the
successful conduct of its operations is largely dependent.
2. Definitions
"Award" shall mean any grant or award under the Plan, as
evidenced in a written document delivered to a Participant as provided in
Section 11(b).
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean (i) the willful failure by the Participant
to perform substantially the Participant's duties as an employee of the Company
(other than due to physical or mental illness) after reasonable notice to the
Participant of such failure, (ii) the Participant's engaging in serious
misconduct that is injurious to the Company or any Subsidiary, (iii) the
Participant's having been convicted of, or entered a plea of nolo contendere to,
a crime that constitutes a felony, or (iv) the breach by the Participant of any
written covenant or agreement not to compete, in each case with respect to the
Company or any Subsidiary, regarding confidentiality of information of the
Company or any Subsidiary or nonsolicitation or hiring of employees of the
Company or any Subsidiary.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Committee" shall mean the Compensation Committee of the
Board, or such other Board committee as may be designated by the Board to
administer the Plan.
"Common Stock" shall mean the Class A common shares, par value
$.00457 per share, of the Company.
"Company" shall mean RSL Communications, Ltd., a Bermuda
corporation, and any successor thereto.
"Deferred Annual Amount" shall mean, with respect to any year,
the amount of compensation that a Participant elects to defer in exchange for an
award of Elective Units as determined pursuant to Section 9 hereof.
"Deferred Stock" shall mean a contractual right to receive a
share of Common Stock at the time and subject to the conditions set forth in
Section 9 hereof.
"Disability" shall mean long-term disability as defined under
the terms of the Company's applicable long-term disability plans or policies.
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"Disinterested Director" shall mean a director of the Company
who is both a "Non-Employee Director" within the meaning of Rule 16b-3 under the
Exchange Act and an "outside director" within the meaning of Section 162(m) of
the Code.
"Early Retirement" shall mean retirement at or after the
earliest age at which the Participant may retire and receive an immediate, but
actuarially reduced, retirement benefit under any defined benefit pension plan
maintained by the Company or any of its Subsidiaries in which such Participant
participates, or, in the absence of any such applicable plan, as determined by
the Committee.
"Elective Units" shall mean an award of Deferred Stock made
pursuant to Section 9 in respect of a Participant's Deferred Annual Amount.
"Eligible Employee" shall mean each Executive Officer and each
other employee of the Company or its Subsidiaries, but shall not include
Directors who are not employees of any such entity.
"Employment" shall mean, for purposes of Sections 5(e), 7(b)
and 8(b), continuous and regular salaried employment with the Company or a
Subsidiary, which shall include (unless the Committee shall otherwise determine)
any period of vacation, any approved leave of absence or any salary continuation
or severance pay period and, at the discretion of the Committee, may include
service with any former Subsidiary of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Executive Officer" shall mean those persons who are officers
of the Company within the meaning of Rule 16a-1(f) of the Exchange Act.
"Fair Market Value" shall mean, on any date, the average of
the closing price of a Share as reported on the National Association of
Securities Dealers Automated Quotation/National Market System ("NASDAQ/NMS") (or
on such other recognized market or quotation system on which the trading prices
of the Share are traded or quoted at the relevant time) over the preceding
twenty business days. Notwithstanding the foregoing, (i) in the case of any
Award made on the date of the initial public offering of the Company's Common
Stock, "Fair Market Value" on such date shall be the price at which the
Company's Common Stock is sold to the public in such initial public offering and
(ii) in the case of an Incentive Stock Option, "Fair Market Value" shall, on any
date, mean the average of the bid and asked price of a Share reported on the
NASDAQ/NMS (or on such other recognized market or quotation system on which the
trading prices of the Share are traded or quoted at the relevant time) on such
date.
"Incentive Stock" shall mean any Award of Common Stock granted
under Section 8 which becomes vested and nonforfeitable upon the attainment, in
whole or in part, of performance objectives determined by the Committee.
"Incentive Stock Option" shall mean an Option which is
intended to meet the requirements of Section 422 of the Code.
"Incentive Unit" shall mean any Award of a contractual right
granted under Section 8 to receive Common Stock (or, at the discretion of the
Committee, cash based on the Fair Market Value of the Common Stock) which
becomes vested and nonforfeitable upon the attainment, in whole or in part, of
performance objectives determined by the Committee.
"Nonstatutory Stock Option" shall mean an Option which is not
intended to be an Incentive Stock Option.
"Normal Retirement" shall mean retirement at or after the
earliest age at which the Participant may retire and receive a retirement
benefit without an actuarial reduction for early commencement of benefits under
any defined benefit pension plan maintained by the Company or any of its
Subsidiaries in which such Participant participates, or, in the absence of any
such applicable plan, as determined by the Committee.
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"Option" shall mean the right to purchase the number of shares
of Common Stock specified by the Committee, at a price and for the term fixed by
the Committee in accordance with the Plan and subject to any other limitations
and restrictions as this Plan and the Committee shall impose.
"Participant" shall mean an Eligible Employee who is selected
by the Committee to receive an Award under the Plan.
"Plan" shall mean the RSL Communications, Ltd. 1997 Stock
Incentive Plan, described herein, and as may be amended from time to time.
"Reload Option" shall have the meaning ascribed thereto in
Section 5(f).
"Restricted Period" shall mean the period during which a grant
of Incentive Stock, Restricted Stock, Incentive Units or Restricted Units is
subject to forfeiture.
