<PAGE>
Filed pursuant to Rule 424(b)(3)
Under the Securities Act of 1933, as amended.
Registration Statement Nos. 333-90039 and 333-90039-01
PROSPECTUS
OFFER TO EXCHANGE FOR
ALL $175,000,000 OUTSTANDING 9 7/8% SENIOR NOTES DUE 2009
[LOGO] RSL COMMUNICATIONS PLC
GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY
RSL COMMUNICATIONS, LTD.
----------------------
In exchange for the old notes listed above, RSL Communications PLC is
offering the following new notes:
New 9 7/8% notes: We are offering $175,000,000 new 9 7/8% senior
exchange notes due 2009 in exchange for our
outstanding $175,000,000 9 7/8% senior notes due
2009.
INVESTING IN THE NEW NOTES INVOLVES RISKS. YOU SHOULD READ THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 10.
The new notes:
We issued our 9 7/8% senior notes due 2009 on May 13, 1999. The terms of
the new notes we will issue in the exchange offer are identical to the terms of
the old notes except that:
o The new notes will be free of transfer restrictions for most investors.
o The new notes will not contain provisions relating to additional
interest.
The exchange offer:
o The exchange offer will expire at 5:00 p.m., New York City time, on
December 10, 1999, unless extended.
o The exchange offer is subject to customary conditions. We may waive these
conditions.
o We will exchange new 9 7/8% notes for all outstanding old 9 7/8% notes
validly tendered to us and not withdrawn.
o If you tender old notes to us, you may withdraw your tender at any time
prior to the expiration of the exchange offer.
o If you fail to tender your old notes, you will continue to hold
unregistered securities and your ability to transfer them will be
adversely affected.
o We will not receive any proceeds from the exchange offer.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
The date of this prospectus is November 10, 1999.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with the Commission. This permits us to
disclose important information to you by referencing these filed documents. We
incorporate by reference in this prospectus the following documents which have
been filed with the Commission:
o our Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
o our Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1999 and June 30, 1999, as amended; and
o our current report on Form 8-K dated October 29, 1999.
We incorporate by reference all documents filed pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of this offering.
We will provide promptly without charge to you, upon written or oral
request, a copy of any or all of the documents incorporated by reference in this
prospectus, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. Requests should be
directed to RSL Communications, Ltd., Clarendon House, Church Street, Hamilton
HM CX Bermuda, telephone number (441) 295-2832. YOU SHOULD REQUEST ANY SUCH
INFORMATION AT LEAST FIVE DAYS IN ADVANCE OF THE DATE ON WHICH YOU EXPECT TO
MAKE YOUR DECISION WITH RESPECT TO THIS OFFER. IN ANY EVENT, YOU MUST REQUEST
SUCH INFORMATION PRIOR TO DECEMBER 3, 1999.
------------------------
CERTAIN UK RELATED REGULATORY ISSUES
Persons in the United Kingdom will be eligible to receive the new notes
issued in the exchange offer only if the ordinary activities of such persons
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which do not constitute an offer to the public in the UK for
purposes of the Public Offers of Securities Regulations of 1995.
This prospectus is being distributed on the basis that each person in the
UK to whom this prospectus is issued is reasonably believed to be a person of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the document may
otherwise lawfully be issued or passed on and, accordingly, by accepting
delivery of this prospectus the recipient warrants and acknowledges that it is a
person falling within any such exemption.
------------------------
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL THE ISSUER ACCEPT SURRENDERS
FOR EXCHANGE FROM HOLDERS OF OLD NOTES, IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR "BLUE SKY" LAWS OF SUCH JURISDICTION.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus and the consolidated
financial statements and related notes and other information incorporated in
this prospectus by reference. See "Incorporation of Certain Documents by
Reference." Industry data used in this prospectus were obtained from industry
publications and we have not independently verified it. Certain of the
information contained in this prospectus, including information with respect to
our plans and strategy for its business and related financing, are
forward-looking statements. For a discussion of important factors that could
cause actual results to differ materially from the forward-looking statements,
see "Risk Factors."
THE EXCHANGE OFFER
On May 13, 1999, we issued the old 9 7/8% notes, in an aggregate principal
amount at maturity of $175,000,000. The offering of old notes was exempt from
registration under the Securities Act of 1933.
We have agreed to use our best efforts to complete the exchange offer for
the old notes by February 7, 2000. The terms of the exchange offer, which are
specified in greater detail in the main body of this prospectus and the
accompanying Letter of Transmittal, include the following:
<TABLE>
<S> <C>
Issuer.................................... RSL Communications PLC.
Guarantor................................. RSL Communications, Ltd.
Offer of New 9 7/8% Notes................. We are offering up to $175,000,000 principal amount at maturity of
9 7/8% senior exchange notes due 2009 in exchange for a like
principal amount at maturity of old 9 7/8% notes.
Exchange Procedures....................... The procedures that you must follow to tender old notes in the
exchange offer are specified in the section of this prospectus
labeled "The Exchange Offer."
Expiration Date........................... The exchange offer will expire at 5:00 p.m. New York City time, on
December 10, 1999, or such later date and time to which it is
extended.
Withdrawal................................ You may withdraw your tender of old notes pursuant to the exchange
offer at any time prior to the expiration date. If for any reason we
do not accept any old note that you tender for exchange we will
return that old note to you at our expense as promptly as practicable
after the expiration or termination of the exchange offer.
Conditions of the
Exchange Offer.......................... We will be required to complete the exchange offer only if certain
conditions are satisfied. If any of the conditions to the exchange
offer are not satisfied, however, we may nevertheless waive them and
complete the exchange offer. See the section of this prospectus
labeled "The Exchange Offer" under the heading "Conditions." We may
terminate or amend the exchange offer at any time prior to the
expiration date.
</TABLE>
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<TABLE>
<S> <C>
United States Federal Income Tax
Consequences............................ The exchange of old notes for corresponding new notes will not
constitute a taxable exchange for U.S. federal income tax purposes.
See "Certain United States Federal Income Tax Considerations."
Exchange Agent............................ The Chase Manhattan Bank is serving as exchange agent for the
exchange offer.
Use of Proceeds........................... We will not receive any proceeds from the exchange offer.
</TABLE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the new notes and the terms of the old notes for which they
are offered in exchange are identical in all material respects, except that
(1) the new notes will be free of transfer restrictions for most investors, as
described below opposite the caption "Resales," and (2) the new notes will not
contain provisions related to additional interest. The terms of the new notes,
which are specified in greater detail in the main body of this prospectus,
include the following:
<TABLE>
<S> <C>
New 9 7/8% Notes
Principal Amount..................... Up to $175,000,000 principal amount at maturity of 9 7/8% senior
exchange notes due 2009.
Maturity............................. November 15, 2009.
Interest............................. Annual rate: 9 7/8% on the principal amount at maturity.
Payments: Every six months on May 15 and November 15.
First payment: November 15, 1999.
Accrual of Interest....................... Interest on each new note will accrue from the last interest payment
date on which interest is paid on the old note surrendered in
exchange therefor or, if no interest has been paid on such old note,
from the date of the original issue of such old note. If we accept
your old notes for exchange you will not receive any notes otherwise
payable on any interest payment date, the record date for which
occurs on or after consummation of the exchange offer for the old
notes.
Resales................................... We believe that you may offer the new notes for resale, resell the
new notes and otherwise transfer the new notes without complying with
the registration and prospectus delivery provisions of the Securities
Act, so long as:
o you acquire the new notes in the exchange offer in the ordinary
course of your business;
o you are not participating in any distribution of the new notes that
you obtain in the exchange offer and you do not intend to
participate and have no arrangement or understanding with any
person to participate in any such distribution; and
o you are not affiliated with us.
New Notes Guarantee....................... RSL Communications, Ltd. has unconditionally guaranteed the payment
of principal, interest and any other amounts owed with respect to the
new notes. If RSL Communications PLC cannot make payments on the new
notes when they are due then RSL Communications, Ltd. will be
required to make those payments.
</TABLE>
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<S> <C>
Ranking................................... The new notes and the new notes guarantee will rank equally with our
other unsecured senior indebtedness.
Our principal operations are conducted through subsidiaries.
Accordingly, the new notes and the new notes guarantee will
effectively rank behind all indebtedness of our other subsidiaries.
In addition, holders of our secured obligations will have claims that
rank ahead of the claims of the holders of the new notes and the
guarantee with respect to the assets securing such other obligations.
As of June 30, 1999, on a pro forma basis after giving effect to all
of our recent securities offerings:
o the total amount of our outstanding liabilities (excluding those of
our subsidiaries), including trade payables, would have been
approximately $1.2 billion; and
o the total amount of outstanding liabilities of the Guarantor's
subsidiaries (other than the Issuer), including trade payables,
would have been approximately $611.1 million.
Additional Amounts; Tax
Redemption.............................. Payments we make pursuant to the new notes or the new notes guarantee
will be made without withholding or deduction for taxes unless
required by law. If withholding is required as a result of (1) a
change to current law or the interpretation or administration
thereof, or (2) a Listing Failure (as defined in the section
"Description of the New Notes and the New Notes Guarantee" under the
heading "Additional Amounts"), we will pay, subject to certain
exceptions, Additional Amounts as may be necessary so that net
payments will be no less than the amounts provided for in the new
notes. In the event that (A) we have become or will become obligated
to pay any Additional Amounts as a result of such change (or, in
certain cases, such Listing Failure) and (B) we are unable to avoid
such obligation to pay additional amounts by taking reasonable
measures available to us, then we may redeem all, but not less than
all, the new notes at any time at 100% of their principal amount plus
accrued interest.
Change of Control......................... If we sell certain assets or if we experience specific kinds of
changes of control, we must offer to repurchase the new notes at a
purchase price equal to 101% of their principal amount plus accrued
interest, if any, to the date of purchase.
Basic Covenants........................... The new notes will be governed by an Indenture that we have
established with an indenture trustee. The Indenture restricts our
ability to:
o borrow money,
o pay dividends or make distributions on our capital stock,
o make investments or certain other restricted payments,
o use assets as security in other transactions,
o sell assets,
</TABLE>
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<TABLE>
<S> <C>
o issue or sell capital stock of Restricted Subsidiaries (as
defined), or
o effect a consolidation or merger.
</TABLE>
For more details, see the section "Description of the New Notes and the New
Notes Guarantees" under the heading "Covenants."
RSL COMMUNICATIONS
We are a global, facilities-based telecommunications company that provides
leading edge product and service solutions, with an emphasis on international
long distance voice services, primarily to small and medium-sized businesses in
key markets around the world. Our services include international and national
fixed and wireless, frame relay, ATM and other data services, pre and post paid
calling card, fax, Internet acess, voice over Internet protocol, private line,
unified messaging and other value-added telecommunications services. Since
starting operations in the United States in 1995, we have grown rapidly through
acquisitions, strategic investments, joint ventures, alliances, and the start-up
of its own operations in key markets. We generate revenue in 20 countries in
which approximately 70% of all international long distance telecommunications
minutes originated in 1997.
We were formed to capitalize on the growth, deregulation and profitability
of the international long distance switched telecommunications market. We
currently have significantly less than a 1% share of this market, which as a
whole generated an estimated $56 billion in revenue and 90 billion minutes in
1998. International long distance minutes are projected to grow between
approximately 18% and 22% per annum through the year 2001.
We are building a low-cost, facilities-based global network designed to
provide high quality telecommunications services and developing a wide range of
marketing and distribution channels to expand its customer base. The core of our
operations is "RSL-NET," our integrated digital telecommunications network. Our
local operators in each country market their services through direct sales
forces, strategic marketing alliances, networks of independent agents and
distributors, and telemarketing organizations.
The key elements of our strategy for capitalizing on opportunities in the
long distance market and becoming the premier provider of leading edge product
and service solutions are as follows:
o Focus on International Long Distance Services.
o Identify and Enter Key Markets Ahead of Full Deregulation.
o Target Small and Medium-Sized Businesses as Potential Customers.
o Build a Cost Competitive Global Network.
o Expand Marketing and Distribution Channels.
o Pursue Strategic Acquisitions and Alliances.
o Leverage Expertise of Management Team.
o Expand Internet-Based Telephony and On-Line Service Offerings.
RECENT DEVELOPMENTS
On September 3, 1999 deltathree.com, Inc., one of our wholly-owned
subsidiaries, filed a preliminary registration statement with the Securities and
Exchange Commission to register the initial public offering of its common stock.
Amendments to the deltathree registration statement were filed
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on October 19, 1999 and November 2, 1999. We expect the offering to be completed
in the fourth quarter of 1999.
In addition, in September 1999, we amended several indentures with respect
to our outstanding debt to facilitate certain issuances and sales of common
stock of deltathree and one of our Australian subsidiaries, including the
issuance and sale by deltathree in the pending initial public offering of shares
of its common stock. For more information, see the subsection entitled
"Amendments to Indentures" located in the section entitled "Description of
Certain Indebtedness."
RISK FACTORS
See the "Risk Factors" section beginning on page 10 for a discussion of
certain risks that you should consider before exchanging old notes for new
notes, including risks relating to our needs for additional capital, historical
and future net operating losses and negative EBITDA (as defined), substantial
indebtedness, holding company structure, rapidly changing industry, increasing
pricing pressures and government regulatory restrictions.
HEADQUARTERS
Our headquarters are located at Clarendon House, Church Street, Hamilton HM
CX Bermuda (telephone number: 441-295-2832). We also maintain executive offices
for some of our operations at 767 Fifth Avenue, Suite 4300, New York, New York
10153 (telephone number: 212-317-1800).
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SELECTED CONSOLIDATED FINANCIAL DATA
The tables below contain selected consolidated financial data for each of
the years in the five year period ended December 31, 1998 and as of and for the
six-month periods ended June 30, 1998 and June 30, 1999. The selected
consolidated statements of operations presented below with respect to the years
ended December 31, 1998, 1997 and 1996 and balance sheet data as of
December 31, 1997 and 1998 have been derived from the consolidated financial
statements, audited by Deloitte & Touche LLP, incorporated herein by reference.
The selected consolidated statements of operations data for the year ended
December 31, 1995 and balance sheet data as of December 31, 1995 and 1996 are
derived from audited financial statements not included in this prospectus. The
information as of and for the year ended December 31, 1994 has been derived from
the financial statements of the our predecessor entity, RSL North America,
formerly International Telecommunications Group. You should read this
information along with our consolidated financial statements and the related
notes incorporated in this prospectus by reference. See "Incorporation of
Certain Documents by Reference." The results of interim periods are not
necessarily indicative of results that may be expected for the full year.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
------------------------------------------------------------ ENDED JUNE 30,
PREDECESSOR ---------------------------
1994 1995(1) 1996 1997 1998(10) 1998 1999
----------- -------- --------- --------- ----------- ------------ ------------
($ AND SHARES IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenues.............................. $ 4,702 $ 18,617 $ 113,257 $ 300,796 $ 885,938 $ 298,202 $ 707,981
Operating costs and expenses:
Costs of services (exclusive of
depreciation and amortization
shown separately below)........... (4,923) (17,510) (98,461) (265,321) (702,602) (251,865) (508,878)
Selling, general and administrative
expense........................... (2,395) (9,639) (38,893) (94,712) (238,141) (79,817) (213,823)
Depreciation and amortization....... (240) (849) (6,655) (21,819) (75,445) (21,124) (80,083)
------- -------- --------- --------- ----------- ---------- ----------
Total operating costs and expenses.... (7,558) (27,998) (144,009) (381,852) (1,016,188) (352,806) (802,784)
------- -------- --------- --------- ----------- ---------- ----------
Loss from operations.................. (2,856) (9,381) (30,752) (81,056) (130,250) (54,604) (94,803)
Interest income....................... -- 173 3,976 13,826 16,104 10,834 11,094
Interest expense...................... (225) (194) (11,359) (39,373) (75,431) (33,330) (60,274)
Other income--net..................... -- -- 470 6,595(2) 739 204 180
Foreign exchange transaction (loss)
gain................................ -- -- -- -- (11,055) (1,708) 14,028
Minority interest..................... -- -- (180) 210 6,079 2,728 822
Loss in equity interest of
unconsolidated subsidiaries......... -- -- -- -- (3,276) -- (376)
Income taxes.......................... -- -- (395) (401) (1,334) (634) (490)
------- -------- --------- --------- ----------- ---------- ----------
Loss before extraordinary item........ (3,081) (9,402) (38,240) (100,199) (198,424) (76,510) (129,819)
Extraordinary item(3)................. -- -- -- -- (20,800) (20,800) --
------- -------- --------- --------- ----------- ---------- ----------
Net loss.............................. $(3,081) $ (9,402) $ (38,240) $(100,199) $ (219,224) $ (97,310) $ (129,819)
------- -------- --------- --------- ----------- ---------- ----------
------- -------- --------- --------- ----------- ---------- ----------
Loss per common share before
extraordinary item(4)............... $(15.41) $ (1.67) $ (5.13) $ (5.27) $ (4.52) $ (1.82) $ (2.44)
Extraordinary item per common
share(3)(4)......................... $ -- $ -- $ -- $ -- $ (0.47) $ (0.50) $ --
Net loss per common share(4).......... $(15.41) $ (1.67) $ (5.13) $ (5.27) $ (4.99) $ (2.32) $ (2.44)
Weighted average number of common
shares outstanding(4)............... 200 5,641 7,448 19,008 43,913 42,021 53,163
OTHER FINANCIAL DATA:
EBITDA(as defined)(5)................. $(2,616) $ (8,532) $ (24,097) $ (59,237) $ (54,805) $ (33,480) $ (14,720)
Ratio of earnings to fixed
charges(6).......................... -- -- -- -- -- -- --
Capital expenditures(7)............... 1,126 6,074 23,880 49,417 247,665 41,801 93,309
Cash (used in) provided by operating
activities.......................... (1,987) 3,554 (10,475) (91,812) (82,752) (108,205) (79,628)
Cash used in investing activities..... (478) (16,537) (225,000) (18,821) (509,438) (85,136) (134,256)
Cash provided by financing
activities.......................... 2,888 18,143 335,031 152,035 815,476 368,571 168,696
</TABLE>
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<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
-------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................................... $ 320,704
Marketable securities available for sale........................................................... 149,034
Restricted marketable securities(8)................................................................ 10,101
Total assets....................................................................................... 1,845,305
Short-term debt, current portion of long-term debt, and current portion of capital lease
obligations(9)................................................................................... 24,757
Long-term debt and capital lease obligations(9).................................................... 1,249,126
Shareholders' equity............................................................................... 37,490
</TABLE>
- ------------------
(1) Effective with the acquisition of a majority equity interest in RSL North
America, in September 1995, we began to consolidate RSL North America's
operations. From March 1995, the date of our initial investment, to
September 1995, we accounted for our investment in RSL North America using
the equity method of accounting.