"Restricted Stock" shall mean any Award of Common Stock
granted under Section 7 which becomes vested and nonforfeitable, in whole or in
part, upon the completion of such period of service as shall be determined by
the Committee.
"Restricted Unit" shall mean any Award of a contractual right
granted under Section 7 to receive Common Stock (or, at the discretion of the
Committee, cash based on the Fair Market Value of the Common Stock) which
becomes vested and nonforfeitable, in whole or in part, upon the completion of
such period of service as shall be determined by the Committee.
"Share" shall mean a share of Common Stock.
"Stock Appreciation Right" shall mean a contractual right
granted under Section 6 to receive cash, Common Stock or a combination thereof.
"Subsidiary" shall mean any corporation of which the Company
possesses directly or indirectly fifty percent (50%) or more of the total
combined voting power of all classes of stock of such corporation and any other
business organization, regardless of form, in which the Company possesses
directly or indirectly fifty percent (50%) or more of the total combined equity
interests in such organization.
"Supplemental Units" shall mean an award of Deferred Stock
made pursuant to Section 9 with respect to a number of shares in excess of the
number of shares corresponding to the Participant's Elective Units.
3. Administration
The Plan shall be administered by the Committee which shall
consist of at least two Directors of the Company chosen by the Board each of
whom is a Disinterested Director. The Committee shall have the responsibility of
construing and interpreting the Plan and of establishing and amending such rules
and regulations as it deems necessary or desirable for the proper administration
of the Plan. Any decision or action taken or to be taken by the Committee,
arising out of or in connection with the construction, administration,
interpretation and effect of the Plan and of its rules and regulations, shall,
to the maximum extent permitted by applicable law, be within its absolute
discretion (except as otherwise specifically provided herein) and shall be
conclusive and binding upon all Participants and any person claiming under or
through any Participant.
4. Maximum Amount of Shares Available for Awards
(a) Maximum Number of Shares. The maximum number of shares of Stock in
respect of which Awards may be made under the Plan shall be a total of 8,100,000
shares of Common Stock. Without limiting the generality of the foregoing,
whenever shares are received by the Company in connection with the exercise of
or payment for any Award granted under the Plan only the net number of shares
actually issued shall be counted against the foregoing limit.
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(b) Shares Available for Issuance. Shares of Common Stock may be made
available from the authorized but unissued shares of the Company or from Shares
held in the Company's treasury and not reserved for some other purpose. In
addition, if any Award in respect of Shares is canceled or forfeited for any
reason without delivery of shares of Common Stock, the shares subject to such
Award shall thereafter again be available for award pursuant to the Plan.
(c) Adjustments Upon Certain Events. In the event of any Share dividend
or Share split, recapitalization (including, without limitation, the payment of
an extraordinary dividend), merger, consolidation, combination, spin-off,
distribution of assets to shareholders, exchange of shares, or other similar
corporate change, the aggregate number of Shares available for Options under
Section 4(a) or subject to outstanding Options and the respective prices
applicable to outstanding Options shall be appropriately adjusted.
(d) No Adjustment If Value Received. Except as hereinbefore expressly
provided, the issuance by the Company of shares of stock of any class or
securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or other securities, and in any
case whether or not for fair value, shall not affect, and no adjustment by
reason thereof shall be made with respect to the number of Shares subject to
Options to be awarded to an Eligible Employee pursuant to Section 5.
5. Stock Options
(a) Grant. Subject to the provisions of the Plan, the Committee shall
have the authority to grant Options to an Eligible Employee and to determine (i)
the number of shares to be covered by each Option, (ii) the exercise price
therefor and (iii) the conditions and limitations applicable to the exercise of
the Option. Notwithstanding the foregoing, in no event shall the Committee grant
any Participant Options in any single calendar year for more than 500,000 shares
of Common Stock, as such number may be adjusted pursuant to Section 4(c). The
Committee shall have the authority to grant Incentive Stock Options or
Nonstatutory Stock Options. In the case of Incentive Stock Options, the terms
and conditions of such grants shall be subject to and comply with Section 422 of
the Code and the regulations thereunder.
(b) Option Price. The Committee shall establish the exercise price at
the time each Option is granted, which price shall, unless the Committee shall
determine otherwise, initially equal the Fair Market Value of the Common Stock
at the date of grant and shall be increased on the first day of each calendar
quarter, by an amount, compounded annually, based on the yield to maturity of
U.S. Treasury Securities having a maturity approximately equal to the term of
the Option on the date such Option is granted. Notwithstanding the foregoing,
(i) the exercise price at the time an Option is granted shall not be less than
the Fair Market Value of the Common Stock at the date of grant and (ii) in the
case of an Incentive Stock Option issued to a Participant who owns stock in the
Company possessing more than 10% of the total combined voting power of all
classes of stock of the Company, the exercise price at the time of such
Incentive Stock Option at the time such Incentive Stock Option is granted to
such individual shall equal at least 110% of the Fair Market Value of the Common
Stock at the date of grant.
(c) Option Term. If not previously exercised each Option shall
expire upon the seventh (7th) anniversary of the date of the grant thereof or,
upon the earlier termination of the Participant's Employment (or, if applicable,
on the day following the last day on which such Option is exercisable under
Section 5(e) below), provided that (i) the Committee may establish a shorter
term for an Option at the time of the grant of such Option and (ii) in the case
of an Incentive Stock Option issued to a Participant who owns stock in the
Company possessing more than 10% of the total combined voting power of all
classes of stock of the Company, such Incentive Stock Option shall expire on the
fifth (5th) anniversary of the date of grant.