(2) Other income-net includes the reversal of specific liabilities accrued in
connection with our obligations under an agreement that required us to meet
a carrier vendor's minimum usage requirements, which agreement was entered
into by one of our subsidiaries prior to our acquisition of that
subsidiary. During May 1997, we renegotiated the contract with this carrier
vendor resulting in the elimination of approximately $7.0 million of
previously accrued charges.
(3) Extraordinary item represents primarily the premium paid to retire
approximately $127.5 million of the original $300.0 million of the notes we
issued in 1996.
(4) Loss per share is calculated by dividing the loss attributable to our
common shares (Class A common shares and Class B common shares) by the
weighted average number of common shares outstanding, and has been
retroactively restated to reflect the 2.19-for-one stock split. Shares
issuable pursuant to (a) outstanding stock options, (b) unexercised
warrants, (c) the warrant to purchase 459,000 Class B common shares at an
exercise price of $.00457 per share, subject to adjustment, issued to
Ronald S. Lauder as consideration for his previous guarantee of a revolving
credit facility, (d) options granted to a number of minority shareholders
of our subsidiaries, exercisable on the occurrence of specific events, to
exchange their shares in the respective subisidiaries for, in specific
circumstances, Class A common shares or, in specific circumstances, cash or
(e) incentive units, which are options granted to some of the employees of
our subsidiaries to acquire shares of those subsidiaries or similar rights,
some of which are exercisable currently and the right to exchange these
incentive units for Class A common shares or, in other circumstances, at
our option, cash, are not included in the loss per share calculation as
their effect is anti-dilutive.
(5) EBITDA, as used herein, consists of loss from operations before
depreciation and amortization. EBITDA is provided because it is a measure
commonly used in the telecommunications industry. It is presented to
enhance an understanding of our operating results and is not intended to
represent cash flow or results of operations in accordance with U.S. GAAP
for the periods indicated. Second quarter 1999 EBITDA loss includes
$2.9 million in non-cash compensation expense related to stock incentive
awards that were previously granted to employees in various subsidiaries
under local stock incentive plans.
(6) The ratio of earnings to fixed charges is computed by dividing the loss
from operations before fixed charges by fixed charges. Fixed charges
consist of interest charges and amortization of debt issuance costs,
whether expensed or capitalized and that portion of rental expense deemed
to be representative of interest. For the years ended December 31, 1994,
1995, 1996, 1997, 1998 and the six months ended June 30, 1999, earnings
were insufficient to cover fixed charges by approximately $3.1 million,
$9.4 million, $37.7 million, $100.0 million, $199.9 million and
$129.8 million, respectively.
(7) Capital expenditures include assets acquired through capital lease
financing and other debt.
(8) Restricted marketable securities held to maturity consist of U.S.
government securities pledged to secure the payment of interest on the
principal amount of the notes we issued in 1996.
(9) As of June 30, 1999, we had approximately $31.9 million of available
(undrawn) borrowing capacity under our current bank and vendor facilities.
(10) During 1998, we acquired various companies. See footnote 2 of the
consolidated financial statements incorporated herein by reference for
information regarding these acquisitions.
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RISK FACTORS
An investment in the new notes involves risks. You should carefully
consider the following factors as well as the other matters described in this
prospectus. The risks and uncertainties described below are not the only ones
facing us. Additional risks and uncertainties may also adversely affect our
business operations. Our business, financial condition or results of operations
would likely be adversely affected if any of the following risks actually occur.
This prospectus contains "forward-looking statements" regarding our intent,
belief or current expectations. These forward-looking statements relate to our
financing plans, the regulatory environments in which we operate, trends
affecting our financial condition or results of operations, the impact of
competition, the start-up of certain of our operations and acquisition
opportunities. We caution that forward-looking statements are not guarantees of
future performance and involve risks and uncertainties. Actual results may
differ materially from those in the forward-looking statements. Cautionary
statements in this prospectus, including information contained in this "Risk
Factors" section, identify important factors that could cause such differences.
All subsequent written and oral forward-looking statements attributable to us
are expressly qualified in their entirety by the cautionary statements contained
in this prospectus.
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OLD NOTES; THE OLD NOTES ARE SUBJECT TO TRANSFER RESTRICTIONS, AND
YOUR ABILITY TO TRANSFER OLD NOTES WILL BE ADVERSELY AFFECTED.
As old notes are tendered and accepted in the exchange offer, the trading
market for the remaining untendered or tendered but not accepted old notes will
be adversely affected. We anticipate that most holders of the old notes will
elect to exchange the old notes for new notes due to the absence of restrictions
on the resale of new notes under the Securities Act. Therefore, we anticipate
that the liquidity of the market for any old notes remaining after the
consummation of the exchange offer will be substantially limited.
We will only issue new notes in exchange for old notes that you timely and
properly tender. Therefore, you should allow sufficient time to ensure timely
delivery of the old notes and you should carefully follow the instructions on
how to tender your old notes. Neither we nor the exchange agent are required to
tell you of any defects or irregularities with respect to your tender of the old
notes. If you do not tender your old notes for new notes in the exchange offer,
the old notes you hold will continue to be subject to the existing transfer
restrictions. In general, you may not offer or sell the old notes unless they
are registered under the Securities Act, or are exempt from registration under
the Securities Act and applicable state securities laws. If you do not tender
your old notes or they are not accepted for exchange, you will have no further
rights under the registration rights agreement. See the section "The Exchange
Offer" under the heading "Consequences of Failure to Exchange." We do not
anticipate that we will register old notes under the Securities Act.
WE HAVE A SHORT OPERATING HISTORY AND LIMITED OPERATING EXPERIENCE. THIS MAY
NEGATIVELY AFFECT FUTURE OPERATIONS.
We started operating our business in 1995. Some of our operations were
acquired from others. However, most of our operations were started subsequent to
1995. Therefore, our operations have limited operating histories and we have
limited experience in conducting those operations.
ENTERING INTO NEWLY OPENING MARKETS HAS SPECIAL RISKS.
One key aspect of our business strategy is to acquire or start businesses
in markets where there was little, if any, privately-owned telephone service and
where government-owned or government-controlled monopolies provide most of the
telephone services. You should consider our prospects in light of the risks,
expenses, problems and delays inherent in both establishing a new business and
in establishing a new business in a market where competition did not previously
exist, where customers are not accustomed to having choices and where our
abilities are unknown. These
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inherent risks, expenses, problems and delays, many of which we have
experienced, include, but are not limited to:
o significant initial expenditures to build infrastructure (for
example, purchases of switches and ownership and other rights to use
fiber optic and wired cable systems to transport and route phone
calls)
o scarcity of experience in market
o absence of recognition by consumers
o reluctance of consumers to use an untested service provider
o lack of consumer education
o resistance by consumers, regulators and existing competitors to a
change in the status quo
o need to commit to arrangements regarding transmission of phone calls
prior to knowing level of customer usage
o legislative delays in adopting necessary laws and regulations
Additionally, we have discounted and may need to discount services in order
to attract and retain customers and to compete with discounted prices offered by
our competitors. We have incurred low and negative operating margins in some
countries due, in part, to discounting and the other risks listed above. Some of
our competitors are in a better financial position to absorb these losses. Some
of the listed risks are described in further detail below.
WE MAY EXPERIENCE PROBLEMS INTEGRATING OUR NEW OPERATIONS.
When we acquire or start a business we must integrate it with our existing
operations. For businesses that we acquire, we must integrate various systems
and administrative matters, including:
o switching operations
o transmission
o information systems
o sales and marketing
o customer service
o billing
o finance and accounting
o quality control
o management
o personnel
o regulatory compliance
Some or all of the operational hardware and software systems used in businesses
we acquire may be incompatible with our systems. Acquired businesses also may
offer products and services that we have no previous or limited experience in
providing, such as, in the case of the recent Motorola Tel.co acquisition, the
wireless resale business. Acquired businesses generally suffer from higher
levels of employee resignations and customer terminations, beginning when
employees and customers learn of a proposed transaction and ending some time
after the transaction has been completed. We have experienced high levels of
customer attrition and turnover in certain acquired businesses in the United
States, Australia, France and Germany. In connection with the recent Motorola
Tel.co acquisition, we have experienced higher levels of customer attrition than
previously experienced by our European operations.
In countries where we expand by establishing a new business, we must:
o recruit and train personnel;
o establish offices;
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o obtain regulatory authorization;
o lease transmission lines from our competitors;
o obtain interconnection agreements with our competitors; and
o install hardware and software.
In addition, since we already operate businesses in many countries and we intend
to expand into additional countries and regions, we must manage the problems
associated with integrating a culturally and linguistically diverse workforce.
OUR ANTICIPATED GROWTH AND ACQUISITIONS MAY STRAIN OUR BUSINESS OPERATIONS.
We have experienced rapid growth and we intend to pursue further expansion
of our existing operations through acquisitions, joint ventures and strategic
alliances, and the establishment of new operations. Our ability to manage our
growth depends on our ability to:
o evaluate new markets and investment vehicles;
o monitor operations and control costs;
o maintain effective quality controls;
o obtain satisfactory and cost-effective lease rights from, and
interconnection agreements with, competitors that own transmission
lines; and
o create or integrate an effective management team and operations
infrastructure.
Our rapid growth puts strains on our resources, including our ability to:
o identify additional acquisition targets and joint venture partners;
o negotiate acquisition and joint venture agreements; and
o maintain satisfactory relations with our joint venture partners and
minority investors in acquired entities.
In addition, acquisitions and the establishment of new operations entail
considerable expense in advance of anticipated revenues and may cause
substantial fluctuations in our operating results.
Moreover, we may, as a result of legal restrictions or other reasons, be
limited to acquiring only a minority interest in a strategic target, in which
case we will lack control over the target company's operations and strategies.
Any lack of control may interfere with our growth and the integration of our
operations.
In addition, we have in the past acquired, and may continue to acquire,
interests in operations for strategic reasons, even though those operations had
or have operational or managerial problems or were or are incurring losses.
These operational or managerial problems or losses have caused and may in the
future cause us significant operational difficulties or consume substantial
monetary, management and other resources.
OUR PLANNED EXPANSIONS WILL RESULT IN CONTINUED LOSSES.
We have generated net losses of $497.0 million from our inception through
June 30, 1999. We have also incurred losses from operations before depreciation
and amortization, or EBITDA, since inception. We must continue to expand our
operations and meet increasing demands for service, quality, availability of
value-added services and competitive pricing to establish and maintain a
competitive position in our markets. When we say value-added services, we mean
services such as video-teleconferencing, on-line billing services, consolidated
billing for all services offered by us, on-line directory assistance, on-line
conference calling, and international directory assistance. We expect to incur
significant net losses at least through 2001 due to our need to expand our
operations, develop RSL-NET and build our customer base and marketing operations
and as a result
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of our interest expenses in connection with our notes. In addition, we may also
experience negative cash flow from operating activities through 2000. We cannot
be sure that significant net losses, negative cash flow from operating
activities and negative EBITDA will not continue beyond the periods indicated.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL REGARDLESS OF MARKET CONDITIONS.
We made capital expenditures of approximately $247.7 million in 1998. In
1999 and 2000, we intend to make capital expenditures of similar amounts.
Through June 30, 1999 we made capital expenditures of $93.3 million. We have
also experienced a consistently increasing working capital deficit. We also
currently intend to seek to raise substantial additional capital to fund our
capital expenditures, acquisitions, strategic alliances, start-up operations and
anticipated substantial net losses. After this offering, the limitations under
our most restrictive covenants will prohibit us from incurring any significant
amounts of additional indebtedness to fund net losses unless we complete a
significant equity offering or generate significant positive cash flow from
operations. We believe that the proceeds from the sale of the old notes and the
remaining net proceeds from our previous sales of stock (equity) and notes
(indebtedness) and other sources of cash will be sufficient to fund our capital
expenditure and expansion plan for our existing operations, as well as
continuing net losses, through the first half of 2000, if we do not raise
additional capital due to market conditions or otherwise. We may be required to
seek additional capital regardless of market conditions if:
o our plans or assumptions change or prove to be inaccurate;
o we identify additional required or desirable infrastructure
investments or acquisitions;
o we experience unanticipated costs or competitive pressures; or
o the remaining net proceeds from the sale of our securities and other
sources of available liquidity otherwise prove to be insufficient.
We may also be required to raise capital to pay interest or principal on,
or to refinance the new notes or other outstanding notes when they mature. We
cannot be sure that we will be able to raise additional capital. The failure to
obtain additional capital on acceptable terms could negatively impact our
business, results of operations and financial condition and our ability to pay
interest on or repay our existing obligations, including our ability to pay
principal of and interest on the new notes.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
PREVENT US FROM SATISFYING OUR OBLIGATIONS.
At June 30, 1999, we had total consolidated indebtedness of approximately
$1.2 billion and stockholder's equity of approximately $37.5 million. We may
incur substantial amounts of additional indebtedness.
For the years ended December 31, 1995, 1996, 1997, 1998 and for the six
months ended June 30, 1999, our earnings were insufficient to cover our fixed
charges. The deficiency was approximately $9.4 million for the year ended
December 31, 1995, $37.7 million for the year ended December 31, 1996,
$100.0 million for the year ended December 31, 1997, $199.9 million for the year
ended December 31, 1998 and $129.8 million for the six months ended June 30,
1999.
If (1) our operations do not generate enough revenues or (2) we cannot
obtain, at acceptable rates, sufficient funds to make our debt payments when
they are due or (3) we fail to comply with the material terms of the legal
documents governing our indebtedness, the value of the new notes could be
adversely affected.
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OUR HIGH LEVEL OF DEBT COULD ALSO RESTRICT OUR BUSINESS SIGNIFICANTLY.
Our level of indebtedness could have important consequences to you because:
o it could limit our ability to obtain any additional financing in the
future for working capital, capital expenditures, debt service
requirements or other purposes;
o a substantial portion of any future cash flow from operations will
be dedicated to the payment of our indebtedness and will not be
available for investment in our business;
o it could limit our flexibility in planning for, or reacting to
changes in, our business;
o it could place us at a competitive disadvantage compared to
competitors who have less debt; and
o it could make us more vulnerable in the event of a downturn in our
business or a general downturn in the economy in any of our
significant markets.
The foregoing risks would be intensified to the extent we may borrow additional
money or incur additional debt. For more information regarding this topic, see
"Selected Consolidated Financial Data" located in the Summary section of this
prospectus.
THE LEGAL DOCUMENTS GOVERNING OUR INDEBTEDNESS RESTRICT OUR ABILITY TO TAKE
CERTAIN ACTIONS.
The legal documents governing our outstanding indebtedness contain
restrictive covenants which impose limitations on our ability and the ability of
some of our subsidiaries to:
o incur additional indebtedness;
o pay dividends or make other distributions;
o issue capital stock of some of our subsidiaries;
o guarantee debt;
o enter into transactions with shareholders and affiliates;
o create liens;
o enter into sale-leaseback transactions;
o sell assets; and
o make some types of investments.
As described above, these restrictions could inhibit us from raising additional
capital to fund our operations and planned expansions, which could adversely
affect our ability to generate cash to service our debt including the new notes.
WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH
DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our indebtedness and to fund planned
capital expenditures depends on our ability to generate cash. This, to some
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. We currently believe
available cash and available borrowings under our credit facilities will be
adequate to meet our future liquidity needs through the second quarter of 2000.
We cannot be sure that currently anticipated operating improvements will be
realized on schedule or that future borrowings will be available to us under our
credit facilities in an amount sufficient to enable us to pay our indebtedness
or to fund our other liquidity needs. We may need to refinance all or a portion
of our indebtedness on or before it becomes due. We cannot be sure that we will
be able to refinance any of our indebtedness on commercially reasonable terms,
if at all.
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OUR HOLDING COMPANY STRUCTURE MAY FURTHER JEOPARDIZE OUR ABILITY TO REPAY OUR
OBLIGATIONS.
We are a holding company and our only material assets consist of stock of
our subsidiaries and fluctuating cash balances. We have contributed or loaned to
our subsidiaries and other of our affiliates a substantial majority of the net
proceeds from our sales of stock and notes and we intend to contribute or loan a
substantial majority of the net proceeds from the sale of the old notes to such
parties. Our ability to pay our debt obligations, including the new notes and
the new notes guarantee, therefore depends upon our ability to receive cash from
our subsidiaries. However, our subsidiaries may face difficulties distributing
cash to us because:
o they are legally distinct from us and may have no obligation to pay
amounts due by us or to make funds available for us;
o their ability to make distributions to us is subject to the
availability of funds and the terms of their indebtedness;
o their repayment of loans and advances we made to them may be subject
to statutory or contractual restrictions or taxation;
o their repayment of loans and advances is contingent upon their
earnings;
o their payment of dividends to us may have adverse tax consequences;
and
o their ability to declare and pay dividends to us may be subject to
legal restrictions or restrictions contained in organizational
documents or loan agreements.
These subsidiaries also have no obligation to guarantee the new notes.
Accordingly, the new notes and the new notes guarantee effectively will be
subordinated to all indebtedness and other liabilities and commitments
(including trade payables) of these subsidiaries.
If a subsidiary or other affiliate is liquidated or reorganized, there may
not be sufficient assets for us to recover our investment in that subsidiary or
affiliate. Any right we have to receive assets from a subsidiary or other
affiliate upon its liquidation or reorganization (and the consequent right of
the holders of the new notes and the new notes guarantee to those assets) is
secondary to the claims of the subsidiary's or affiliate's creditors, unless we
are independently recognized as a creditor. Even if we are recognized as a
creditor, our claim could be junior to claims held by other creditors.
Our Bermuda counsel has indicated it will opine that the new notes
guarantee will be our valid and binding obligation, subject to standard
qualifications regarding bankruptcy, insolvency and similar circumstances. As of
June 30, 1999, on a pro forma basis after giving effect to all of our recent
securities offerings:
o our total amount of outstanding liabilities (excluding those of our
subsidiaries), including trade payables, would have been
approximately $1.2 billion; and
o the total amount of outstanding liabilities of the subsidiaries of
the Guarantor (other than the Issuer), including trade payables,
would have been $611.1 million. See the section "Description of the
New Notes and the New Notes Guarantee" under the heading "Ranking."
IF WE ARE UNABLE TO ADAPT TO THE RAPIDLY CHANGING INDUSTRY IN WHICH WE OPERATE,
WE MAY BE NEGATIVELY AFFECTED.
The international telecommunications industry is changing rapidly, due to:
o deregulation;
o privatization of government-owned telephone monopolies;
o technological improvements;
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o expansion of telecommunications infrastructure;
o the globalization of the world's economies; and
o free trade.