(d) Exercise. Each Option shall be exercised at such times and subject
to such terms and conditions as the Committee may specify in the applicable
Award or thereafter; provided, however, that if the Committee does not establish
a different exercise schedule at or after the date of grant of an Option, such
Option shall become exercisable on a cumulative basis in three equal annual
installments commencing on the first anniversary of the date the Option is
granted. The Committee may impose such conditions with respect to the exercise
of Options as it shall deem appropriate, including without limitation, any
conditions relating to the application of federal or state securities laws. No
Shares shall be delivered pursuant to any exercise of an Option unless
arrangements satisfactory to the Committee have been made to assure full payment
of the option price therefor and of applicable taxes as
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<PAGE>
provided in Section 11(a) below. Without limiting the generality of the
foregoing, payment of the option price may be made in cash or its equivalent or,
if and to the extent permitted by the Committee, by exchanging shares of Common
Stock owned by the optionee for at least six (6) months (or such longer period
as is required by applicable accounting standards to avoid a charge to earnings)
and that are not the subject of any pledge or other security interest, or by a
combination of the foregoing, provided that the combined value of all cash and
cash equivalents and the Fair Market Value of any such Common Stock so tendered
to the Company, valued as of the date of such tender, is at least equal to such
option price.
(e) Termination of Employment. Unless the Committee shall otherwise
determine at or after grant, an Option shall be exercisable following the
termination of a Participant's Employment only to the extent provided in this
Section 5(e). If a Participant's Employment terminates due to the Participant's
(i) death, (ii) Disability, (iii) Early Retirement with the consent of the
Committee or (iv) Normal Retirement, the Participant (or, in the event of the
Participant's death or Disability during Employment or during the period during
which an Option is exercisable under this sentence, the Participant's
beneficiary or legal representative) may exercise any Option held by the
Participant at the time of such termination, regardless of whether then
exercisable, for a period of three years (or such greater or lesser period as
the Committee shall determine at or after grant), but in no event after the date
the Option otherwise expires. If a Participant's Employment is terminated for
Cause (or, if after the Participant's termination of Employment, the Committee
determines that the Participant's Employment could have been terminated for
Cause had the Participant still been employed or has otherwise engaged in
conduct that is detrimental to the interests of the Company, as determined by
the Committee in its sole discretion), all Options held by the Participant shall
immediately terminate, regardless of whether then exercisable. In the event of a
Participant's termination of Employment for any reason not described in the
preceding two sentences, the Participant (or, in the event of the Participant's
death or Disability during the period during which an Option is exercisable
under this sentence, the Participant's beneficiary or legal representative) may
exercise any Option which was exercisable at the time of such termination for 90
days (or such greater or lesser period as the Committee shall specify at or
after the grant of such Option) following the date of such termination, but in
no event after the date the Option otherwise expires.
(f) Reload Options. The Committee may provide that a Participant (or,
if applicable, his permitted transferee) who delivers shares of Common Stock
that have been owned by such Participant (or permitted transferee) for any
minimum period of time specified by the Committee to exercise an Option (when
the fair market value of Common Stock exceeds the exercise price of such Option)
will automatically be granted new Options ("Reload Options") for a number of
shares of Common Stock equal to the number of shares so delivered. Unless the
Committee determines otherwise, such Reload Options will be subject to the same
terms and conditions (including the same expiration date) as the related Option
except (i) that the exercise price shall initially be equal to the Fair Market
Value of a share of Common Stock on the date such Reload Option is granted and
(ii) such Reload Option shall not be exercisable prior to the six month
anniversary of the date of grant and, thereafter, shall be exercisable in full.
6. Stock Appreciation Rights
(a) Grant of SARs. The Committee shall have the authority to grant
Stock Appreciation Rights in tandem with an Option, in addition to an Option, or
freestanding and unrelated to an Option. Notwithstanding the foregoing, in no
event shall the Committee grant any Participant more than 500,000 SARs in any
single calendar year, as such number may be adjusted pursuant to Section 4(c).
Stock Appreciation Rights granted in tandem or in addition to an Option may be
granted either at the same time as the Option or at a later time. Stock
Appreciation Rights shall not be exercisable after the expiration of ten years
from the date of grant and shall have a base price determined in the same manner
as, and subject to the same conditions as apply with respect to, a Nonstatutory
Stock Option under Section 5(b).
(b) Exercise of SARs. A Stock Appreciation Right shall entitle the
Participant to receive from the Company an amount equal to the excess of the
Fair Market Value of a share of Common Stock on the date of exercise of the
Stock Appreciation Right over the base price thereof. The Committee shall
determine the time or times at which or the event or events (including, without
limitation, a Change of Control) upon which a Stock Appreciation Right may be
exercised in whole or in part, the method of exercise and whether such Stock
Appreciation Right shall be settled in cash, shares of Common Stock or a
combination of cash and shares of Common Stock; provided, however, that unless
otherwise specified by the Committee at or after grant, a Stock
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Appreciation Right granted in tandem with an Option shall be exercisable only at
the same time or times as the related Option is exercisable.