WE MAY BE UNABLE TO COMPETE EFFECTIVELY OR ADJUST OUR CONTEMPLATED PLAN OF
DEVELOPMENT TO MEET THESE CHANGING MARKET CONDITIONS.
Much of our planned growth is predicated upon the deregulation of
telecommunications markets. Such deregulation may not occur when or as
anticipated, if at all, and we may not be able to grow in the manner or at the
rates currently contemplated.
Moreover, the telecommunications industry is in a period of rapid
technological evolution and expansion, marked by the introduction of new
products and services offered, including the use of the Internet for
international voice and data communications, and increased satellite and fiber
optic cable transmission capacity. We cannot predict which of the many possible
future products and services will be necessary to establish and maintain a
competitive position or what expenditures will be required to develop and
provide these products and services, nor can we predict how any developments
will affect pricing of telecommunications products and services.
Our profitability will depend, in part, on our ability to anticipate and
adapt to rapid technological changes occurring in the telecommunications
industry and on our ability to offer, on a timely basis, services meeting
evolving industry standards and customer preferences. We may be unable to adapt
to these technological changes or offer these services on a timely basis. Even
if we are able to do so, we may not be able to do so at reasonable cost or on a
profitable basis.
WORLDWIDE DEREGULATION IS INCREASING COMPETITION IN OUR INDUSTRY. IF WE ARE
UNABLE TO COMPETE EFFECTIVELY, OUR OPERATIONS WILL BE NEGATIVELY IMPACTED.
Most of the markets we compete in have only recently deregulated or are in
the process of deregulating telephone services. Customers in these markets
generally are not familiar with obtaining telephone services from anyone other
than government-owned or government-controlled monopolies and may be (and often
are) reluctant to use new providers. We cannot, therefore, guarantee that our
target customers will entrust their telecommunications needs to us.
Additionally, our target customers may switch to other service providers as a
result of the price competition that often arises in these markets as we, along
with other new market entrants, attempt to establish ourselves and gain
customers and the existing providers attempt to retain their dominance in their
markets. We anticipate increased competition as worldwide deregulation
accelerates.
We must compete with a variety of other telecommunications providers in
each of our markets, including:
o government-owned and government-controlled telephone monopolies,
established competitors such as AT&T, Sprint, MCI WorldCom and Cable
& Wireless and alliances such as AT&T's alliance with British
Telecom that offer long distance services, local service in
conjunction with long distance services or packages of value-added
services in addition to local and long distance services;
o a variety of international long distance resellers; and
o other carriers, including Colt Industries, Global Crossing, GTS,
ICG, Pacific Gateway, Primus Telecommunications, Qwest, Star
Telecommunications, and Viatel.
Many of the government-owned or government-controlled monopolies and
established competitors have significantly greater financial, management and
operational resources than us and more operational history and experience. In
addition, government-owned and government-controlled monopolies and existing
local carriers generally have specific competitive advantages over us due to (1)
their control over and connection to intra-national and local exchange
transmission facilities,
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(2) their ability to delay access to lines and (3) the reluctance of some
regulators to adopt policies and grant approvals that would increase
competition. Our local operators in these jurisdictions would be adversely
affected to the extent that the government-owned or government-controlled
monopolies or incumbent local exchange carriers in any jurisdiction use their
competitive advantages to the fullest extent.
Recent and pending deregulation in each of our markets is encouraging new
entrants or empowering incumbents. As a result, we expect to encounter
additional regional competitors and increased competition. Moreover, we believe
that competition in foreign markets will increase and become increasingly
similar to the competitive environment in the U.S.
PRICING PRESSURES MAY NEGATIVELY IMPACT OUR BUSINESS.
Competition for customers is primarily on the basis of price and, to a
lesser extent, on the type and quality of services offered and customer service.
Prices for long distance calls, our principal service, are decreasing
substantially in most of our markets. These price decreases are significant in
some of our markets, particularly in the U.S. and Germany.
We attempt to discount our services from the prices charged by the
government-owned or government-controlled monopolies and other established
carriers in each of our markets. We have no control over the prices set by our
competitors, and some of our larger competitors may be able to use their
substantial financial resources to fund price wars that could cause smaller
companies, including us, to exit a market because of the inability to operate
profitably. In some deregulated or deregulating markets, including the U.S. and
Germany, severe price competition has occurred and, as deregulation progresses
in other markets we may encounter severe price competition in those markets.
There is currently excess international telephone transmission capacity.
Industry observers have predicted that this excess capacity may result in
significant downward pricing pressures and that, within a few years, the cost of
a phone call may no longer be based on the distance the call is carried.
Already, some of our competitors have introduced calling plans that provide for
flat rates on calls within the U.S. and Canada, regardless of time of day or
distance of the call. This system of pricing, if it were to become prevalent in
our markets, would likely have a negative impact on our prospects, financial
condition and results of operations and our ability to pay our obligations.
GOVERNMENT REGULATIONS RESTRICT OUR OPERATIONS. DELAY IN THE LIBERALIZATION OF
THE EUROPEAN UNION MAY DELAY OUR ENTRY INTO SOME EUROPEAN MARKETS.
National and local laws and regulations differ significantly among the
countries in which we operate. The interpretation and enforcement of these laws
and regulations vary and could limit our ability to provide telecommunications
services, including telephone calls over the Internet. Changes in laws and
regulations, the adoption of new laws and regulatory schemes and future judicial
or regulatory intervention in the U.S. or in any other country may have a
negative effect on us.
Our European strategy is based in large part upon the ongoing deregulation
of the European Union and deregulation of other foreign markets based on
European Commission directives and an international agreement of the World Trade
Organization. Several EU member states have already experienced delays in
deregulation. Moreover, even if a national legislature of an EU member state
implements the relevant EC directives within the time frame established by the
EC, there may be significant resistance to the implementation of these measures
from government-owned monopolies, regulators within each member country, trade
unions and other sources.
The telecommunications services that we provide in various EU member states
are subject to and affected by regulations and license conditions enforced by a
national regulatory authority. This authority in the U.K. has imposed mandatory
rate reductions on the dominant operator in the U.K.
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and is expected to continue to do so for the foreseeable future. This may have
the effect of reducing the prices that we can charge our U.K. customers.
Governments in other foreign markets may also fail to implement
deregulation or even if they do implement deregulation it may not proceed on
schedule. In addition, even if these other foreign markets act to deregulate
their telecommunications markets on the current schedule, the national
governments of these foreign markets must pass legislation or other national
measures to deregulate the markets within the countries. The national
governments may not pass this legislation or other national measures or may not
pass them in the form required, or may pass legislation or measures only after a
significant delay. These and other potential obstacles to deregulation would
have a negative effect on our operations by preventing us from expanding our
operations as currently anticipated.
The Internet telephone services that we provide through our subsidiary,
deltathree, may be subject to and affected by regulations introduced by the
authorities in each country where deltathree operates. In the U.S., the FCC has
advised Congress that it may, in the future, regulate Internet telephone
services as basic telecommunications services. In addition, several efforts have
been made to enact federal legislation that would either regulate or exempt from
regulation services provided over the Internet. State public utility commissions
may also retain jurisdiction to regulate the provision of intrastate Internet
telephone services.
IF WE ARE UNABLE TO ACCURATELY PREDICT TRAFFIC VOLUMES, WE MAY BE FORCED TO PAY
ADDITIONAL MONIES.
At least some portion of all telephone calls made by our customers are
transported through transmission facilities that we lease from our competitors.
We generally lease transmission facilities on a short-term basis, which usually
means on a per-minute basis. However, in cases where we anticipate higher
volumes of traffic, we lease capacity on a monthly or longer-term fixed cost
basis. When we negotiate lease agreements we must estimate future supply and
demand for transmission capacity as well as the calling patterns and traffic
levels of our existing and future customers. When excess transmission capacity
is present, as was the case for many years in the U.S., lease rates have
declined and short-term leases have been advantageous. Recently, capacity has
been somewhat constrained in the U.S. and the decline in lease rates has slowed.
As a result, longer-term leases may become more attractive. If we overestimate
the volume of phone calls our customers actually make, we would be obligated to
pay for calling capacity without adequate corresponding revenues and could be
subject to underutilization charges. On the other hand, if we underestimate our
need for calling capacity, we may be required to obtain calling capacity through
more expensive means. In the past, we have at times overestimated our need for
leased capacity and leased capacity which was underutilized resulted in our
paying additional charges. We have at times also underestimated our needs and as
a result we have transported traffic at a higher cost. A failure to accurately
project needs for leased capacity in the future may have a negative effect on
our business and our ability to satisfy our obligations under the new notes.
WE RELY SIGNIFICANTLY ON OTHER CARRIERS. IF WE LOSE THE ABILITY TO USE OTHER
CARRIERS OR IF THEY CHARGE US INFLATED PRICES, OUR BUSINESS WOULD BE
SIGNIFICANTLY NEGATIVELY IMPACTED.
We do not own any local transmission facilities and we own only a limited
number of intra-national transmission facilities. Therefore, all of the
telephone calls made by our customers are connected at least in part through
transmission facilities that we lease from competitors who own and maintain
their own systems. In many of the foreign jurisdictions in which we conduct
business, the primary provider of significant local and intra-national
transmission facilities is a government-owned or government-controlled monopoly.
Accordingly, prior to full deregulation in those countries, we may be required
to lease transmission capacity at artificially high rates. These rates may
prevent us from generating gross profit on the related calls. In addition, the
governmental monopolies may not be required by law to allow us to lease
necessary transmission lines or, if they are required by
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law to lease transmission lines to us, we may encounter delays in commencing
operations and negotiating leases and interconnection agreements (as has been
the case in certain countries). Additionally, disputes may result with respect
to pricing terms and billing with any third party with which we conduct
business.
In the U.S., the providers of local exchange transmission facilities are
generally the incumbent local exchange carriers, principally the regional Bell
operating companies. The permitted pricing of local facilities that we lease in
the U.S. is subject to uncertainties. An appeals court has held that the FCC
does not have jurisdiction to create national rules for the pricing of these
facilities, but rather that jurisdiction rests with each of the individual
states. Although the U.S. Supreme Court has recently upheld the FCC's
jurisdiction, the appeals court is now considering the substantive merits of the
FCC's rate methodology. An order by the appeals court rejecting the FCC's rate
methodology could make it more burdensome or expensive for us to enter a local
market.
We are also vulnerable to service interruptions and poor transmission
quality from leased lines.
If our relationships with one or more of our carrier vendors were to
deteriorate, we could suffer a negative effect on our business, financial
condition and results of operations.
SOPHISTICATED INFORMATION SYSTEMS ARE VITAL TO OUR GROWTH. A FAILURE TO HAVE
EFFECTIVE INFORMATION SYSTEMS COULD NEGATIVELY IMPACT OUR OPERATIONS.
Sophisticated information systems are vital to our growth and ability to:
o monitor costs;
o bill and receive payments from customers;
o reduce credit exposure;
o transport phone calls on the best route in terms of pricing and call
quality; and
o achieve operating efficiencies.
We currently operate separate network management information systems for
our U.S., European and Australian operations. We integrate and operate the
information services for all of our local operators from the regional
headquarters of those local operators. Specific systems failures that could
negatively impact our operations include a failure:
o of any of our current systems;
o by us to efficiently implement or integrate new systems;
o of any new systems; or
o to upgrade systems as necessary.
THE YEAR 2000 PROBLEM PLACES OUR TECHNOLOGY SYSTEMS AT RISK.
We are reviewing our computer systems and operations to identify and
determine the extent to which any of our systems will be vulnerable to potential
errors and failures as a result of the year 2000 problem. The year 2000 problem
is the result of the use by computer programs of two digits, rather than four
digits, to define the applicable year. Any of our programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations, or other computer errors, causing disruptions of operations.
The potential for failures encompasses all aspects of our business, including
computer systems and voice networks, and could cause, among other things, a
temporary inability to process transactions, billing and customer service or to
engage in similar normal business activities.
We are assessing and upgrading our computer system in an effort to prevent
major system failures that could result upon the transition from 1999 to the
year 2000. We may be unable to
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implement these upgrades successfully, and additional steps may be necessary. In
addition, our ability to operate without interference from the year 2000 problem
is contingent upon remedial efforts by our vendors, customers and other third
parties with whom we conduct business. A failure of our computer systems or the
failure of our vendors or customers or other third parties to upgrade their
software and systems effectively for transition to the year 2000 could have a
negative effect on our business and financial condition or results of
operations.
If we complete our assessment without identifying any additional material
non-compliant systems operated by, or in the control of, us or of third parties,
the most reasonably likely worst case scenario would be a systems failure beyond
our control to remedy. Such a failure could materially prevent us from operating
our business. We believe that if such a failure occurred it would likely lead to
lost revenues, increased operating costs, loss of customers or other business
interruptions of a material nature, in addition to potential claims against us.
OUR RESULTS MAY BE AFFECTED BY DEVALUATION AND CURRENCY RISKS.
Most of our revenues, costs, assets and liabilities are denominated in
local currencies. Because of the number of currencies involved, our constantly
changing currency exposure and the fact that all foreign currencies do not
fluctuate in the same manner against the U.S. dollar, we cannot quantify the
effect of exchange rate fluctuations on our future financial condition or
results of operations. In the future, we may acquire interests in entities that
operate in countries where the export or conversion of currency is restricted.
Currently, we do not hedge against foreign currency exchange risks but in the
future we may commence hedging against specific foreign currency transaction
risks. We may be unable to hedge all our exchange rate exposure economically,
and exchange rate fluctuations may have a negative effect on our ability to meet
our obligations.
OUR CONTROLLING SHAREHOLDER HAS THE ABILITY TO FUNDAMENTALLY CONTROL OUR
BUSINESS.
Ronald S. Lauder, chairman of our board of directors, beneficially owns
approximately 29.7% of our outstanding capital stock and controls approximately
57.6% of our voting power. As a result, Mr. Lauder has the voting power to
approve certain fundamental corporate transactions and to elect all members of
our board of directors. Mr. Lauder, together with other executive officers and
directors, companies and partnerships they control and members of their
immediate families, control a significant majority of the voting power of our
outstanding capital stock.
IF THERE IS A CHANGE OF CONTROL WE MAY BE REQUIRED TO BUY BACK DEBT OBLIGATIONS,
INCLUDING THE NEW NOTES.
If we experience a change of control, we may be required to purchase some
or all of the then-outstanding notes issued by us, including the new notes, at a
price greater than the principal amount at the date of purchase. However, we may
not have sufficient funds to purchase these outstanding debt obligations.
YOU MAY NOT BE ABLE TO OBTAIN LEGAL JUDGMENTS AGAINST OUR OFFICERS AND DIRECTORS
THAT RESIDE OUTSIDE THE U.S.
The Guarantor is incorporated in Bermuda. The Issuer is incorporated in the
United Kingdom. Some of our officers and directors reside outside the U.S. All
or a substantial portion of the assets of these persons are or may be located
outside the U.S. Consequently, it may not be possible to serve process within
the U.S. upon these persons or to enforce against them judgments obtained in
U.S. courts, including judgments predicated upon the civil liability provisions
of the U.S. federal securities laws.
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EFFECTS OF INCORPORATION UNDER BERMUDA CORPORATE LAW
Bermuda law differs in certain respects from laws generally applicable to
United States corporations and shareholders. These differences include less
restrictive limitations on transactions entered into by us in which any of our
directors have an interest and greater restrictions on the rights of our
shareholders to dissent from and obtain remedies in connection with mergers,
takeovers and other combination transactions and to pursue legal challenges to
corporate actions.
EFFECTS OF INCORPORATION UNDER UNITED KINGDOM CORPORATE LAW
The Issuer is a United Kingdom corporation and, accordingly, is governed by
the Companies Act 1985 of the United Kingdom. This act differs materially from
laws generally applicable to United States corporations and their shareholders,
including regulations relating to interested directors, mergers and
indemnification of directors.
NO PUBLIC MARKET EXISTS FOR THE NEW NOTES
The new notes are a new issue of securities for which there is currently no
active trading market. If the new notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities and other factors,
including general economic conditions and our financial condition, performance
and prospects. Even though we are obligated to complete the exchange offer or a
shelf registration for the old notes by February 7, 2000, there can be no
assurance that the exchange or a shelf registration will occur in the required
time period or whether, even after the exchange or a registration is effected,
an active trading market will develop for any of the notes. The Securities and
Exchange Commission has broad discretion to determine whether any registration
statement will be declared effective and may delay or deny the effectiveness of
any registration statement for a variety of reasons. Failure to have the
registration statement declared effective could adversely affect the liquidity
and price of the old notes. If we do not comply with our registration
obligations in a timely manner, we will be obligated to pay additional interest
in cash on the old notes. See the section "The Exchange Offer" under the heading
"Registration Rights Agreement for Old Notes."
21
<PAGE>
THE EXCHANGE OFFER
REGISTRATION RIGHTS AGREEMENT FOR OLD NOTES
We entered into the registration rights agreement in connection with our
issuance of the old notes. This summary of provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the registration rights
agreement, a copy of which is incorporated by reference into the registration
statement of which this prospectus is a part.
REGISTRATION RIGHTS
We have agreed in the registration rights agreement:
o to file this registration statement with the Commission and use our
reasonable best efforts to complete the exchange offer as soon as practicable,
but no later than February 7, 2000;
o to hold the exchange offer open for at least 30 days, and exchange new
notes for all old notes validly tendered and not withdrawn before its
expiration; and
o if the new notes will not be freely transferable in general upon exchange
in the exchange offer because of a change in the Commission's interpretation of
its rules, in lieu of effecting registration of new notes, to use our reasonable
best efforts to effect a shelf registration of the old notes for resale by
holders, and keep the registration effective for a period of up to two years
ending May 13, 2001.
SHELF REGISTRATION
In the event we effect a shelf registration we will provide holders of the
old notes copies of the prospectus that is a part of the registration statement,
notify holders when the resale registration for the old notes has become
effective and take other actions as are required to permit unrestricted resales
of the old notes. A holder that sells old notes pursuant to the resale
registration generally will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
registration rights agreement that are applicable to such a holder (including
certain indemnification obligations).
LIQUIDATED DAMAGES
In the event that
o the exchange offer is not completed by February 7, 2000 (or, if
applicable, the resale registration is not effective within the required period)
or
o any resale registration required by the registration rights agreement is
filed and declared effective but thereafter ceases to be effective (except as
specifically permitted in the registration rights agreement) without being
succeeded promptly by an additional registration statement filed and declared
effective,
then interest will accrue (in addition to any stated interest on the old notes)
at the rate of 0.5% per annum, determined daily, on the principal amount at
maturity of the old notes that remain unexchanged or unregistered as required
until such notes are exchanged or become registered or their registration is no
longer required.