7. Restricted Stock and Restricted Units
(a) Grant of Restricted Stock or Restricted Units. The Committee may
grant Awards of Restricted Stock or Restricted Units to Participants at such
times and in such amounts, and subject to such other terms and conditions not
inconsistent with the Plan, as it shall determine. Each grant of Restricted
Stock or Restricted Units shall be evidenced by an Award Agreement. Unless the
Committee provides otherwise at or after the date of grant, stock certificates
evidencing any shares of Restricted Stock so granted shall be held in the
custody of the Secretary of the Company until the Restricted Period lapses, and,
as a condition to the grant of any Award of shares of Restricted Stock, the
Participant shall have delivered to the Secretary of the Company a certificate,
endorsed in blank, relating to the shares of Common Stock covered by such Award.
(b) Termination of Employment. Unless the Committee otherwise
determines at or after grant, the rights of a Participant with respect to an
award of Restricted Stock or Restricted Units outstanding at the time of the
Participant's termination of Employment shall be determined under this Section
7(b). In the event that a Participant's Employment terminates due to the
Participant's (i) death, (ii) Disability, (iii) Early Retirement with the
consent of the Committee or (iv) Normal Retirement, any award of Restricted
Stock or Restricted Units shall become vested and nonforfeitable as to that
number of shares which is equal to the number of shares of Common Stock subject
to such Award times a fraction, the numerator of which is the number of days
actually worked during the Restricted Period (or, in the case of an Award which
has previously vested in part (an "Installment Award"), the number of days
worked since the last vesting date) and the denominator of which is the total
number of days during the Restricted Period (or, in the case of an Installment
Award, the number of days between the last vesting date and the end of the
Restricted Period). Unless the Committee otherwise determines, any portion of
any Restricted Stock or Restricted Unit Award that has not become nonforfeitable
at the date of a Participant's termination of Employment shall be forfeited as
of such date.
(c) Delivery of Shares. Upon the expiration or termination of the
Restricted Period and the satisfaction (as determined by the Committee) of any
other conditions determined by the Committee, the restrictions applicable to the
Restricted Stock or Restricted Units shall lapse and a stock certificate for the
number of shares of Common Stock with respect to which the restrictions have
lapsed shall be delivered, free of all such restrictions, except any that may be
imposed by law, to the Participant or the Participant's beneficiary or estate,
as the case may be. No payment will be required to be made by the Participant
upon the delivery of such shares of Common Stock and/or cash, except as
otherwise provided in Section 11(a) of the Plan. At or after the date of grant,
the Committee may accelerate the vesting of any award of Restricted Stock or
Restricted Units or waive any conditions to the vesting of any such award.
(d) Restricted Period; Restrictions on Transferability during
Restricted Period. Unless otherwise determined by the Committee at or after the
date of grant, the Restricted Period applicable to any award of Restricted Stock
or Restricted Units shall lapse, and the shares related to such award shall
become freely transferable, on the third anniversary of the date of grant.
Restricted Stock or Restricted Units may not be sold, assigned, pledged or
otherwise encumbered, except as herein provided, during the Restricted Period.
Any certificates issued in respect of Restricted Stock shall be registered in
the name of the Participant and deposited by such Participant, together with a
stock power endorsed in blank, with the Company. At the expiration of the
Restricted Period with respect to any award of Restricted Stock, unless
otherwise forfeited, the Company shall deliver such certificates to the
Participant or to the Participant's legal representative. Payment for Restricted
Stock Units shall be made by the Company in shares of Common Stock, cash or in
any combination thereof, as determined by the Committee.
(e) Rights as a Stockholder; Dividend Equivalents. Unless otherwise
determined by the Committee at or after the date of grant, Participants granted
shares of Restricted Stock shall be entitled to receive, either currently or at
a future date, as specified by the Committee, all dividends and other
distributions paid with respect to those shares, provided that if any such
dividends or distributions are paid in shares of Common Stock or other property
(other than cash), such shares and other property shall be subject to the same
forfeiture restrictions and restrictions on transferability as apply to the
shares of Restricted Stock with respect to which they were paid. The Committee
will determine whether and to what extent to credit to the account of, or to pay
currently to, each recipient of
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Restricted Units, an amount equal to any dividends paid by the Company during
the Restricted Period with respect to the corresponding number of shares of
Common Stock ("Dividend Equivalents"). To the extent provided by the Committee
at or after the date of grant, any Dividend Equivalents with respect to cash
dividends on the Common Stock credited to a Participant's account shall be
deemed to have been invested in shares of Common Stock on the record date
established for the related dividend and, accordingly, a number of additional
Restricted Units shall be credited to such Participant's account equal to the
greatest whole number which may be obtained by dividing (x) the value of such
Dividend Equivalent on the record date by (y) the Fair Market Value of a share
of Common Stock on such date.
8. Incentive Awards
(a) Incentive Stock and Incentive Units. Subject to the provisions of
the Plan, the Committee shall have the authority to grant Incentive Stock or
Incentive Units to any Eligible Employee and to determine (i) the number of
shares of Incentive Stock and the number of Incentive Units to be granted to
each Participant and (ii) the other terms and conditions of such Awards;
provided that, to the extent necessary to comply with applicable law, Incentive
Stock shall only be awarded to an Eligible Employee who has been employed for
such minimum period of time as shall be determined by the Committee. The
Restricted Period related to Incentive Stock or Incentive Units shall lapse upon
the determination by the Committee that the performance objectives established
by the Committee have been attained, in whole or in part. Such performance
objectives may be related to the performance of (i) the Company, (ii) a
Subsidiary, (iii) a division or unit of the Company or any Subsidiary, (v) the
Participant or (vi) any combination of the foregoing, over a measurement period
or periods established by the Committee. Unless the Committee otherwise
determines at the time of grant of Incentive Stock or Incentive Units to an
Executive Officer, the performance objectives with respect to such Award shall
be related to at least one of the following criteria, which may be determined
solely by reference to the performance of the Company or a Subsidiary or a
division or unit of the Company or a Subsidiary or based on comparative
performance relative to other companies: (i) consolidated earnings before income
taxes, depreciation and amortization; (ii) revenues; (iii) earnings per share;
(iv) net income; (v) gross profit margin; (vi) maximum capital expenditures;
(vii) return on equity; and/or (viii) return on total capital. Except to the
extent otherwise expressly provided herein, the Committee may, at any time and
from time to time, change the performance objectives applicable with respect to
any Incentive Stock or Incentive Units to reflect such factors, including,
without limitation, changes in a Participant's duties or responsibilities or
changes in business objectives (e.g., from corporate to Subsidiary or business
unit performance or vice versa), as the Committee shall deem necessary or
appropriate. In making any such adjustment, the Committee shall adjust the
number of Incentive Stock or Incentive Units or take other appropriate actions
to prevent any enlargement or diminution of the Participant's rights related to
service rendered and performance attained prior to the effective date of such
adjustment.
(b) Termination of Employment. Unless the Committee otherwise
determines at or after grant, the rights of a Participant with respect to an
award of Incentive Stock or Incentive Units outstanding at the time of the
Participant's termination of Employment shall be determined under this Section
8(b). In the event that a Participant's Employment terminates due to the
Participant's (i) death, (ii) Disability, (iii) Early Retirement with the
consent of the Committee or (iv) Normal Retirement, any award of Incentive Stock
or Incentive Units shall become vested and nonforfeitable at the end of the
measurement period as to that number of shares which is equal to that
percentage, if any, of such award that would have been earned based on the
attainment or partial attainment of such performance objectives times a
fraction, the numerator of which is the number of days employed during the
Restricted Period (or, in the case of an Award which has previously vested in
part (an "Installment Award"), the number of days employed since the last
vesting date) and the denominator of which is the total number of days during
the Restricted Period (or, in the case of an Installment Award, the number of
days between the last vesting date and the end of the Restricted Period);
provided that, any portion of any Incentive Stock or Incentive Unit award that
does not become vested as of the times set forth in this sentence shall be
forfeited at such times. In all other cases, any portion of any award of
Incentive Stock or Incentive Units that has not become nonforfeitable at the
date of a Participant's termination of Employment shall be forfeited as of such
date.
(c) Awards Nontransferable. Incentive Stock or Incentive Units may not
be sold, assigned, pledged or otherwise encumbered, except as herein provided,
during the Restricted Period. Any certificates issued in respect of Incentive
Stock shall be registered in the name of the Participant and deposited by such
Participant, together with a stock power endorsed in blank, with the Company. At
the expiration of the Restricted Period with respect to any award of Incentive
Stock, unless otherwise forfeited, the Company shall deliver such certificates
to the Participant or
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<PAGE>
to the Participant's legal representative. Payment for Incentive Stock Units
shall be made by the Company in shares of Common Stock, cash or in any
combination thereof, as determined by the Committee.
(d) Rights as a Stockholder; Dividend Equivalents. Unless otherwise
determined by the Committee at or after the date of grant, Participants granted
shares of Incentive Stock shall be entitled to receive, either currently or at a
future date, as specified by the Committee, all dividends and other
distributions paid with respect to those shares, provided that if any such
dividends or distributions are paid in shares of Common Stock or other property
(other than cash), such shares and other property shall be subject to the same
forfeiture restrictions and restrictions on transferability as apply to the
shares of Incentive Stock with respect to which they were paid. The Committee
will determine whether and to what extent to credit to the account of, or to pay
currently to, each recipient of Incentive Units, an amount equal to any
dividends paid by the Company during the period of deferral with respect to the
corresponding number of shares of Common Stock ("Dividend Equivalents"). To the
extent provided by the Committee at or after the date of grant, any Dividend
Equivalents with respect to cash dividends on the Common Stock credited to a
Participant's account shall be deemed to have been invested in shares of Common
Stock on the record date established for the related dividend and, accordingly,
a number of additional Incentive Units shall be credited to such Participant's
account equal to the greatest whole number which may be obtained by dividing (x)
the value of such Dividend Equivalent on the record date by (y) the Fair Market
Value of a share of Common Stock on such date.
(e) Interpretation. Notwithstanding anything else contained in this
Section 8 to the contrary, if any award of Incentive Stock or Incentive Units is
intended, at the time of grant, to be other performance based compensation
within the meaning of Section 162(m)(4)(C) of the Code, to the extent required
to so qualify any Award hereunder, the Committee shall not be entitled to
exercise any discretion otherwise authorized under this Section 8 with respect
to such award if the ability to exercise such discretion (as opposed to the
exercise of such discretion) would cause such award to fail to qualify as other
performance based compensation.