RESALES OF NEW NOTES ISSUED IN THE EXCHANGE OFFER
Based on Commission interpretations we believe that the new notes issued in
the exchange offer may be offered for resale, resold and otherwise transferred
by any holder (other than any holder that is a broker-dealer or our "affiliate"
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that:
22
<PAGE>
o the new notes sold are acquired in the ordinary course of business;
o at the time of the commencement of the exchange offer the selling holder
had no arrangement or understanding with any person to participate in a
distribution of the new notes; and
o the selling holder is not engaged in, and does not intend to engage in, a
distribution of the new notes.
We have not sought, and do not intend to seek, a no-action letter from the
Commission with respect to the effects of the exchange offer, and there can be
no assurance that the staff would make a similar determination with respect to
the new notes as it has previously in other similar offerings.
REPRESENTATIONS HOLDERS WILL MAKE WHEN THEY TENDER
By tendering old notes in exchange for new notes and executing the Letter
of Transmittal, each holder will represent to us that:
o any new notes to be received by it will be acquired in the ordinary
course of business;
o it has no arrangements or understandings with any person to participate
in the distribution of the old notes or new notes within the meaning of
the Securities Act; and
o it is not our "affiliate," as defined in Rule 405 under the Securities
Act.
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such new notes. Each
holder, whether or not it is a broker-dealer, shall also represent that it is
not acting on behalf of any person that could not truthfully make any of the
foregoing representations contained in this paragraph. Any holder of old notes
who is unable to make the foregoing representations and any broker-dealer who
acquired the old notes directly from us may not rely on the applicable
interpretations of the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act,
including being named as selling security holders, in order to resell the notes.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying Letter of Transmittal, we will accept for exchange old
notes which are properly tendered on or prior to the expiration date and not
withdrawn as permitted below. As used herein, the term "expiration date" means
5:00 p.m., New York time, on December 10, 1999; provided, however, that if we,
in our sole discretion, have extended the period of time for which the exchange
offer is open, the term "expiration date" means the latest time and date to
which the exchange offer is extended.
As of the date of this prospectus, $175,000,000 aggregate principal amount
of old notes are outstanding. We are sending this prospectus, together with the
Letter of Transmittal, on or about November 10, 1999 to all holders of old notes
known to us. Our obligation to accept old notes for exchange pursuant to the
exchange offer is subject to certain conditions as set forth below under the
subsection "--Conditions."
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any old notes pursuant to the exchange offer, by
giving oral or written notice of any extension, amendment, non-acceptance or
termination to you as promptly as practicable, such notice in the case of any
extension to be issued by means of a press release or other public announcement
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
23
<PAGE>
EFFECT OF TENDER
If you tender to us old notes as set forth below, our acceptance of your
tender will constitute a binding agreement between you and us upon the terms and
conditions set forth in this prospectus and in the accompanying Letter of
Transmittal.
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver the Letter of Transmittal or such facsimile, together with any other
required documents, to the exchange agent prior to 5:00 p.m., New York City
time, on the expiration date. A holder may tender old notes only in integral
multiples of $1,000 in exchange for an equal principal amount of new notes. In
addition, either:
o certificates of such old notes must be received by the exchange
agent along with the Letter of Transmittal; or
o a timely confirmation of a book-entry transfer of such old notes, if
such procedure is available, into the exchange agent's account at
The Depository Trust Company under the procedure for book-entry
transfer described below, must be received by the exchange agent
prior to the expiration date with the Letter of Transmittal; or
o the holder must comply with the guaranteed delivery procedures
described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO OLD NOTES, LETTERS OF TRANSMITTAL OR OTHER
REQUIRED DOCUMENTS SHOULD BE SENT TO US. Delivery of all old notes, if
applicable, Letters of Transmittal and other documents must be made to the
exchange agent at its address set forth below. Holders may also request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender for such holders.
The tender by a holder of old notes will constitute an agreement between
such holder and us in accordance with the terms and subject to the conditions
set forth herein and in the Letter of Transmittal. Any beneficial owner whose
old notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender should contact such registered
holder promptly and instruct such registered holder to tender on his behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act unless the old notes tendered are tendered:
o by a registered holder of old notes who has not completed the box
entitled "Special Issuance Instructions' or "Special Delivery
Instructions" on the Letter of Transmittal; or
o for the account of an eligible guarantor institution.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
with signing, and unless waived by us, evidence satisfactory to us of their
authority to so act must be submitted with the letter of transmittal.
All questions as to the validity, form, eligibility, time of receipt and
withdrawal of the tendered old notes will be determined by us in our sole
discretion, which determination will be final and binding. We reserve the
absolute right to reject any and all old notes not properly tendered or any old
notes which, if accepted, would, in the opinion of our counsel, be unlawful. We
also reserve the absolute right to waive any irregularities or conditions of
tender as to particular old notes. Our interpretation of
24
<PAGE>
the terms and conditions of the exchange offer, including the instructions in
the Letter of Transmittal, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of old notes
must be cured within such time as we shall determine. Neither we, the exchange
agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of old notes, nor shall any of
them incur any liability for failure to give such notification. Tenders of old
notes will not be deemed to have been made until such irregularities have been
cured or waived.
In addition, we reserve the right in our sole discretion, subject to the
provisions of the Indenture:
o to purchase or make offers for any old notes that remain outstanding
subsequent to the expiration date or, as set forth under
"--Conditions;"
o to terminate the exchange offer;
o to redeem old notes as a whole or in part at any time and from time
to time, as set forth under "Description of the New Notes and the
New Notes Guarantee--Optional Redemption;" and
o to the extent permitted under applicable law, to purchase old notes
in the open market, in privately negotiated transactions or
otherwise.
The terms of any such purchases or offers could differ from the terms of
the exchange offer.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
all old notes validly tendered and not withdrawn prior to 5:00 pm, New York City
time, on the expiration date will be accepted promptly after the expiration
date, and the new notes will be issued promptly after acceptance of the old
notes. For purposes of the exchange offer, old notes shall be deemed to have
been accepted as validly tendered for exchange when, as and if we have given
oral or written notice thereof to the exchange agent. For each old note accepted
for exchange, the holder of such old note will receive a new note having a
principal amount equal to that of the surrendered old note. In all cases,
issuance of new notes for old notes that are accepted for exchange in the
exchange offer will be made only after timely receipt by the exchange agent of
the required documents.
If any tendered old notes are not accepted for any reason, such unaccepted
or such nonexchanged old notes will be returned without expense to the tendering
holder (if in certificated form) credited to an account maintained with The
Depositary Trust Company as promptly as practicable after nonacceptance,
withdrawal of tender or the expiration or termination of the exchange offer, as
the case may be.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at The Depositary Trust Company for purposes of the exchange
offer within two business days after the date of this prospectus. The exchange
agent and The Depositary Trust Company have confirmed that any financial
institution that is a participant in The Depositary Trust Company may utilize
The Depositary Trust Company Automated Tender Offer Program procedures to tender
old notes.
Any participant in The Depositary Trust Company may make book-entry
delivery of old notes by causing The Depositary Trust Company to transfer such
old notes into the exchange agent's account in accordance with The Depositary
Trust Company's Automated Tender Offer Program procedures for transfer. However,
the exchange for the old notes so tendered will only be made after a book-entry
confirmation of such book-entry transfer of old notes into the exchange agent's
account, and timely receipt by the exchange agent of an agent's message and any
other documents required by the Letter of Transmittal. The term "agent's
message" means a message, transmitted by The Depositary Trust Company and
received by the exchange agent and forming part of a book-entry confirmation,
which states that The Depositary Trust Company has received an express
25
<PAGE>
acknowledgment from a participant tendering old notes that are the subject of
such book-entry confirmation that such participant has received and agrees to be
bound by the terms of the letter of transmittal, and that we may enforce such
agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if:
o the tender is made through an eligible institution;
o prior to the expiration date, the exchange agent receives by
facsimile transmission, mail or hand delivery from such eligible
institution a properly completed and duly executed Letter of
Transmittal and notice of guaranteed delivery, substantially in the
form provided by us that:
(1) sets forth the name and address of the holder of old notes and
the amount of old notes tendered;
(2) states that the tender is being made thereby; and
(3) guarantees that within three New York Stock Exchange trading
days after the date of execution of the notice of guaranteed
delivery, the certificates for all physically tendered old
notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by the
eligible institution with the exchange agent; and
o the certificates for all physically tendered old notes, in proper
form for transfer, or a book-entry confirmation, as the case may be,
and all other documents required by the Letter of Transmittal are
received by the exchange agent within three New York Stock Exchange
trading days after the date of execution of the notice of guaranteed
delivery.
WITHDRAWAL OF TENDERS
Tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent prior to 5:00 p.m., New York City time on the
expiration date at one of the addresses set forth below under "--Exchange
Agent." Any such notice of withdrawal must:
o specify the name of the person having tendered the old notes to be
withdrawn;
o identify the old notes to be withdrawn, including the principal
amount of such old notes;
o in the case of old notes tendered by book-entry transfer, specify
the number of the account at The Depositary Trust Company from which
the old notes were tendered and specify the name and number of the
account at The Depositary Trust Company to be credited with the
withdrawn old notes and otherwise comply with the procedures of such
facility;
o contain a statement that such holder is withdrawing its election to
have such old notes exchanged;
o be signed by the holder in the same manner as the original signature
on the letter of transmittal by which such old notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the trustee with respect to the old
notes register the transfer of such old notes in the name of the
person withdrawing the tender; and
o specify the name in which such old notes are registered, if
different from the person who tendered such old notes.
26
<PAGE>
All questions as to the validity, form, eligibility and time of receipt of
such notice will be determined by us and our determination shall be final and
binding on all parties. Any old notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the exchange offer. Properly
withdrawn old notes may be retendered by following one of the procedures
described under "--Procedures for Tendering" and "--Book-Entry Transfer" above
at any time on or prior to 5:00 p.m., New York City time, on the expiration
date.
CONDITIONS
The exchange offer is not conditioned upon any minimum principal amount of
old notes being tendered for exchange. Notwithstanding any other provision of
the exchange offer, we shall not be required to accept for exchange, or to issue
new notes in exchange for, any old notes and may terminate or amend the exchange
offer if at any time prior to 5:00 p.m., New York City time, on the expiration
date, we determine that the exchange offer violates applicable law, any
applicable interpretation of the staff of the Commission or any order of any
governmental agency or court of competent jurisdiction.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any such old notes, if at such time any
stop order shall be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939. We are required to use
every reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the registration statement at the earliest possible moment.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as the exchange agent for the
exchange offer. All executed Letters of Transmittal should be directed to the
exchange agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
Delivery To The Chase Manhattan Bank, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission Number: By Hand:
The Chase Manhattan Bank (212) 638-7380/81 The Chase Manhattan Bank
55 Water Street 55 Water Street
Room 234, North Building Room 234, North Building
New York, NY 10041 New York, NY 10041
Attn: Carlos Esteves Attn: Carlos Esteves
Confirm by Telephone: By Overnight Courier:
(212) 638-0828 The Chase Manhattan Bank
55 Water Street
Room 234, North Building
New York, NY 10041
Attn: Carlos Esteves
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
27
<PAGE>
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer.
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer, which are estimated in the aggregate to be approximately
$100,000.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Issuer to register new notes in the name of, or request that old notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for new notes in
the exchange offer will continue to be subject to the restrictions on transfer
of such old notes as set forth in the legend on the old notes as a consequence
of the issuance of the old notes pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the old notes may not be offered
or sold, unless registered under the Securities Act, except in an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. We do not anticipate that we will register the old notes
under the Securities Act. To the extent that old notes are tendered and accepted
in the exchange offer, the trading market for untendered and tendered but
unaccepted old notes will be adversely affected.
28
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITIES
Ericsson has provided to certain of our subsidiaries financing commitments
to fund the purchase of additional switches and related equipment. As of
June 30, 1999, such commitments were in the aggregate limited to approximately
$75 million, all of which had been drawn. Borrowings from this equipment vendor
will accrue interest at a rate of LIBOR plus either 5.25% or 4.5% depending on
the equipment purchased. In addition, we have a revolving credit facility with
Coast Business Credit, of which $7.3 million was available at June 30, 1999
under commitments of $10 million. Through Telegate, we have $18.2 million of
revolving credit facilities with various banks of which $17.9 million was
available at June 30, 1999. Through RSLCOM Canada, we also have a $6.8 million
revolving credit facility that accrues interest at an annual rate of 7.4%, all
of which was available at June 30, 1999.
1996 NOTES
GENERAL
On October 3, 1996, the Issuer issued $300.0 million of 12 1/4% Senior
Notes pursuant to the Indenture, dated October 3, 1996 or the 1996 Indenture,
among the Issuer, the Guarantor and The Chase Manhattan Bank, as trustee, which
were exchanged on May 22, 1997 for $300.0 million of substantially identical
notes that had been registered under the Securities Act, or the 1996 Notes, of
which $172.5 million in aggregate principal amount remain outstanding as of the
date of this prospectus. The 1996 Notes are unconditionally guaranteed by the
Guarantor.
PRINCIPAL, MATURITY AND INTEREST
The 1996 Notes are limited in aggregate principal amount to $300.0 million
and will mature on October 3, 2006. Interest on the 1996 Notes accrues at
12 1/4% per annum and is payable semiannually in arrears on May 15 and November
15 of each year. Interest is computed on the basis of a 360-day year comprised
of twelve 30-day months. The Issuer used $102.8 million of the net proceeds of
the 1996 Notes to purchase a portfolio of securities, initially consisting of
U.S. government securities, to pledge as security for payment of interest on the
principal of the 1996 Notes. Proceeds from the pledged securities may be used by
the Issuer to make interest payments on the 1996 Notes through November 15,
1999.
RANKING
The 1996 Notes are unsecured senior obligations of the Issuer, rank equal
in right of payment with all existing and future senior obligations of the
Issuer, and rank senior in right of payment to all future subordinated
obligations of the Guarantor.
REDEMPTION
The 1996 Notes are not redeemable prior to November 15, 2001. Thereafter,
the 1996 Notes are subject to redemption at the option of the Issuer, in whole
or in part, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the 12-month period beginning on
November 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------------------------- ----------
<S> <C>
2001..................................................................................... 106.125%
2002..................................................................................... 103.0625%
2003 and thereafter...................................................................... 100.000%
</TABLE>
29
<PAGE>
COVENANTS
The 1996 Indenture restricts, among other things, our ability to incur
additional indebtedness, pay dividends or make certain other restricted
payments, incur certain liens to secure equal or subordinated indebtedness,
engage in any sale and leaseback transaction, sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of our assets, enter into
certain transactions with affiliates, or incur indebtedness that is subordinated
in right of payment to any senior indebtedness and senior in right of payment to
the 1996 Notes. The 1996 Indenture permits, under certain circumstances, our
subsidiaries to be deemed unrestricted subsidiaries and thus not subject to the
restrictions of the 1996 Indenture.
EVENTS OF DEFAULT
The 1996 Indenture contains standard events of default, including
o defaults in the payment of principal, premium or interest,
o defaults in the compliance with covenants contained in the indenture,
o cross defaults on more than $10 million of other indebtedness,
o failure to pay more than $10 million of judgments that have not been
stayed by appeal or otherwise and
o the bankruptcy of the Issuer or certain of its subsidiaries.
U.S. DOLLAR NOTES
GENERAL
On February 27, 1998, the Issuer issued (1) $200 million of Senior Notes,
or the 1998 Senior Notes, pursuant to an Indenture, dated as of February 27,
1998, or the 1998 Senior Notes Indenture, between the Issuer, the Guarantor and
The Chase Manhattan Bank, as trustee, and (2) $328.1 million principal amount at
maturity of Senior Discount Notes, or the 1998 Discount Notes, pursuant to an
indenture, dated as of February 27, 1998 or the 1998 Senior Discount Notes
Indenture and, together with the 1998 Senior Notes Indenture, the U.S. Dollar
Notes Indentures, among the Issuer, the Guarantor and The Chase Manhattan Bank,
as trustee. On June 19, 1998, the 1998 Senior Notes were exchanged for
$200 million of substantially identical notes that had been registered under the
Securities Act, or the Senior Notes, and on June 29, 1998, the 1998 Discount
Notes were exchanged for $328.1 million principal amount at maturity of
substantially identical notes that had been registered under the Securities Act,
or the Senior Discount Notes and, together with the Senior Notes, the U.S.
Dollar Notes. The U.S. Dollar Notes are unconditionally guaranteed by the
Guarantor.
PRINCIPAL, MATURITY AND INTEREST
The U.S. Dollar Notes are initially limited in aggregate principal amount
at maturity to $528.1 million and will mature on March 1, 2008. Interest on the
Senior Notes accrues at 9 1/8% per annum and is payable semiannually on March 1
and September 1 of each year, commencing September 1, 1998. No interest will be
payable on the Senior Discount Notes prior to September 1, 2003. From and after
March 1, 2003, interest on the Senior Discount Notes will accrue at 10 1/8% on
the principal amount at maturity of such notes and is payable semiannually on
March 1 and September 1 of each year, commencing September 1, 2003. Interest on
the U.S. Dollar Notes is computed on the basis of a 360-day year comprised of
twelve 30-day months.
RANKING
The U.S. Dollar Notes are our unsecured senior obligations, rank equal in
right of payment with the 1996 Notes, the DM Notes and all of our existing and
future senior obligations, and rank senior in right of payment to all of our
future subordinated obligations.
30
<PAGE>
REDEMPTION
The U.S. Dollar Notes are not redeemable prior to March 1, 2003.
Thereafter, the U.S. Dollar Notes are subject to redemption at the option of the
Issuer, in whole or in part, at the redemption prices (expressed as percentages
of stated principal amount) set forth below plus accrued and unpaid interest
thereon to (but excluding) the applicable redemption date, if redeemed during
the 12-month period beginning on March 1 of the years indicated below:
SENIOR NOTES
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 104.562%
2004................................................................................ 103.042%
2005................................................................................ 101.521%
2006 and thereafter................................................................. 100.000%
</TABLE>
SENIOR DISCOUNT NOTES
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 105.06%
2004................................................................................ 103.37%
2005................................................................................ 101.68%
2006 and thereafter................................................................. 100.00%
</TABLE>
In addition, at any time prior to March 1, 2001, in the event the
Guarantor, receives net cash proceeds from the public or private sale of its
common stock, the Issuer (to the extent the Issuer receives such proceeds and
has not used such proceeds, directly or indirectly, to redeem or repurchase
other securities pursuant to optional redemption provisions) may, at its option,
apply an amount equal to any such net cash proceeds or any portion thereof to
redeem up to 33 1/3% of the aggregate principal amount at maturity of the U.S.