9. Deferred Stock
(a) Deferred Stock Awards. On such date or dates as shall be
established by the Committee and subject to such terms and conditions as the
Committee shall determine, a Participant may be permitted to elect to defer
receipt of all or a portion of his annual compensation and/or annual incentive
bonus ("Deferred Annual Amount") payable by the Company or a Subsidiary and
receive in lieu thereof a number of Elective Units equal to the greatest whole
number which may be obtained by dividing (x) the amount of the Deferred Annual
Amount by (y) the Fair Market Value of a share of Common Stock on the date of
grant. No shares of Common Stock will be issued at the time an award of Deferred
Stock is made and the Company shall not be required to set aside a fund for the
payment of any such award. The Company will establish a separate account for the
Participant and will record in such account the number of Elective Units awarded
to the Participant. To the extent the Committee so determines, a Participant who
receives an award of Elective Units shall receive that number of Supplemental
Units equal to the greatest whole number which may be obtained by dividing (x)
such percentage of the Deferred Annual Amount as is determined by the Committee
at the date of grant by (y) the Fair Market Value of a share of Common Stock on
the date of grant.
(b) Rights as a Stockholder; Dividend Equivalents. A Participant shall
not have any right in respect of Deferred Stock awarded pursuant to the Plan to
vote on any matter submitted to the Company's stockholders until such time as
the shares of Common Stock attributable to such Deferred Stock have been issued
to such Participant or his beneficiary. The Committee will determine whether and
to what extent to credit to the account of, or to pay currently to, each
recipient of a Deferred Stock Unit award, any Dividend Equivalents. To the
extent provided by the Committee at or after the date of grant, any Dividend
Equivalents with respect to cash dividends on the Common Stock credited to a
Participant's account shall be deemed to have been invested in shares of Common
Stock on the record date established for the related dividend and, accordingly,
a number of Deferred Stock shall be credited to such Participant's account equal
to the greatest whole number which may be obtained by dividing (x) the value of
such Dividend Equivalent on the record date by (y) the Fair Market Value of a
share of Common Stock on such date.
(c) Vesting of Deferred Stock Unit Awards. The portion of each Deferred
Stock Unit award that consists of Elective Units, together with any Dividend
Equivalents credited with respect thereto, shall be fully vested at all times.
Unless the Committee provides otherwise at or after the date of grant, the
portion of each Deferred Stock Unit award that consists of Supplemental Units,
together with any Dividend Equivalents credited with respect
A-8
<PAGE>
thereto, will become vested in full on the third anniversary of the date the
corresponding Deferred Annual Amount would have been paid absent the
Participant's election to defer provided the Participant remains in the
continuous employ of the Company or a Subsidiary through such date.
Notwithstanding the foregoing, the Committee may accelerate the vesting of any
Deferred Stock Unit award at or after the date of grant.
(d) Settlement of Deferred Stock. Unless the Committee determines
otherwise at or after the date of grant, a Participant shall receive one share
of Common Stock for each Elective Unit (and related Dividend Equivalents) as of
the date of such Participant's termination of employment (or such later date as
may be elected by the Participant in accordance with the rules and procedures of
the Committee). Unless the Committee determines otherwise at or after the date
of grant, a Participant shall receive one share of Common Stock for each
Supplemental Unit (and related Dividend Equivalents) that shall have become
vested on or prior to the date of such Participant's termination of employment
with the Company and the Subsidiaries, other than any such termination for
Cause, on the date of such termination of employment (or on such earlier date as
the Committee shall permit or such later date as may be elected by the
Participant in accordance with the rules and procedures of the Committee). In
the event of the termination of a Participant's employment with the Company and
the Subsidiaries for Cause, the Participant shall immediately forfeit all rights
with respect to any Supplemental Units (and related Dividend Equivalents)
credited to his account. The Committee may provide in the Award Agreement
applicable to any Incentive Award of Deferred Stock that, in lieu of issuing
shares of Common Stock in settlement of the vested portion of such Deferred
Stock Unit, the Committee may direct the Company to pay to the Participant the
cash balance of such Deferred Stock.
10. Stock in Lieu of Cash
The Committee may grant Awards or shares of Common Stock in
lieu of all or a portion of an award otherwise payable in cash to an Executive
Officer pursuant to any bonus or incentive compensation plan of the Company
(subject to any applicable limitations in such bonus or incentive compensation
plan). If shares are issued in lieu of cash, the number of shares of Common
Stock to be issued shall be the greatest number of whole shares which has an
aggregate Fair Market Value on the date the cash would otherwise have been
payable pursuant to the terms of such other plan equal to or less than the
amount of such cash.
11. General Provisions
(a) Withholding. The Company shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or otherwise) any
taxes required by law to be withheld in respect of Awards under this Plan. In
the case of any Award satisfied in the form of Common Stock, no shares shall be
issued unless and until arrangements satisfactory to the Committee shall have
been made to satisfy any withholding tax obligations applicable with respect to
such Award. Without limiting the generality of the foregoing and subject to such
terms and conditions as the Committee may impose, the Company shall have the
right to retain, or the Committee may, subject to such terms and conditions as
it may establish from time to time, permit Participants to elect to tender,
Common Stock (including Common Stock issuable in respect of an Award) to
satisfy, in whole or in part, the amount required to be withheld.