Dollar Notes at a redemption price equal to 109.125% of the principal amount
thereof, in the case of the Senior Notes, and 110.125% of the accreted value, in
the case of the Senior Discount Notes, plus accrued and unpaid interest thereon,
if any, to the date of redemption, provided that at least 66 2/3% of aggregate
principal amount at maturity of the Senior Notes or Senior Discount Notes, as
applicable, remains outstanding immediately after such redemption.
COVENANTS
The U.S. Dollar Notes Indentures restrict, among other things, our ability
to incur additional indebtedness, pay dividends or make distributions in respect
of its capital stock, make investments or certain other restricted payments,
create liens, sell assets, issue or sell capital stock of certain subsidiaries,
enter into transactions with stockholders or affiliates or effect a
consolidation or merger.
EVENTS OF DEFAULT
The U.S. Dollar Notes Indentures contain standard events of default,
including
o failure to pay principal of (or premium, if any, on) any U.S. Dollar Note
when due,
o failure to pay any interest on any U.S. Dollar Note when due, continued
for 30 days,
o failure to perform covenants or agreements under the U.S. Dollar Notes
Indentures or the U.S. Dollar Notes,
o cross-defaults against certain other indebtedness,
o failure to pay more than $10 million of judgments that have not been
stayed by appeal and
o certain events of bankruptcy, insolvency or reorganization affecting the
Guarantor and certain of its subsidiaries.
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<PAGE>
DM NOTES
GENERAL
On March 15, 1998, the Issuer issued DM 296.0 million principal amount at
maturity of 10% Senior Discount Notes, or the Old DM Notes, pursuant to an
Indenture, dated as of March 16, 1998, or the DM Notes Indenture, among the
Issuer, the Guarantor, and The Chase Manhattan Bank, as trustee. On June 29,
1998, the Old DM Notes were exchanged for DM 296.0 million principal amount at
maturity of substantially identical notes that had been registered under the
Securities Act, or the DM Notes. The DM Notes are unconditionally guaranteed by
the Guarantor.
PRINCIPAL, MATURITY AND INTEREST
The DM Notes are initially limited in aggregate principal amount at
maturity to DM296.0 million (approximately $99.1 million initial accreted value)
and will mature on March 15, 2008. No interest is payable on the DM Notes prior
to September 15, 2003. From and after March 15, 2003, interest on the DM Notes
will accrue on the principal amount at maturity of such notes at the rate of 10%
per annum and is payable semiannually on March 15 and September 15 of each year,
commencing September 15, 2003. Interest is computed on the basis of a 360-day
year comprised of twelve 30-day months.
RANKING
The DM Notes are our unsecured senior obligations, rank equal in right of
payment with the 1996 Notes, the U.S. Dollar Notes and all of our other existing
and future senior obligations, and rank senior in right of payment to all of our
future subordinated obligations.
REDEMPTION
The DM Notes are not redeemable prior to March 15, 2003. Thereafter, the DM
Notes are subject to redemption, at the option of the Issuer, in whole or in
part, at the redemption prices (expressed as percentages of the principal amount
thereof) set forth below plus accrued interest to but excluding the redemption
date, if redeemed during the 12-month period beginning March 15 of the years
indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 105.000%
2004................................................................................ 103.333%
2005................................................................................ 101.667%
2006 and thereafter................................................................. 100.000%
</TABLE>
In addition, at any time prior to March 15, 2001, in the event the
Guarantor receives net cash proceeds from the public or private sale of its
common stock, the Issuer (to the extent the Issuer receives such proceeds and
has not used such proceeds, directly or indirectly, to redeem or repurchase
other securities pursuant to optional redemption provisions) may, at its option,
apply an amount equal to any such net cash proceeds or any portion thereof to
redeem, from time to time, DM Notes in a principal amount at maturity of up to
an aggregate amount equal to 33 1/3% of the aggregate principal amount at
maturity of the DM Notes, provided, however, that DM Notes in an amount equal to
at least 66 2/3% of the aggregate principal amount at maturity of the DM Notes
remain outstanding immediately after such redemption.
COVENANTS; EVENTS OF DEFAULT
The DM Notes Indenture contains covenants and provides for events of
default which are identical in all material respects to the covenants and events
of default contained in the U.S. Dollar Notes Indentures.
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<PAGE>
12% NOTES
GENERAL
On November 9, 1998, the Issuer issued the 12% Notes, or the Old 12% Notes,
pursuant to an Indenture, dated as of November 9, 1998, or the 12% Notes
Indenture, among the Issuer, the Guarantor and The Chase Manhattan Bank, as
trustee. On March 5, 1999, the Old 12% Notes were exchanged for $100 million
principal amount at maturity of substantially identical notes that had been
registered under the Securities Act, or the 12% Notes. The 12% Notes are
unconditionally guaranteed by the Guarantor.
PRINCIPAL, MATURITY AND INTEREST
The 12% Notes are initially limited in aggregate principal amount at
maturity to $100 million (approximately $94.5 million initial accreted value)
and will mature on November 1, 2008. Interest on the 12% Notes will accrue on
the principal amount at maturity of such notes at the rate of 12% per annum and
is payable semiannually on November 1 and May 1 of each year, commencing May 1,
1999. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months.
RANKING
The 12% Notes are our unsecured senior obligations, rank equal in right of
payment with the 1996 Notes, the U.S. Dollar Notes, the DM Notes and all of our
other existing and future senior obligations, and rank senior in right of
payment to all of our future subordinated obligations.
REDEMPTION
The 12% Notes are not redeemable prior to November 1, 2003. Thereafter, the
12% Notes are subject to redemption, at the option of the Issuer, in whole or in
part, at the redemption prices (expressed as percentage of the accreted value
thereof) set forth below plus accrued interest to but excluding the redemption
date, if redeemed during the 12-month period beginning November 1 of the years
indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 106%
2004................................................................................ 104%
2005................................................................................ 102%
2006 and thereafter................................................................. 100%
</TABLE>
In addition, at any time prior to November 1, 2001, and in the event the
Issuer receives net cash proceeds from the public or private sale of its common
stock, the Issuer (to the extent the Issuer receives such proceeds and has not
used such proceeds, directly or indirectly, to redeem or repurchase other
securities pursuant to optional redemption provided) may, at its option, apply
an amount equal to any such net cash proceeds or any portion thereof to redeem,
from time to time, 12% Notes in a principal amount at maturity of up to an
aggregate amount equal to 33 1/3% of the aggregate principal amount at maturity
of the 12% Notes, provided, however, that 12% Notes in an amount equal to at
least 66% of the aggregate principal amount at maturity of the 12% Notes remain
outstanding immediately after such redemption.
COVENANTS; EVENTS OF DEFAULT
The 12% Notes Indenture contains covenants and provides for events of
default which are identical in all material respects to the covenants and of
default contained in the U.S. Dollar Notes Indentures and the DM Notes
Indenture.
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<PAGE>
10 1/2% NOTES
GENERAL
On December 8, 1998, the Issuer issued the 10 1/2% Notes, or the Old
10 1/2% Notes pursuant to an indenture, dated as of December 8, 1998, or the
10 1/2% Notes Indenture, among the Issuer, the Guarantor and The Chase Manhattan
Bank, as Trustee. On February 25, 1999, the Old 10 1/2% Notes were exchanged for
$200 million principal amount at maturity of substantially identical notes that
had been registered under the Securities Act, or the 10 1/2% Notes. The 10 1/2%
Notes are unconditionally guaranteed by the Guarantor.
PRINCIPAL, MATURITY AND INTEREST
The 10 1/2% Notes are limited in aggregate principal amount at maturity to
$200 million and will mature on November 15, 2008. Interest on the 10 1/2% Notes
will accrue on the principal amount at maturity of such notes at the rate of
10 1/2% per annum and is payable semiannually on May 15 and November 15 of each
year. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months.
RANKING
The 10 1/2% Notes are our unsecured senior obligations, rank equal in right
of payment with the 1996 Notes, the U.S. Dollar Notes, the DM Notes, the 12%
Notes and all of our other existing and future senior obligations, and rank
senior in right of payment to all of our future subordinated obligations.
REDEMPTION
The 10 1/2% Notes are not redeemable prior to November 15, 2003.
Thereafter, the 10 1/2% Notes are subject to redemption, at the option of the
Issuer, in whole or in part, at the redemption prices (expressed as percentage
of the accreted value thereof) set forth below plus accrued interest to but
excluding the redemption date, if redeemed during the 12-month period beginning
November 15 of the years indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
2003................................................................................ 105.25%
2004................................................................................ 103.50%
2005................................................................................ 101.75%
2006 and thereafter................................................................. 100.00%
</TABLE>
In addition, at any time prior to November 15, 2001, and in the event the
Issuer receives net cash proceeds from the public or private sale of its common
stock, the Issuer (to the extent the Issuer receives such proceeds and has not
used such proceeds, directly or indirectly, to redeem or repurchase other
securities pursuant to optional redemption provided) may, at its option, apply
an amount equal to any such net cash proceeds or any portion thereof to redeem,
from time to time, 10 1/2% Notes in a principal amount at maturity of up to an
aggregate amount equal to 33 1/3% of the aggregate principal amount at maturity
of the 10 1/2% Notes, provided, however, that 10 1/2% Notes in an amount equal
to at least 66% of the aggregate principal amount at maturity of the 10 1/2%
Notes remain outstanding immediately after such redemption.
COVENANTS; EVENTS OF DEFAULT
The 10 1/2% Notes Indenture contains covenants and provides for events of
default which are identical in all material respects to the covenants and of
default contained in the U.S. Dollar Notes Indentures and the DM Notes
Indenture.
AMENDMENTS TO INDENTURES
In September 1999, we amended the 1996 Indenture, the U.S. Dollar Notes
Indentures, the DM Notes Indenture, the 12% Notes Indenture, the 10 1/2% Notes
Indenture and the Indenture with respect to the old notes and the new notes to
modify exceptions to the limitations on issuances and sales of capital stock of
Restricted Subsidiaries to limitations on asset dispositions contained in the
Indentures to permit the issuance and sale of capital stock of deltathree and
our Australian subsidiary in public or private transactions without restricting
use of proceeds solely to investments in telecommunications assets and to
employees, directors and consultants pursuant to customary equity compensation
and incentive plans.
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<PAGE>
DESCRIPTION OF THE NEW NOTES AND THE NEW NOTES GUARANTEE
The new notes will be issued under an Indenture, dated as of May 13, 1999,
as amended, or the Indenture, between RSL Communications PLC, as issuer, RSL
Communications, Ltd., as guarantor, and The Chase Manhattan Bank, as trustee.
The statements under this caption relating to the new notes and the Indenture
are summaries and do not purport to be complete, and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein. The Indenture is
by its terms subject to and governed by the Trust Indenture Act of 1939, as
amended. Unless otherwise indicated, references under this caption to sections,
"Section " or articles are references to the Indenture. Where reference is made
to particular provisions of the Indenture or to defined terms not otherwise
defined herein, such provisions or defined terms are incorporated herein by
reference. The definitions of certain capitalized terms used in the following
summary are set forth below under the heading "Certain Definitions."
GENERAL
The new notes will be senior unsecured obligations of the Issuer and will
mature on November 15, 2009. Interest on the new notes will accrue at an annual
rate of 9 7/8% on the stated principal amount at maturity of such new notes from
May 13, 1999 or from the most recent interest payment date to which interest has
been paid or duly provided for, payable semiannually in cash on May 15 and
November 15 of each year, commencing November 15, 1999, to the book-entry
depositary (in the case of global new notes) or to the person in whose name the
note (or any predecessor note) is registered (in the case of definitive
registered new notes) at the close of business on the preceding May 1 and
November 1, as the case may be. Interest on the new notes will be computed on
the basis of a 360-day year of twelve 30-day months.
The guarantee by the Guarantor of payments in respect of the new notes will
rank equal with the Guarantor's unsecured unsubordinated obligations.
Principal of and premium, if any, and interest on the new notes may be
presented for registration of transfer and exchange, at the office or agency of
the Issuer maintained for that purpose in the Borough of Manhattan, The City of
New York, provided that at the option of the Issuer, payment of interest on the
new notes may be made by check mailed to the address of the person entitled
thereto as it appears in the related note register. Until otherwise designated
by the Issuer, such office or agency will be the corporate trust office of the
trustee, as paying agent and registrar.
The new notes will be issued without coupons, in denominations of $1,000
and any integral multiples of $1,000 in excess thereof. No service charge will
be made for any registration of transfer or exchange of new notes, but the
Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
LUXEMBOURG STOCK EXCHANGE LISTING
We intend to list the new notes on the Luxembourg Stock Exchange. As long
as the new notes are listed on the Luxembourg Stock Exchange and such exchange
so requires, we will maintain a paying agent and transfer agent in Luxembourg.
If definitive registered notes are issued, such paying agent will also act as
transfer agent and registrar with respect to the definitive registered notes. In
addition, upon maturity, such definitive registered notes may be presented for
payment at the offices of such paying agent in Luxembourg. If money for the
payment of principal or interest remains unclaimed for two years, the paying
agent will pay the money back to the Issuer at its request. After that, holders
of the new notes which are entitled to the money must look to the Issuer for
payment, unless an applicable law designates another person, and all liability
of the paying agent with respect to such money shall cease.
The Indenture does not prevent the Issuer from purchasing the notes trading
on the Luxembourg Stock Exchange. In the event we purchase notes they shall be
disregarded for certain voting purposes consistent with the terms of the
applicable Indenture.
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<PAGE>
RANKING
The new notes and the new notes guarantee will be our unsecured
obligations, rank equal in right of payment with all of our existing and future
unsecured obligations, and rank senior in right of payment to all of our future
subordinated obligations. Holders of our secured obligations, however, will have
claims that are prior to the claims of the holders of the new notes or the new
notes guarantee with respect to the assets securing such other obligations.
The Issuer is a direct wholly-owned subsidiary of the Guarantor. Our
principal operations are conducted through subsidiaries of the Issuer and,
therefore, we are dependent upon the cash flow of our subsidiaries to meet our
respective obligations. The Guarantor's subsidiaries (other than the Issuer)
have no obligation to guarantee or otherwise pay amounts due under the new
notes. Therefore, the new notes are effectively subordinated to all indebtedness
and other liabilities and commitments (including trade payables) of the
Guarantor's subsidiaries (other than the Issuer). Any right of the Issuer to
receive assets of any of the subsidiaries upon any liquidation or reorganization
of such subsidiary (and the consequent right of holders of the new notes to
participate in those assets) is effectively subordinated to the claims of the
subsidiary's creditors, except to the extent that the Issuer is itself
recognized as a creditor of the subsidiary. Any recognized claims of the Issuer
as a creditor of the subsidiary would be subordinate to any prior security
interest held by any other creditor of the subsidiary and obligations of the
subsidiary that are senior to those owing to the Issuer.
As of June 30, 1999, on a pro forma basis after giving effect to the
offering of the old notes:
o our total amount of outstanding liabilities (excluding our
subsidiaries), including trade payables, would have been
approximately $1.2 billion and
o the total amount of outstanding liabilities of the subsidiaries of
the Guarantor (other than the Issuer), including trade payables,
would have been approximately $611.1 million.
BOOK-ENTRY; DELIVERY AND FORM
GENERAL
The new notes will initially be represented by one or more global
securities in bearer form without interest coupons, which will be issued in
denominations equal to the outstanding principal amount of the new notes
represented thereby will be deposited with the book-entry depositary pursuant to
the terms of a Note Deposit Agreement, dated as of May 13, 1999 between the
Issuer, for the limited purposes set forth therein, and The Chase Manhattan
Bank, as book-entry depositary.
The book-entry depositary will issue a certificateless interest for each
global note, representing a 100% interest in the book-entry depositary's books
and records in the name of Cede & Co., as a nominee of DTC. Beneficial interests
in the global notes will be shown on, and transfers thereof will be effected
only through, records maintained in book-entry form by DTC (with respect to its
participants) and its participants. Such beneficial interests in the notes are
collectively referred to herein as "book-entry interests."
DEFINITIVE REGISTERED NEW NOTES
Under the terms of the Note Deposit Agreement and the Indenture, owners of
book-entry interests in the global notes will receive definitive notes in
registered form (i) if DTC notifies the Issuer or the book-entry depositary in
writing that it (or its nominee) is unwilling or unable to continue to act as
depositary or ceases to be a clearing agency registered under the Exchange Act,
and, in either case, a successor depositary registered as a clearing agency
under the Exchange Act is not appointed by the Issuer within 90 days, (ii) at
any time if the Issuer determines that the global notes (in whole but not in
part) should be exchanged for definitive registered notes, provided that (x)
such exchange is required by (A) any applicable law or (B) any event beyond the
Issuer's control or (y) payments of interest on any global note, Depositary
Interest or book-entry interest are, or would become, subject to any deduction
or withholding for taxes, (iii) at any time after the consummation of the
exchange offer, if the owner of a book-entry interest requests such exchange in
writing delivered to DTC and through DTC to the book-entry depositary and the
trustee or (iv) if the book-entry
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<PAGE>
depositary is at any time unwilling or unable to continue as book-entry
depositary and a successor book-entry depositary is not appointed by the Issuer
within 90 days.
In no event will definitive securities in bearer form be issued. Any
definitive registered notes will be issued in fully registered form in
denominations of $1,000 principal amount and integral multiples thereof. Any
definitive registered notes will be registered in such name or names as DTC
shall instruct the trustee, through the book-entry depositary. It is expected
that DTC's instructions will be based upon directions received by DTC from its
participants (including Euroclear and Cedel Bank) reflecting the beneficial
ownership of book-entry interests. To the extent permitted by law, the Issuer,
the trustee and any paying agent shall be entitled to treat the person in whose
name any definitive registered note is registered as the absolute owner thereof.
While any global note is outstanding, holders of definitive registered notes may
exchange their definitive registered notes for a corresponding book-entry
interest in such global note by surrendering their definitive registered notes
to the book-entry depositary and providing the certificates and opinions
required by the Indenture. The book-entry depositary will make the appropriate
adjustments to the global note underlying such book-entry interest to reflect
any issue or surrender of definitive registered notes. The Indenture contains
provisions relating to the maintenance by a registrar of a register reflecting
ownership of definitive registered notes, if any, and other provisions customary
for a registered debt security. Payment of principal and interest on each
definitive registered note will be made to the holder appearing on the register
at the close of business on the record date at his address shown on the register
on the record date.
U.S. HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. LAW, UPON THE
ISSUANCE TO A HOLDER OF DEFINITIVE REGISTERED NOTES, SUCH HOLDER WILL BECOME
SUBJECT TO U.K. INCOME TAX (CURRENTLY 20%) TO BE WITHHELD ON ANY PAYMENTS OF
INTEREST ON THE DEFINITIVE REGISTERED NOTES AS SET FORTH UNDER THE SECTION
"CERTAIN UNITED KINGDOM TAX CONSIDERATIONS FOR U.S. HOLDERS OF NOTES." SEE BELOW
UNDER THE HEADING "ADDITIONAL AMOUNTS." A U.S. HOLDER OF DEFINITIVE REGISTERED
NOTES WILL NOT, UNLESS THERE HAS BEEN A CHANGE IN LAW OR A "LISTING FAILURE" (AS
DEFINED HEREIN) AND CERTAIN OTHER CONDITIONS ARE MET, BE ENTITLED TO RECEIVE
ADDITIONAL AMOUNTS WITH RESPECT TO SUCH DEFINITIVE REGISTERED NOTES. HOWEVER, A
U.S. HOLDER OF DEFINITIVE REGISTERED NOTES MAY BE ENTITLED TO RECEIVE A REFUND
OF WITHHELD AMOUNTS FROM THE INLAND REVENUE IN CERTAIN CIRCUMSTANCES.
DESCRIPTION OF BOOK-ENTRY SYSTEM
Upon receipt of the global notes, the book-entry depositary will issue a
certificateless interest for each such global note, representing a 100% interest
in the respective underlying global note, to DTC by recording such interest in
the book-entry depositary's books and records in the name of Cede & Co., as
nominee of DTC. Ownership of book-entry interests will be limited to persons who
have accounts with DTC, including Euroclear and Cedel Bank, or persons who have
accounts through participants. Upon such issuance of interests in such global
notes to DTC, DTC will credit, on its internal book-entry registration and
transfer system, its participants' accounts with the respective interests owned
by such participants. Such accounts initially will be designated by or on behalf
of the note purchasers. Ownership of book-entry interests will be shown on, and
the transfer of such ownership will be effected only through, records maintained
by DTC or its nominee (with respect to interests of participants) and the
records of participants (with respect to interests of indirect participants).
The laws of some countries and some states in the United States may require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge the book-entry interests in the global notes.
So long as the book-entry depositary, or its nominee, is the holder of the
global notes, the book-entry depositary or such nominee, as the case may be,
will be considered the sole holder of such global notes for all purchases under
the Indenture and the notes. Except as set forth above, participants or indirect
participants will not be entitled to have notes or book-entry interests
registered in their names, will not receive or be entitled to receive physical
delivery of notes or book-entry interests in definitive bearer or registered
form and will not be considered the owners or
37
<PAGE>
holders thereof under the Indenture. Accordingly, each person owning a
book-entry interest must rely on the procedures of the book-entry depositary and
DTC, Euroclear and Cedel Bank and, if such person is an indirect participant in
DTC, the procedures of the participants in DTC through which such person owns
its interest, to exercise any rights and remedies of a holder under the
Indenture. If any definitive notes are issued to participants or indirect
participants, they will be issued in registered form, as described above. Unless
and until book-entry interests are exchanged for definitive registered notes,
the certificateless interest held by DTC may not be transferred except as a
whole between DTC and a nominee of DTC, between nominees of DTC by DTC or any
such nominee to a successor of DTC or a successor of such nominee.
PAYMENTS ON THE GLOBAL NOTES
Payments of any amounts owing in respect of the global notes will be made
through one or more paying agents appointed under the Indenture (which initially
will include The Chase Manhattan Bank, as paying agent for the notes) to the
book-entry depositary as the holder of the global notes. All such amounts will
be payable in U.S. dollars. Upon receipt of any such amounts in respect of the
global notes, the book-entry depositary will pay such amounts to DTC in
proportion to its respective interests, as shown on the book-entry depositary's
records.
The Issuer expects that DTC or its nominee, upon receipt of any payment
made in respect of the global notes, will credit its participants' accounts with
such payments in amounts proportionate to their respective interest in the
principal amount of such global note as shown on the records of DTC or its
nominee. The Issuer expects that payments by participants to owners of
book-entry interests held through such participants will be governed by standing
customer instructions and customary practices, as is now the case with the
securities held for the account of customers in bearer form or registered in
"street name," and will be the responsibility of such participants. Distribution
with respect to ownership of book-entry interests held through Euroclear or
Cedel Bank will be credited to the cash accounts of Euroclear participants or
Cedel Bank participants in accordance with the relevant system's rules and
procedures, to the extent received by its depositary.
None of the Issuer, the book-entry depositary nor any paying agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of book-entry interests or for maintaining,
supervising or reviewing all records relating to such book-entry interests or
beneficial ownership interests.
REDEMPTION OF GLOBAL NOTES
In the event any global note (or any portion thereof) is redeemed, the
book-entry depositary will, through DTC, redeem, from the amount received by it
in respect of the redemption of such global note, an equal amount of the
book-entry interests in such global note. The redemption price payable in
connection with the redemption of such book-entry interest will be equal to the
amount received by the book-entry depositary in connection with the redemption
of such global note (or any portion thereof). The Issuer understands that under
existing DTC practices, if fewer than all of the notes are to be redeemed at any
time, DTC will credit participants' accounts on a proportionate basis (with
adjustments to prevent fractions) or by lot or on such other basis as DTC deems
fair and appropriate; provided that no beneficial interests of less than $1,000
principal amount at maturity may be redeemed in part.
TRANSFERS
Pursuant to the Note Deposit Agreement, the global notes may be transferred
only to the successor to the book-entry depositary.
All transfers of book-entry interests between participants in DTC will be
effected by DTC pursuant to customary procedures established by DTC and its
participants. Transfers between participants in Euroclear and Cedel Bank will be
effected in the ordinary way in accordance with their respective rules and
operating procedures.
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<PAGE>
ACTION BY OWNERS OF BOOK-ENTRY INTERESTS
As soon as practicable after receipt by the book-entry depositary of notice
of any solicitation of consents or request for a waiver of other action by the
holders of new notes, or of any offer to purchase the new notes with Excess
Proceeds (as defined under the heading "Limitation on Asset Disposition") or
upon a Change of Control, the book-entry depositary will mail to DTC a notice
containing (a) such information as is contained in the notice received by the
book-entry depositary, (b) a statement that at the close of business on a
specified record date DTC will be entitled to instruct the book-entry depositary
as to the consent, waiver or other action, if any, pertaining to such new notes
and (c) a statement as to the manner in which such instructions may be given. In
addition, the book-entry depositary will forward to DTC all materials pertaining
to any such solicitation, request, offer or other action. Upon the written
request of DTC the book-entry depositary shall endeavor insofar as practicable
to take such action regarding the requested consent, waiver, offer or other
action in respect of such new notes in accordance with any instructions set
forth in such request. DTC may grant proxies or otherwise authorize DTC
participants or indirect participants to provide such instructions to the
book-entry depositary so that they may exercise any rights of a holder or take
any other actions which a holder is entitled to take under the Indenture. Under
its usual procedures, DTC would mail an omnibus proxy to the Issuer and the
book-entry depositary assigning Euroclear's and Cedel Bank's consenting or
voting rights to those DTC participants to whose accounts such book-entry
interests are credited on a record date as soon as possible after such record
date. Euroclear or Cedel Bank, as the case may be, will take any action
permitted to be taken by a holder under the Indenture on behalf of a Euroclear
participant or Cedel Bank participant only in accordance with its relevant rules
and procedures and subject to its depositary's ability to effect such actions on
its behalf through DTC. The book-entry depositary will not exercise any
discretion in the granting of consents or waivers or the taking of any other
action relating to the Indenture.
DTC has advised the Issuer that it will take any action permitted to be
taken by a holder of new notes (including the presentation of new notes for
exchange as described above) only at the direction of one or more participants
to whose account the DTC interests in the global notes are credited and only in
respect of such portion of the aggregate principal amount of new notes, as to
which such participant or participants has or have given such direction.
REPORTS
The book-entry depositary will immediately send to DTC a copy of any
notices, reports and other communications received relating to the Issuer, the
new notes or the book-entry interests.
ACTION BY BOOK-ENTRY DEPOSITARY
Upon the occurrence of a default with respect to the new notes, or in
connection with any other right of the holder of a global note under the
Indenture, if requested in writing by DTC, the book-entry depositary will take
any such action as shall be requested in such notice; provided that the
book-entry depositary has been offered reasonable security or indemnity against
the costs, expenses and liabilities that might be incurred by it in compliance
with such request by the owners of book-entry interests.
RESIGNATION OF BOOK-ENTRY DEPOSITARY
The book-entry depositary may at any time resign as book-entry depositary
by written notice to the Issuer and DTC, such resignation to become effective
upon the appointment of a successor book-entry depositary, in which case the
global notes shall be delivered to that successor. If no such successor has been
so appointed by the Issuer within 90 days, the book-entry depositary may request
the Issuer to issue definitive registered notes as described above.
If at any time DTC is unwilling or unable to continue as a depositary for
the book-entry interests and a successor depositary is not appointed by the
Issuer within 90 days, DTC may request that the Issuer issue definitive
registered notes in exchange therefor.
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EXPENSES OF BOOK-ENTRY DEPOSITARY
We have agreed to indemnify the book-entry depositary against certain
liabilities incurred by it and pay the charges of the book-entry depositary as
agreed between the Issuer and the book-entry depositary.
AMENDMENT AND TERMINATION OF THE NOTE DEPOSIT AGREEMENT
The Note Deposit Agreement may be amended by the Issuer and the book-entry
depositary without notice to or consent of DTC or any owner of a book-entry
interest:
o to cure any ambiguity, defect or inconsistency, provided that such
amendment or supplement does not adversely affect the rights of DTC
or any holder of book-entry interests,
o to evidence the succession of another person to the Issuer (when a
similar amendment with respect to the Indenture is being executed)
and the assumption by any such successor of the covenants of the
Issuer therein,
o to evidence or provide for a successor book-entry depositary,
o to make any amendment, change or supplement that does not adversely
affect DTC or any owner of book-entry interests,
o to add to the covenants of the Issuer or the book-entry depositary,
o to add a guarantor when a guarantor is made a party to the Indenture
pursuant to the Indenture or
o to comply with the U.S. federal and U.K. securities laws. Except as
provided in the Note Deposit Agreement, no amendment that adversely
affects DTC may be made to the Note Deposit Agreement without the
consent of DTC, and no amendment that adversely affects the holders
of book-entry interests may be made without the consent of a
majority of the aggregate principal amount of book-entry interests
outstanding. Upon the issuance of definitive registered notes in
exchange for book-entry interests constituting the entire principal
amount of notes, the Note Deposit Agreement will terminate. The Note
Deposit Agreement may be terminated upon the resignation of the
book-entry depositary if no successor has been appointed within
90 days as set forth above.
INFORMATION CONCERNING DTC, EUROCLEAR AND CEDEL BANK
The Issuer understands as follows with respect to DTC, Euroclear and Cedel
Bank:
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC participants include securities brokers and dealers (including
the purchasers), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
the DTC book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
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Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of an owner of a
book-entry interest to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
book-entry interests to such persons may be limited. In addition, beneficial
owners of book-entry interests through the DTC system will receive distributions
attributable to the global notes only through DTC participants.
Euroclear and Cedel Bank hold securities for participating organizations
and facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in accounts
of such participants. Euroclear and Cedel Bank provide to their participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Euroclear and Cedel Bank interface with domestic securities markets.
Euroclear and Cedel Bank participants are financial institutions such as
underwriters, securities brokers and dealers, banks, trust companies and certain
other organizations. Indirect access to Euroclear or Cedel Bank is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodian relationship with a Euroclear or Cedel
Bank participant, either directly or indirectly.
GLOBAL CLEARANCE AND SETTLEMENT UNDER BOOK-ENTRY SYSTEM
INITIAL SETTLEMENT. Investors electing to own their book-entry interest
through DTC (other than through accounts at Euroclear or Cedel Bank) will follow
the settlement practices applicable to U.S. corporate debt obligations. The
securities custody accounts of investors will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to own their book-entry interests through Euroclear or
Cedel Bank accounts will follow the settlement procedures applicable to
conventional eurobonds in registered form. Book-entry interests will be credited
to the securities custody accounts of Euroclear and Cedel Bank holders on the
business day following the settlement date against payment for value on the
settlement date.
SECONDARY MARKET TRADING. The book-entry interests will trade in DTC's
Same-Day Funds Settlement System, and secondary market trading activity in such
book-entry interests will therefore settle in same-day funds.
Since the purchaser determines the place of delivery, it is important to
establish at the time of trading of any book-entry interests where both the
purchaser's and seller's accounts are located to ensure that settlement can be
made on the desired value date.
OPTIONAL REDEMPTION
The new notes are subject to redemption, at our option, in whole or in
part, at any time on or after November 15, 2004 and prior to maturity, upon not
less than 30 nor more than 60 days' notice mailed to each holder of new notes to
be redeemed at such holder's address appearing in the note register, in
principal amounts of $1,000 or an integral multiple of $1,000, at the following
redemption prices (expressed as percentages of the principal amount thereof)
plus accrued interest to but excluding the redemption date (subject to the right
of holders to receive interest due on an interest
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payment date that is on or prior to the redemption date), if redeemed during the
12-month period beginning November 15, of the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- ----------
<S> <C>
2004............................................................................ 104.938%
2005............................................................................ 103.292%
2006............................................................................ 101.646%
2007 and thereafter............................................................. 100.000%
</TABLE>
In addition, at any time prior to November 15, 2002, in the event that the
Guarantor receives net cash proceeds from the public or private sale of its
Common Stock, the Issuer (to the extent it receives such proceeds) may, at its
option, apply an amount equal to any such net cash proceeds or any portion
thereof to redeem, from time to time, new notes in a principal amount at
maturity of up to an aggregate amount equal to 33 1/3% of the original aggregate
principal amount at maturity of the new notes, provided, however, that new notes
in an amount equal to at least 66 2/3% of the aggregate original principal
amount at maturity of the new notes remain outstanding after each redemption.
Each redemption must occur on a redemption date within 180 days of the related
sale and upon not less than 30 nor more than 60 days' notice mailed to each
holder of new notes to be redeemed at such holder's address appearing in the
note register, in amounts of $1,000 or an integral multiple of $1,000 at a
redemption price equal to 109.875% of the principal amount of the new notes plus
accrued interest to but excluding the redemption date.
If less than all the new notes are to be redeemed, the trustee shall
select, in such manner as it shall deem fair and appropriate, the particular new
notes to be redeemed or any portion thereof that is an integral multiple of
$1,000.
In the event that (i) the Guarantor or the Issuer has become or would
become obligated to pay any Additional Amounts as a result of (x) certain
changes in or affecting withholding tax laws or (y) a Listing Failure provided
that the Issuer has used reasonable best efforts to list and maintain a listing
of the new notes on a "recognized stock exchange" (within the meaning of
Section 841 of the U.K. Income and Corporation Taxes Act 1988), and (ii) the
Guarantor and the Issuer are unable to avoid the requirement to pay such
Additional Amounts by taking reasonable measures available to them (including,
without limitation, the Guarantor making payments directly to holders under the
new notes guarantee, unless such payment is likely to result in adverse
consequences to the Issuer or the Guarantor), then the Issuer may redeem all,
but not less than all, of the new notes at any time at 100% of the principal
amount thereof on the redemption date, together with accrued interest thereon,
if any, to but excluding the redemption date. Prior to the publication of the
notice of redemption in accordance with the foregoing, the Issuer shall deliver
to the trustee an officer's certificate stating that the Issuer is entitled to
effect such redemption based on a written opinion of independent tax counsel or
accounting firm reasonably satisfactory to the trustee. See the heading
"Additional Amounts."
The new notes do not have the benefit of any sinking fund.
COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON CONSOLIDATED DEBT
The Guarantor may not, and may not permit any Restricted Subsidiary to,
Incur any Debt unless the ratio of (a) the aggregate consolidated principal
amount of Debt (which is defined in the Indenture to include the accreted value
of any Debt issued at a discount) of the Guarantor outstanding as of the most
recent available quarterly or annual balance sheet, after giving pro forma
effect to the Incurrence of such Debt and any other Debt Incurred since such
balance sheet date
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and the receipt and application of the proceeds thereof, to (b) four (4) times
the Consolidated Cash Flow Available for Fixed Charges for the most recent
fiscal quarter next preceding the Incurrence of such Debt for which consolidated
financial statements are available, determined on a pro forma basis as if any
such Debt had been Incurred and the proceeds thereof had been applied at the
beginning of such recent fiscal quarter, would be less than 7.0 to 1.0 for such
period.
Notwithstanding the foregoing limitation, the Guarantor and any Restricted
Subsidiary may Incur the following:
(1) Debt under Credit Facilities in an aggregate principal amount at
any one time not to exceed $200 million, and any renewal,
extension, refinancing or refunding thereof in an amount which,
together with any principal amount remaining outstanding under all
Credit Facilities, does not exceed the aggregate principal amount
outstanding under all Credit Facilities immediately prior to such
renewal, extension, refinancing or refunding;
(2) Debt owed by the Guarantor to any Restricted Subsidiary of the
Guarantor or Debt owed by a Restricted Subsidiary of the Guarantor
to the Guarantor or a Restricted Subsidiary of the Guarantor;
provided, however, that upon either (x) the transfer or other
disposition by such Restricted Subsidiary or the Guarantor of any
Debt so permitted to a person other than the Guarantor or another
Restricted Subsidiary of the Guarantor or (y) such Restricted
Subsidiary ceasing to be a Restricted Subsidiary, the provisions
of this clause (2) shall no longer be applicable to such Debt and
such Debt shall be deemed to have been Incurred at the time of
such transfer or other disposition;
(3) Debt Incurred to renew, extend, refinance or refund (x) Debt
outstanding at the date of the Indenture or (y) Incurred pursuant
to the first paragraph of this "Limitation on Consolidated Debt",
or clause (6) or (8) of this paragraph or (z) the new notes
originally issued on the date of the Indenture or new notes
exchanged therefore, in each case, in an aggregate principal
amount not to exceed the aggregate principal amount of and accrued
interest on the Debt so refinanced plus the amount of any premium
required to be paid in connection with such refinancing pursuant
to the terms of the Debt so refinanced or the amount of any
premium reasonably determined by the Guarantor as necessary to
accomplish such refinancing by means of a tender offer or
privately negotiated repurchase, plus the expenses of the
Guarantor or the Restricted Subsidiary effecting such refinancing
incurred in connection with such refinancing; provided, however,
that Debt the proceeds of which are used to refinance the new
notes or Debt which is pari passu to the new notes and the new
notes guarantee or Debt which is subordinate in right of payment
to the new notes and the new notes guarantee, shall only be
permitted if (A) in the case of any refinancing of the new notes
or Debt which is pari passu to the new notes and the new notes
Guarantee, the refinancing Debt is made pari passu or subordinated
to the new notes and the new notes guarantee and, in the case of
any refinancing of Subordinated Debt, the refinancing Debt
constitutes Subordinated Debt and (B) in any case, the refinancing
Debt by its terms, or by the terms of any agreement or instrument
pursuant to which such Debt is issued, does not have a final
stated maturity prior to the final stated maturity of the Debt
being refinanced, and the average life of such new Debt is at
least equal to the remaining average life of the Debt being
refinanced (assuming that such Debt being refinanced had a final
stated maturity three months later than its actual final stated
maturity);
(4) Debt in an aggregate principal amount not in excess of (A) two
(2) times the aggregate amount of the Guarantor's Incremental
Paid-in Capital minus (B) $165 million;
(5) Debt in an aggregate principal amount not in excess of 80% of the
aggregate amount of accounts receivable set forth on the most
recent unaudited quarterly or audited annual financial statements
of the Guarantor and its consolidated subsidiaries filed with the
Commission;
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(6) Purchase Money Debt, which is incurred for the construction,
acquisition and improvement of Telecommunications Assets, provided
that the amount of such Purchase Money Debt does not exceed the
cost of the construction, acquisition or improvement of the
applicable Telecommunications Assets;
(7) Debt consisting of Permitted Interest Rate and Currency Protection
Agreements; and
(8) Debt not otherwise permitted to be Incurred pursuant to clauses
(1) through (8) above, which, together with any other outstanding
Debt Incurred pursuant to this clause (8), has an aggregate
principal amount not in excess of $50 million at any time
outstanding.