(b) Awards. Each Award hereunder shall be evidenced in writing. The
written agreement shall be delivered to the Participant and shall incorporate
the terms of the Plan by reference and specify the terms and conditions thereof
and any rules applicable thereto (each, an "Award Agreement").
(c) Nontransferability. No Award shall be transferable by a Participant
otherwise than by will or under the applicable laws of descent and distribution,
unless such transfer shall be (i) permitted by the Committee (on such terms as
it shall establish) or (ii) if the Option agreement pursuant to which an Award
is made so provides, to (A) the spouse, children or grandchildren of such
Participant (collectively, "Family Members"), (B) a trust or trusts for the
exclusive benefit of such Family Members, or (C) a partnership or limited
liability company in which such Family Members and trusts for the exclusive
benefit of such Family Members are the only partners or members, as the case may
be. In addition, no Award shall be assigned, negotiated, pledged or hypothecated
in any way (whether by operation of law or otherwise) and no Award shall be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, negotiate, pledge or hypothecate any Award, or in the event of
any levy upon any Award by reason of any attachment or similar process, in
either case contrary to the provisions hereof, such Award shall immediately
become null and void.
A-9
<PAGE>
(d) Legend. To the extent any stock certificate is issued to a
Participant in respect of shares of Restricted Stock or Incentive Stock awarded
under the Plan prior to the expiration of the applicable Restricted Period, such
certificate shall be registered in the name of the Participant and shall bear
the following (or similar) legend:
"The shares of stock represented by this certificate are
subject to the terms and conditions contained in the RSL
Communications, Ltd. 1997 Stock Incentive Plan and the Award Agreement,
dated as of _____, between the Company and the Participant, and may not
be sold, pledged, transferred, assigned, hypothecated or otherwise
encumbered in any manner (except as provided in Section 11(c) of the
Plan or in such Award Agreement) until _______________."
Upon the lapse of the Restricted Period with respect to any such shares of
Restricted Stock or Incentive Stock, the Company shall issue or have issued new
share certificates without the legend described herein in exchange for those
previously issued.
(e) No Right to Employment. No person shall have any claim or right to
be granted an Award, and the grant of an Award shall not be construed as giving
a Participant the right to be retained in the employ of the Company or any
Subsidiary. Further, the Company and each Subsidiary expressly reserves the
right at any time to dismiss a Participant free from any liability, or any claim
under the Plan, except as provided herein or in any agreement entered into with
respect to an Award.
(f) No Rights to Awards, No Shareholder Rights. No Participant or
Eligible Employee shall have any claim to be granted any Award under the Plan,
and there is no obligation of uniformity of treatment of Participants and
Eligible Employees. Subject to the provisions of the Plan and the applicable
Award, no person shall have any rights as a shareholder with respect to any
shares of Common Stock to be issued under the Plan prior to the issuance
thereof.
(g) Effective Date. Subject to the approval of the shareholders of the
Company (which shall be sought by the Company if so authorized by the Board),
the Plan shall be effective on the date the Plan is approved by shareholders. No
Awards may be granted under the Plan after the expiration of ten years from the
date this Plan is adopted.
(h) Amendment of Plan. The Board or the Committee may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that no
amendment shall be made without shareholder approval if such amendment would
(1) increase the number of shares of Common Stock subject to the
Plan, except pursuant to Section 4(c);
(2) change the price at which Options may be granted; or
(3) remove the administration of the Plan from the Committee.
Without the written consent of an affected Participant, no termination,
suspension or modification of the Plan shall adversely affect any right of such
Participant under the terms of an Award granted before the date of such
termination, suspension or modification.
(i) Application of Proceeds. The proceeds received by the Company from
the sale of its shares under the Plan will be used for general corporate
purposes.
(j) Compliance with Legal and Exchange Requirements. The Plan, the
granting and exercising of Awards thereunder, and the other obligations of the
Company under the Plan, shall be subject to all applicable federal and state
laws, rules, and regulations, and to such approvals by any regulatory or
governmental agency as may be required. The Company, in its discretion, may
postpone the granting and exercising of Awards, the issuance or delivery of
Common Stock under any Award or any other action permitted under the Plan to
permit the Company, with reasonable diligence, to complete such stock exchange
or similar listing or registration or qualification of such Common Stock or
other required action under any federal or state law, rule, or regulation and
may require any Participant to make such representations and furnish such
information as it may consider appropriate in connection
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<PAGE>
with the issuance or delivery of Common Stock in compliance with applicable
laws, rules, and regulations. The Company shall not be obligated by virtue of
any provision of the Plan to recognize the exercise of any Award or to otherwise
sell or issue Common Stock in violation of any such laws, rules, or regulations;
and any postponement of the exercise or settlement of any Award under this
provision shall not extend the term of such Awards, and neither the Company nor
its directors or officers shall have any obligation or liability to the
Participant with respect to any Award (or Stock issuable thereunder) that shall
lapse because of such postponement.
(k) Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
(l) Governing Law. This Plan shall be construed and enforced according
to the laws of Bermuda.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
A-11
<PAGE>
Exhibit B
PROPOSED AMENDMENT TO THE COMPANY'S BYE-LAWS
If Proposal 4 is approved and adopted by the shareholders of the Company,
bye-laws 32(2) and 32(3), in their entirety, would provide as follows:
Notice of annual general meeting
"(2) Proposals of business to be considered by the Members at
an annual general meeting of Members may be presented at an
annual general meeting of Members by any Member of the Company
who was a Member of record at the time of giving notice
provided for in this bye-law, who is entitled to vote at the
annual general meeting and who complies with the notice
procedures set forth in bye-law 32(3).