For purposes of determining compliance with this "Limitation on
Consolidated Debt" covenant, with respect to any item of Debt (x) in the event
that an item of Debt meets the criteria of more than one of the types of Debt
the Guarantor or a Restricted Subsidiary is permitted to Incur pursuant to the
foregoing clauses (1) through (8), the Guarantor shall have the right, in its
sole discretion, to classify such item of Debt and shall only be required to
include the amount and type of such Debt under the clause permitting the Debt as
so classified and (y) any other obligation of the obligor on such Debt (or of
any other Person who could have Incurred such Debt under this covenant) arising
under any Guarantee, Lien or letter of credit supporting such Debt shall be
disregarded to the extent that such Guarantee, Lien or letter of credit secures
the principal amount of such Debt.
For purposes of determining compliance with the foregoing restriction on
the Incurrence of Debt with respect to Debt denominated in a foreign currency,
the dollar-equivalent principal amount of such foreign-currency-denominated Debt
shall be calculated based on the relevant currency exchange rate in effect on
the date that such foreign-currency-denominated Debt was Incurred, in the case
of term debt, or first committed, in the case of revolving credit debt, provided
that (x) the dollar-equivalent principal amount of any such Debt outstanding on
the closing date shall be calculated based on the relevant currency exchange
rate in effect on the closing date and (y) if such Debt is Incurred to refinance
other Debt denominated in a foreign currency, and such refinancing would cause
the applicable dollar-denominated restriction to be exceeded it calculated at
the relevant currency exchange rate in effect on the date of such refinancing,
such dollar-denominated restriction shall be deemed not to have been exceeded so
long as the principal amount of such refinancing Debt does not exceed the
principal amount of such Debt being refinanced. The principal amount of any Debt
Incurred to refinance other Debt, if Incurred in a different currency from the
Debt being refinanced, shall be calculated based on the currency exchange rate
applicable to the currencies in which such respective Debt is denominated that
is in effect on the date of such refinancing.
LIMITATION ON RESTRICTED PAYMENTS
The Guarantor:
(A) may not, and will not permit, directly or indirectly, any
Restricted Subsidiary to, declare or pay any dividend, or make any
distribution, in respect of its Capital Stock or to the holders
thereof, excluding (x) any dividends or distributions payable
solely in shares of its Capital Stock (other than Disqualified
Stock) or in options, warrants or other rights to acquire its
Capital Stock (other than Disqualified Stock), (y) any dividends
paid to the Guarantor or a Restricted Subsidiary or (z) pro rata
dividends paid on shares of Common Stock of Restricted
Subsidiaries;
(B) may not, and may not permit any Restricted Subsidiary to,
purchase, redeem, or otherwise retire or acquire for value
(x) any Capital Stock of the Guarantor or any Related Person of
the Guarantor (other than a permitted refinancing) or (y) any
options, warrants or rights to purchase or acquire shares of
Capital Stock of the Guarantor or any Related Person of the
Guarantor or any securities convertible or exchangeable into
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<PAGE>
shares of Capital Stock of the Guarantor or any Related Person of
the Guarantor (other than a permitted refinancing);
(C) may not make, or permit any Restricted Subsidiary to make, any
Investment, except for Permitted Investments; and
(D) may not, and may not permit any Restricted Subsidiary to, redeem,
defease, repurchase, retire or otherwise acquire or retire for
value, prior to any scheduled maturity, repayment or sinking fund
payment, Debt of the Guarantor or the Issuer which is subordinate
in right of payment to the notes or the notes guarantee (each of
clauses (A) through (D) being a "Restricted Payment")
if:
(1) an event of default, or an event that with the passing of time
or the giving of notice, or both, would constitute an event of
default, shall have occurred and be continuing; or
(2) except with respect to Investments, upon giving effect to such
Restricted Payment, the Guarantor could not Incur at least
$1.00 of additional Debt pursuant to the terms of the Indenture
described in the first paragraph of "Limitation on Consolidated
Debt" above; or
(3) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments from the date of the Indenture exceeds
the sum of:
(a) (x) Consolidated Cash Flow Available for Fixed Charges since
the end of the last full fiscal quarter prior to the date of
the Indenture through the last day of the last full fiscal
quarter ending immediately preceding the date of such
Restricted Payment (the "Calculation Period") minus (y) 1.5
times Consolidated Interest Expense for the Calculation
Period plus
(b) an amount equal to the net reduction in Investments (other
than reductions in Permitted Investments) in any person
resulting from payments of interest on Debt, dividends,
repayments of loans or advances, or other transfers of
assets, in each case to the Guarantor or any Restricted
Subsidiary or from the Net Cash Proceeds from the sale of
any such Investment (except, in each case, to the extent any
such payment or proceeds are included in the calculation of
Consolidated Cash Flow Available for Fixed Charges for the
Calculation Period, or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries, not to exceed, in
each case, the amount of Investments previously made by the
Guarantor or any Restricted Subsidiary in such person or
Unrestricted Subsidiary plus
(c) an amount equal to the aggregate net proceeds received after
the date of the Indenture, including the fair market value
of property other than cash (determined in good faith by the
Board of Directors as evidenced by a resolution of the Board
of Directors filed with the Trustee), as capital
contributions to the Guarantor or from the issuance (other
than to a Subsidiary) of Capital Stock (other than
Disqualified Stock) of the Guarantor and warrants, rights or
options on Capital Stock (other than Disqualified Stock) of
the Guarantor and the principal amount of Debt of the
Guarantor or any Restricted Subsidiary that has been
converted into Capital Stock (other than Disqualified Stock
and other than by a Subsidiary) of the Guarantor after the
date of the Indenture plus
(d) $30 million.
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Notwithstanding the foregoing:
(1) the Guarantor may pay any dividend on Capital Stock of any class
of the Guarantor within 60 days after the declaration thereof if,
on the date when the dividend was declared, the Guarantor could
have paid such dividend in accordance with the foregoing
provisions;
(2) the Guarantor may make acquisitions of a minority equity interest
in entities engaged in the Telecommunications Business; provided
that
(A) the acquisition of a majority equity interest in such entities
is not then permitted or practicable under applicable law
without regulatory consent or change of law,
(B) the Board of Directors of the Guarantor determines in good
faith that there is a substantial probability that such
approval or change of law will be obtained,
(C) the Guarantor or one of its Restricted Subsidiaries has the
right to acquire Capital Stock representing a majority of the
voting power of the Voting Stock of such entity upon receipt
of regulatory consent or change of law and does acquire such
Voting Stock reasonably promptly upon receipt of such consent
or change of law and
(D) in the event that such consent or change of law has not been
obtained within 18 months of funding such Investment, the
Guarantor or one of its Restricted Subsidiaries has the right
to sell such minority equity interest to the person from whom
it acquired such interest, for consideration consisting of the
consideration originally paid by the Guarantor and its
Restricted Subsidiaries for such minority equity interest;
(3) the Guarantor may repurchase any shares of its Common Stock or
options to acquire its Common Stock from persons who were formerly
directors, officers or employees of the Guarantor or any of its
Subsidiaries, provided that the aggregate amount of all such
repurchases made pursuant to this clause (3) shall not exceed
$6 million, plus the aggregate cash proceeds received by the
Guarantor since the date of the Indenture from issuances of its
Common Stock or options to acquire its Common Stock to directors,
officers and employees of the Guarantor or any of its Restricted
Subsidiaries;
(4) the Guarantor or a Restricted Subsidiary may redeem, defease,
repurchase, retire or otherwise acquire or retire for value Debt
of the Guarantor or the Issuer which is subordinated in right of
payment to the notes or the note guarantee, as the case may be, in
exchange for, or out of the proceeds of a substantially concurrent
sale (other than to a Subsidiary) of, Capital Stock (other than
Disqualified Stock of the Guarantor) or in a refinancing that
satisfies the requirements of clause (3) of the second paragraph
under "Limitation on Consolidated Debt"; and
(5) the Guarantor and its Restricted Subsidiaries may retire or
repurchase any Capital Stock of the Guarantor or of any Subsidiary
of the Guarantor in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary of the
Guarantor) of, Capital Stock (other than Disqualified Stock) of
the Guarantor or such Restricted Subsidiary.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Guarantor may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary of the Guarantor:
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<PAGE>
(1) to pay dividends (in cash or otherwise) or make any other
distributions in respect of its Capital Stock owned by the
Guarantor or any other Restricted Subsidiary of the Guarantor or
pay any Debt or other obligation owed to the Guarantor or any
other Restricted Subsidiary;
(2) to make loans or advances to the Guarantor or any other Restricted
Subsidiary; or
(3) to transfer any of its property or assets to the Guarantor or any
other Restricted Subsidiary.
Notwithstanding the foregoing, the Guarantor may, and may permit any
Restricted Subsidiary to, suffer to exist any such encumbrance or restriction:
(a) pursuant to any agreement in effect on the date of the Indenture;
(b) pursuant to an agreement relating to any Acquired Debt, which
encumbrance or restriction is not applicable to any person, or the
properties or assets of any person, other than the person so
acquired and was not Incurred in anticipation of such person being
acquired;
(c) pursuant to an agreement effecting a renewal, refunding or
extension of Debt Incurred pursuant to an agreement referred to in
clause (a) or (b) above, provided, however, that the provisions
contained in such renewal, refunding or extension agreement
relating to such encumbrance or restriction are no more
restrictive in any material respect than the provisions contained
in the agreement the subject thereof;
(d) in the case of clause (c) above, contained in any security
agreement (including a Capital Lease Obligation) securing Debt of
the Guarantor or a Restricted Subsidiary otherwise permitted under
the Indenture, but only to the extent such restrictions restrict
the transfer of the property subject to such security agreement;
(e) in the case of clause (c) above, with respect to customary
nonassignment provisions entered into in the ordinary course of
business in leases and other agreements;
(f) with respect to a Restricted Subsidiary of the Guarantor imposed
pursuant to an agreement which has been entered into for the sale
or disposition of all or substantially all of the Capital Stock or
assets of such Restricted Subsidiary, provided that
(x) the consummation of such transaction would not result in an
event of default or an event that, with the passing of time or
the giving of notice or both, would constitute an event of
default,
(y) such restriction terminates if such transaction is not
consummated and
(z) the consummation or abandonment of such transaction occurs
within one year of the date such agreement was entered into;
(g) pursuant to applicable law or required by any regulatory authority
having jurisdiction over the Guarantor or any Restricted
Subsidiary;
(h) pursuant to the Indenture and the notes;
(i) constituting a Lien otherwise permitted pursuant to "Limitations
on Liens"; and
(j) other encumbrances or restrictions that are not materially more
restrictive than customary provisions in comparable financings
provided that the Issuer and the Guarantor provides an officer's
certificate to the Trustee to the effect that in the opinion of
the signers of such certificate such encumbrances or restrictions
will not materially impact the Issuer's and Guarantor's ability to
make scheduled payments of interest and principal under the notes.
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LIMITATION ON ISSUANCE OF GUARANTEES OF DEBT BY RESTRICTED SUBSIDIARIES
The Guarantor will not permit any Restricted Subsidiary, directly or
indirectly, to incur any Guarantee of any Debt of the Guarantor or the Issuer
(other than the notes) unless such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture providing for a Guarantee by such
Subsidiary of the notes; any Subsidiary Guarantee by such Subsidiary of the
notes (x) will be senior in right of payment to any Guarantee of Subordinated
Debt of the Guarantor or the Issuer and (y) will be pari passu with or senior to
any Guarantee of any other Debt of the Guarantor or the Issuer.
Notwithstanding the foregoing, any Subsidiary Guarantee may provide by its
terms that it shall be automatically and unconditionally released and discharged
upon:
(i) any sale, exchange or transfer, to any person not an Affiliate of
the Guarantor, of all of the Guarantor's and each Restricted
Subsidiary's Capital Stock in, or all or substantially all the
assets of, such Restricted Subsidiary (which sale, exchange or
transfer is not prohibited by the Indenture); or
(ii) the release or discharge of the Guarantee which resulted in the
creation of such Subsidiary Guarantee, except a discharge or
release by or as a result of payment under such Guarantee.
LIMITATION ON LIENS
The Guarantor may not, and may not permit any Restricted Subsidiary of the
Guarantor to, Incur or suffer to exist any Lien on or with respect to any
property or assets now owned or hereafter acquired to secure any Debt without
making, or causing such Restricted Subsidiary to make, effective provision for
securing the notes (x) equally and ratably with such Debt as to such property
for so long as such Debt will be so secured or (y) in the event such Debt is
Debt of the Guarantor which is subordinate in right of payment to the notes,
prior to such Debt as to such property for so long as such Debt will be so
secured.
The foregoing restrictions shall not apply to:
(1) Liens existing on the date of the Indenture and securing Debt
outstanding on the date of the Indenture;
(2) Liens securing Debt outstanding or available under all Credit
Facilities to the extent such Debt is permitted under clause
(i) of the "Limitation in Consolidated Debt";
(3) Liens in favor of the Guarantor or any Restricted Subsidiary of
the Guarantor;
(4) Liens on real or personal property of the Guarantor or a
Restricted Subsidiary of the Guarantor acquired, constructed or
constituting improvements made after the date of original issuance
of the notes to secure Purchase Money Debt which is Incurred for
the construction, acquisition and improvement of
Telecommunications Assets and is otherwise permitted under the
Indenture, provided, however, that
(a) the principal amount of any Debt secured by such a Lien does
not exceed 100% of such purchase price or cost of construction
or improvement of the property subject to such Liens,
(b) such Lien attaches to such property prior to, at the time of or
within 180 days after the acquisition, completion of
construction or commencement of operation of such property and
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(c) such Lien does not extend to or cover any property other than
the specific item of property (or portion thereof) acquired,
constructed or constituting the improvements made with the
proceeds of such Purchase Money Debt;
(5) Liens to secure Acquired Debt, provided, however, that
(a) such Lien attaches to the acquired asset prior to the time of
the acquisition of such asset and
(b) such Lien does not extend to or cover any other asset;
(6) Liens to secure Debt Incurred to extend, renew, refinance or
refund (or successive extensions, renewals, refinancings or
refundings), in whole or in part, Debt secured by any Lien
referred to in the foregoing clauses (1), (2), (4) and (5) so long
as the principal amount of Debt so secured is not increased except
as otherwise permitted under clause (3) of "--Limitation on
Consolidated Debt" and, in the case of Liens to secure Debt
incurred to extend, renew, refinance or refund Debt secured by a
Lien referred to in the foregoing clause (1), (4) or (5), such
Liens do not extend to any other property; and
(7) Permitted Liens.
LIMITATION ON ASSET DISPOSITIONS
The Guarantor may not, and may not permit any Restricted Subsidiary of the
Guarantor to, make any Asset Disposition in one or more related transactions
unless:
(a) the Guarantor or the Restricted Subsidiary, as the case may be,
receives consideration for such disposition at least equal to the
fair market value for the assets sold or disposed of as determined
by the Board of Directors in good faith and, in the case of an
Asset Disposition in an amount greater than $5 million, evidenced
by a resolution of the Board of Directors filed with the Trustee;
and
(b) at least 75% of the consideration for such disposition consists
of:
(1) cash or readily marketable cash equivalents or the assumption
of Debt of the Guarantor or the Issuer (other than Debt that is
subordinated to the notes and the notes guarantee) or of a
Restricted Subsidiary and release from all liability on the
Debt assumed; or
(2) Telecommunications Assets; provided that this limitation shall
not apply to the issuance or sale of Capital Stock of
deltathree or RSL Australia, our Australian subsidiary.
In the event and to the extent that the Net Available Proceeds received by
the Guarantor or any of its Restricted Subsidiaries from one or more Asset
Dispositions occurring on or after the closing date in any period of 12
consecutive months exceed 10% of Consolidated Tangible Assets (determined as of
the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Guarantor and its subsidiaries have been filed
with the Commission), then the Guarantor or the Issuer shall or shall cause the
relevant Restricted Subsidiary to:
(1) within twelve months after the date Net Available Proceeds so
received exceed 10% of Consolidated Tangible Assets:
(A) apply an amount equal to such excess Net Available Proceeds to
permanently repay unsubordinated Debt of the Guarantor or any
Restricted Subsidiary providing a Subsidiary Guarantee pursuant
to the "Limitation on Issuances of Guarantees by
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Restricted Subsidiaries" covenant or Debt of any other
Restricted Subsidiary, in each case owing to a person other
than the Guarantor or any of its Restricted Subsidiaries; or
(B) invest an equal amount, or the amount not so applied pursuant
to clause (A) (or enter into a definitive agreement committing
to so invest within twelve months after the date of such
agreement), in Telecommunications Assets; and
(2) apply (no later than the end of the twelve-month period referred
to in clause (1)) such excess Net Available Proceeds (to the
extent not applied pursuant to clause (1)) as provided in the
following paragraph of this "Limitation on Asset Dispositions"
covenant.