(3) For business to be properly brought before an annual
general meeting of Members pursuant to bye-law 32(2), the
Member must have given timely notice thereof in writing to the
Secretary of the Company and such other business must
otherwise be a proper matter for Member action in accordance
with the U.S. Securities Exchange Act of 1934, as amended, and
the rules and interpretations thereunder (or any successor law
or provision thereto), and Bermuda Law. To be timely, a
Member's notice shall be delivered to the Secretary at the
principal executive offices of the Company at such time as is
determined in accordance with the proxy rules promulgated by
the U.S. Securities and Exchange Commission relating to the
inclusion of shareholder proposals in proxy statements."
If Proposal 4 is approved and adopted by the shareholders of the Company,
existing bye-law 32 will be renumbered 32(1). The bye-laws thereafter will
remain numbered as currently in effect.
<PAGE>
RSL COMMUNICATIONS, LTD.
PROXY FOR ANNUAL GENERAL MEETING OF SHAREHOLDERS
June 8, 1999
This Proxy Is Solicited On Behalf Of The Board Of Directors
The undersigned hereby constitutes and appoints Nicolas Trollope and
Michael Ashford, or any one of them, with the power of substitution, the proxies
of the undersigned to vote with the same force and effect as the undersigned all
Class A common shares of RSL Communications, Ltd. (the "Company") held of record
by the undersigned on April 19, 1999 at the Annual General Meeting of
Shareholders to be held at the offices of Conyers, Dill & Pearman, Clarendon
House, Church Street, Hamilton HM CX, Bermuda, on June 8, 1999 at 10:00 A.M. and
at any adjournment or adjournments thereof, hereby revoking any proxy or proxies
heretofore given and ratifying and confirming all that said proxies may do or
cause to be done by virtue thereof with respect to the following matters:
The Board recommends a vote FOR proposals 1, 2, 3, 4, 5 and 6 below.
Please mark boxes |X| |_| in blue or black ink only.
1. Election of the eight nominees for director listed at right:
<TABLE>
<CAPTION>
<S> <C> <C>
FOR all nominees listed at WITHHOLD AUTHORITY to vote Nominees:
right for all nominees listed at right
|_| |_| RONALD S. LAUDER
ITZHAK FISHER
JACOB Z. SCHUSTER
GUSTAVO A. CISNEROS
FRED H. LANGHAMMER
LEONARD A. LAUDER
EUGENE A. SEKULOW
NICOLAS G. TROLLOPE
</TABLE>
Instruction: to withhold authority to vote for any individual nominee,
mark the "FOR" box and write that nominee's name in the space provided
below:
Exceptions: ___________________________________________________________
2. Approval of the proposal to amend the Company's 1997 Stock Incentive
Plan to expand the existing group of participants to whom options and
other awards may be granted to include all employees of the Company and
its subsidiaries.
FOR |_| AGAINST |_| ABSTAIN |_|
3. Approval of the proposal to amend the Company's 1997 Stock Incentive
Plan to increase by 5,000,000 to 8,100,000 the number of shares with
respect to which options or other awards may be granted.
FOR |_| AGAINST |_| ABSTAIN |_|
<PAGE>
4. Approval of the proposal to amend the Company's bye-laws.
FOR |_| AGAINST |_| ABSTAIN |_|
5. Adoption of the financial statements and the auditors' report thereon
for the fiscal year ended December 31, 1998.
FOR |_| AGAINST |_| ABSTAIN |_|
6. Appointment of Deloitte & Touche LLP as independent auditors of the
Company for the 1999 fiscal year and the delegation to the Audit
Committee of the authority to fix the auditors' fee for the current
fiscal year.
FOR |_| AGAINST |_| ABSTAIN |_|
Proposal 2 and Proposal 3 are interdependent and, therefore, unless
both proposals are approved and adopted at the meeting, the 1997 Stock Incentive
Plan will remain in effect in its present form.
This proxy, when properly executed, will be voted as directed. If no
direction is indicated, the proxy will be voted as recommended by the Company's
Board of Directors.
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelope provided as
soon as possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call toll-free 1-800-PROXIES and follow the instructions. Have
your control number and the proxy card available when you call.
TO VOTE BY INTERNET
Please access the web page at www.voteproxy.com and follow the
on-screen instructions. Have your control number available when you access the
web page.
YOUR CONTROL NUMBER IS:
<PAGE>
The undersigned hereby acknowledges receipt of the Notice of Annual
General Meeting of Shareholders to be held on June 8, 1999 and the Proxy
Statement, dated April 30, 1999, prior to the signing of this proxy.
Dated_________________________, 1999
------------------------------------
Signature
------------------------------------
Signature, if held jointly
Please sign your name exactly as it
appears on your stock certificate.
When signing as attorney, executor,
administrator, trustee or guardian,
please give your full title as it
appears hereon. When signing as
joint tenants, all parties in the
joint tenancy must sign. When a
proxy is given by a corporation, it
should be signed by an authorized
officer and the corporate seal
affixed. When a proxy is given by a
partnership, it should be signed in
partnership name by an authorized
person.
Will Attend Annual General Meeting |_|
Will Not Attend Annual General Meeting |_|