The amount of such excess net available proceeds required to be applied (or
to be committed to be applied) during such twelve-month period as set forth in
clause (1) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Dispositions" covenant totals at least $10 million, the
Issuer shall repay any Debt of the Guarantor or any Restricted Subsidiary to the
extent the terms of such Debt require repayment prior to an Offer to Purchase
being made hereunder (including by way of an offer to purchase to the holders of
such Debt, if so required). To the extent there are Excess Proceeds after such
repayment (or offer to purchase), the Issuer must commence, not later than the
fifteenth business day of such month (or if later, the fifteenth business day
after the expiration of any such required offer to purchase), and consummate an
Offer to Purchase from the holders of the notes on a pro rata basis an aggregate
principal amount of such notes on the relevant Payment Date equal to the Excess
Proceeds on such date not applied or to be applied pursuant to the first
sentence of this paragraph, at a purchase price equal to 100% of the principal
amount of the notes, plus, in each case, accrued interest (if any) to but
excluding the Payment Date and, to the extent required by the terms thereof, any
other Debt of the Guarantor that is pari passu with the notes at a price no
greater than 100% of the principal amount (or 100% of the accreted value in the
case of original issue discount Debt) thereof plus accrued interest to but
excluding the date of purchase. To the extent there are any remaining Excess
Proceeds following the completion of the Offer to Purchase, the Issuer must
repay such other Debt of the Guarantor or Debt of a Restricted Subsidiary of the
Guarantor, to the extent permitted under the terms thereof and, to the extent
there are any remaining Excess Proceeds after such repayment, the Issuer shall
apply such amount to any other use as determined by the Issuer which is not
otherwise prohibited by the Indenture.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Guarantor may not, and may not permit any Restricted Subsidiary of the
Guarantor to, issue, transfer, convey, sell or otherwise dispose of any shares
of Capital Stock of a Restricted Subsidiary of the Guarantor or securities
convertible or exchangeable into, or options, warrants, rights or any other
interest with respect to, Capital Stock of a Restricted Subsidiary of the
Guarantor to any Person other than the Guarantor or a Wholly-Owned Restricted
Subsidiary of the Guarantor except:
(i) a sale of all of the Capital Stock of such Restricted Subsidiary
owned by the Guarantor and any Restricted Subsidiary of the
Guarantor that complies with the provisions described under
"Limitation on Asset Dispositions" above to the extent such
provisions apply;
(ii) if required, the issuance, transfer, conveyance, sale or other
disposition of directors' qualifying shares;
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(iii) Disqualified Stock issued in exchange for, or upon conversion
of, or the proceeds of the issuance of which are used to redeem,
refinance, replace or refund shares of Disqualified Stock of
such Restricted Subsidiary, provided that the amounts of the
redemption obligations of such Disqualified Stock shall not
exceed the amounts of the redemption obligations of, and such
Disqualified Stock shall have redemption obligations no earlier
than those required by, the Disqualified Stock being exchanged,
converted, redeemed, refinanced, replaced or refunded;
(iv) issuances of not more than 49% of the Voting Stock and equity
interest in a Restricted Subsidiary engaged in the
Telecommunications Business:
(1) in connection with the acquisition of such Restricted
Subsidiary or of Telecommunications Assets acquired or to be
acquired by the Guarantor or a Restricted Subsidiary; or
(2) to a Strategic Investor, provided that the Guarantor complies
with the provisions described under "Limitation on Asset
Dispositions" above to the extent such provisions apply; and
(v) issuances or sales of Capital Stock of each of deltathree and RSL
Australia, including pursuant to stock option plans or other equity
compensation and incentive plans established for each of their respective
employees, directors and consultants, so long as immediately after giving
effect to such issuances and sales, the issuer of such Capital Stock is a
Restricted Subsidiary.
LIMITATION ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
The Guarantor will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any Related Person or with any Affiliate
of the Guarantor or any Restricted Subsidiary, except upon fair and reasonable
terms no less favorable to the Guarantor or such Restricted Subsidiary than
could be obtained, at the time of such transaction or, if such transaction is
pursuant to a written agreement, at the time of the execution of the agreement
providing therefor, in a comparable arm's-length transaction with a person that
is not a Related Person or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(i) transactions:
(A) approved by a majority of the disinterested members of the
Board of Directors; or
(B) for which the Guarantor or a Restricted Subsidiary delivers to
the trustee a written opinion of a nationally recognized
investment banking firm (or a subsidiary or affiliate thereof)
in the United States stating that the transaction is fair to
the Guarantor or such Restricted Subsidiary from a financial
point of view;
(ii) any transaction solely between the Guarantor and any of its
Wholly-Owned Restricted Subsidiaries or solely between
Wholly-Owned Restricted Subsidiaries; and
(iii) any payments or other transactions pursuant to any tax-sharing
agreement between the Guarantor and any other person with which
the Guarantor files a consolidated tax return or with which the
Guarantor is part of a consolidated group for tax purposes.
Notwithstanding the foregoing, any transaction covered by the first
paragraph of this "Limitation on Transactions with Affiliates and Related
Persons" covenant and not covered by clauses (ii) through (iii) of this
paragraph must be approved or determined to be fair in the manner provided for
in clause (i)(A) or (B) above, unless the aggregate amount of such transaction
is less than $5 million in value.
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CHANGE OF CONTROL
Unless the Issuer has theretofore exercised its right to redeem all of the
notes in accordance with the Indenture, within 30 days of the occurrence of a
Change of Control, the Issuer will be required to make an Offer to Purchase all
outstanding Notes at a purchase price equal to 101% of their principal amount
plus accrued interest to but excluding the date of purchase. A "Change of
Control" will be deemed to have occurred at such time as either:
(i) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of more
than 35% of the total voting power of the Voting Stock of the
Guarantor on a fully diluted basis and such ownership is greater
than the amount of voting power of the Voting Stock of the
Guarantor, on a fully diluted basis, held by the Existing
Stockholders and their Affiliates on such date;
(ii) individuals who on the closing date constitute the Board of
Directors (together with any new directors whose election by the
Board of Directors or whose nomination for election by the
Guarantor's stockholders was approved by a vote of at least
two-thirds of the members of the Board of Directors then in
office who either were members of the Board of Directors on the
closing date or whose election or nomination for election was
previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in
office; or
(iii) all of the Common Stock of the Issuer is not beneficially owned
by the Guarantor (other than directors' qualifying shares).
(Section 1017)
In the event that the Issuer makes an Offer to Purchase the notes the
Issuer and the Guarantor intend to comply with any applicable securities laws
and regulations, including any applicable requirements of Section 14(e) of, and
Rule 14e-1 under, the Exchange Act.
REPORTS
The Guarantor and the Issuer have agreed that, for so long as any notes
remain outstanding, each will furnish to the holders of the notes and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act. In addition, the Guarantor and the Issuer will file with the
Trustee within 15 days after it files them with the Commission copies of the
annual and quarterly reports and the information, documents, and other reports
that the Guarantor or the Issuer is required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act. In the event the
Guarantor or the Issuer shall cease to be required to file SEC reports pursuant
to the Exchange Act, the Guarantor and the Issuer will nevertheless continue to
file such reports with the Commission (unless the Commission will not accept
such a filing) and the trustee. The Guarantor and the Issuer will furnish copies
of the SEC reports to the holders of notes at the time the Guarantor or the
Issuer is required to file the same with the trustee and will make such
information available to investors who request it in writing.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
Neither the Guarantor nor the Issuer may, in a single transaction or a
series of related transactions, (i) consolidate with or merge into any other
person or permit any other person to consolidate with or merge into the
Guarantor or the Issuer, or (ii) directly or indirectly, transfer, sell, lease
or otherwise dispose of all or substantially all of its assets to any other
person, unless:
(1) in a transaction in which the Guarantor or the Issuer, as
applicable does not survive or in which the Guarantor or the
Issuer sells, leases or otherwise disposes of all or substantially
all of its assets to any other person (other than, in any such
case, the Guarantor or the Issuer), the successor entity to the
Guarantor or the Issuer is
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organized under the laws of the United States of America or any
State thereof or the District of Columbia, the British Virgin
Islands, Cayman Islands, The Netherlands, Ireland or Jersey and
shall expressly assume, by a supplemental indenture executed and
delivered to the trustee in form satisfactory to the trustee, all
of the Guarantor's or the Issuer's obligations under the
Indenture;
(2) immediately before and after giving effect to such transaction and
treating any Debt which becomes an obligation of the Guarantor or
a Subsidiary as a result of such transaction as having been
Incurred by the Guarantor or such Subsidiary at the time of the
transaction, no event of default or event that with the passing of
time or the giving of notice, or both, would constitute an event
of default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Guarantor (or other successor entity
to the Guarantor) is equal to or greater than that of the
Guarantor immediately prior to the transaction;
(4) if, as a result of any such transaction, property or assets of the
Guarantor or any Subsidiary would become subject to a Lien
prohibited by the provisions of the Indenture described under
"Limitation on Liens" above, the Guarantor or the successor entity
to the Guarantor shall have secured the new notes as required by
said covenant;
(5) in the event that the continuing person is incorporated in a
jurisdiction other than the United States or the jurisdiction in
which such person was incorporated immediately prior to such
transaction:
(A) the Issuer delivers to the trustee an opinion of counsel
stating that the obligations of the continuing person under the
Indenture are enforceable under the laws of the new
jurisdiction of its incorporation to the same extent as the
obligations of the Issuer or the Guarantor, as the case may be,
under the Indenture immediately prior to such transaction;
(B) the continuing person agrees in writing to submit to
jurisdiction and appoints an agent for the service of process,
each under terms substantially similar to the terms contained
in the Indenture with respect to the Issuer or the Guarantor,
as the case may be;
(C) the continuing person agrees in writing to pay Additional
Amounts as provided under the Indenture with respect to the
Issuer or the Guarantor, as the case may be, except that such
Additional Amounts shall relate to any withholding tax
whatsoever regardless of any change of law (subject to
exceptions substantially similar to those contained in the
Indenture and described under the heading "Additional
Amounts");
(D) the Board of Directors of the Guarantor determines in good
faith that such transaction will have no material adverse
effect on any holder of the notes and a Board resolution to
that effect is delivered to the trustee; and
(E) the principal purpose of the continuing person being
incorporated in such jurisdiction is to obtain tax benefits for
the Guarantor, the Issuer, their direct and indirect
stockholders or the holders of the notes; and
(6) certain other conditions are met.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. (Section 101)
"Acquired Debt" means, with respect to any specified person:
(i) Debt of any other person existing at the time such person merges with
or into or consolidates with or becomes a Subsidiary of such specified
person; and
(ii) Debt secured by a Lien encumbering any asset acquired by such
specified person, which Debt was not Incurred in anticipation of, and
was outstanding prior to, such merger, consolidation or acquisition.
"Affiliate" of any person means any other person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person. For the purposes of this definition, "control" when used with
respect to any person means the power to direct the management and policies of
such person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" by any person means any transfer, conveyance, sale,
lease or other disposition by such person or any of its Subsidiaries (including
a consolidation or merger or other sale of any such Subsidiary with, into or to
another person in a transaction in which such Subsidiary ceases to be a
Subsidiary of the specified person, but excluding a disposition by a Subsidiary
of such person to such person or a Wholly-Owned Subsidiary of such person or by
such person to a Wholly-Owned Subsidiary of such person or by a Restricted
Subsidiary to the Guarantor or a Restricted Subsidiary or by the Guarantor to a
Restricted Subsidiary) of:
(i) shares of Capital Stock or other ownership interests of a Subsidiary
of such person,
(ii) substantially all of the assets of such person or any of its
Subsidiaries representing a division or line of business (other than
as part of a Permitted Investment) or
(iii) other assets or rights of such person or any of its Subsidiaries
outside of the ordinary course of business;
provided in the case of each of the preceding clauses (i), (ii) and (iii), that
the aggregate consideration for such transfer, conveyance, sale, lease or other
disposition is equal to $2.0 million or more in any 12-month period.
"Capital Lease Obligation" of any person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such person in accordance with generally accepted accounting
principles (a "Capital Lease"). The stated maturity of such obligation shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty. The principal amount of such obligation shall be
the capitalized amount thereof that would appear on the face of a balance sheet
of such person in accordance with generally accepted accounting principles.
"Capital Stock" of any person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such person.
"Common Stock" of any person means Capital Stock of such person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary
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liquidation, dissolution or winding up of such person, to shares of Capital
Stock of any other class of such person.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of the Guarantor and its Restricted Subsidiaries for
such period increased by the sum of:
(1) Consolidated Interest Expense of the Guarantor and its Restricted
Subsidiaries for such period, plus
(2) Consolidated Income Tax Expense of the Guarantor and its
Restricted Subsidiaries for such period, plus
(3) the consolidated depreciation and amortization expense included in
the income statement of the Guarantor and its Restricted
Subsidiaries for such period, plus
(4) any non-cash expense related to the issuance to employees of the
Guarantor or any Restricted Subsidiary of the Guarantor of options
to purchase Capital Stock of the Guarantor or such Restricted
Subsidiary, plus
(5) any charge related to any premium or penalty paid in connection
with redeeming or retiring any Debt prior to its stated maturity;
provided, however, that there shall be excluded therefrom the Consolidated Cash
Flow Available for Fixed Charges (if positive) of any Restricted Subsidiary of
the Guarantor (calculated separately for such Restricted Subsidiary in the same
manner as provided above for the Guarantor) that is subject to a restriction
which prevents the payment of dividends or the making of distributions to the
Guarantor or another Restricted Subsidiary of the Guarantor to the extent of
such restriction.
"Consolidated Income Tax Expense" for any period means the aggregate
amounts of the provisions for income taxes of the Guarantor and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Interest Expense" means for any period the interest expense
included in a consolidated income statement (excluding interest income) of the
Guarantor and its Restricted Subsidiaries for such period in accordance with
generally accepted accounting principles, including without limitation or
duplication (or, to the extent not so included, with the addition of):
(1) the amortization of Debt discounts;
(2) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities;
(3) fees with respect to interest rate swap or similar agreements or
foreign currency hedge, exchange or similar agreements;
(4) preferred stock dividends of the Guarantor and its Restricted
Subsidiaries (other than dividends paid in shares of preferred
stock that is not Disqualified Stock) declared and paid or
payable;
(5) accrued Disqualified Stock dividends of the Guarantor and its
Restricted Subsidiaries, whether or not declared or paid;
(6) interest on Debt guaranteed by the Guarantor and its Restricted
Subsidiaries (but only to the extent such interest is actually
paid by the Guarantor or a Restricted Subsidiary); and
(7) the portion of any Capital Lease Obligation paid during such
period that is allocable to interest expense;
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excluding, however, any premiums, fees and expenses (and any amortization
thereof) payable in connection with the offerings of the notes, all of the
foregoing as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with generally accepted accounting
principles.
"Consolidated Net Income" for any period means the net income (or loss) of
the Guarantor and its Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles;
provided that there shall be excluded therefrom:
(1) the net income (or loss) of any person acquired by the Guarantor
or a Restricted Subsidiary of the Guarantor in a
pooling-of-interests transaction for any period prior to the date
of such transaction,
(2) the net income (or loss) of any person that is not a Restricted
Subsidiary of the Guarantor except to the extent of the amount of
dividends or other distributions actually paid to the Guarantor or
a Restricted Subsidiary of the Guarantor by such person during
such period,
(3) gains or losses on Asset Dispositions by the Guarantor or its
Restricted Subsidiaries,
(4) all extraordinary gains and extraordinary losses, determined in
accordance with generally accepted accounting principles,
(5) the cumulative effect of changes in accounting principles,
(6) non-cash gains or losses resulting from fluctuations in currency
exchange rates and
(7) the tax effect of any of the items described in clauses
(1) through (6) above.
"Consolidated Net Worth" of any person means the stockholders' equity of
such person, determined on a consolidated basis in accordance with generally
accepted accounting principles, less amounts attributable to Disqualified Stock
of such person.
"Consolidated Tangible Assets" of any person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under generally accepted accounting principles would be included on a
consolidated balance sheet of such person and its Subsidiaries after deducting
therefrom all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, which in each case under
generally accepted accounting principles would be included on such consolidated
balance sheet.
"Credit Facility" means credit agreements, vendor financings or other
facilities or arrangements made available from time to time to the Guarantor and
its Restricted Subsidiaries by banks, other financial institutions and/or
equipment manufacturers for the Incurrence of Debt, including the private or
public issuance of debt securities or the provision of letters of credit and any
related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified or restated from time to time.
"Debt" means (without duplication), with respect to any person, whether
recourse is to all or a portion of the assets of such person and whether or not
contingent, the amount of:
(i) every obligation of such person for money borrowed,
(ii) every obligation of such person evidenced by bonds, debentures,
notes or other similar instruments, including obligations
Incurred in connection with the acquisition of property, assets
or businesses,
(iii) every reimbursement obligation of such person with respect to
letters of credit, bankers' acceptances or similar facilities
issued for the account of such person,
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(iv) every obligation of such person issued or assumed as the
deferred purchase price of property or services (including
securities repurchase agreements but excluding trade accounts
payable or accrued liabilities arising in the ordinary course
of business which are not overdue or which are being contested
in good faith),
(v) every Capital Lease Obligation of such person,
(vi) all Receivables Sales of such person, together with any
obligation of such person to pay any discount, interest, fees,
indemnities, penalties, recourse, expenses or other amounts in
connection therewith,
(vii) all obligations to redeem Disqualified Stock issued by such
person,
(viii) every obligation under Interest Rate and Currency Protection
Agreements of such person and
(ix) every obligation of the type referred to in clauses (i) through
(viii) of another person and all dividends of another person the
payment of which, in either case, such person has Guaranteed to
the extent the same is Guaranteed by such person.
The "amount" or "principal amount" of Debt at any time of determination as
used herein represented by:
(a) any Debt issued at a price that is less than the principal amount
at maturity thereof, shall be the amount of the liability in
respect thereof determined in accordance with generally accepted
accounting principles,
(b) any Receivables Sale shall be the amount of the unrecovered
capital or principal investment of the purchaser (other than the
Guarantor or a Restricted Subsidiary of the Guarantor) thereof to
the extent such person is liable therefore, excluding amounts
representative of yield or interest earned on such investment or
(c) any Disqualified Stock shall be the maximum fixed redemption or
repurchase price in respect thereof.
"Disqualified Stock" of any person means any Capital Stock of such person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of such person, any
Subsidiary of such person or the holder thereof, in whole or in part, on or
prior to the final Stated Maturity of the notes, provided, however, that any
preferred stock which would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such person to repurchase or
redeem such preferred stock upon the occurrence of a Change of Control occurring
prior to the final maturity of the constitute Disqualified Stock if the change
of control provisions applicable to such preferred stock are no more favorable
to the holders of such preferred stock than the provisions applicable to the
notes contained in the covenant described under "Change of Control" and such
preferred stock specifically provides that such person will not repurchase or
redeem any such stock pursuant to such provisions prior to such person's
repurchase of such Notes as are required to be repurchased pursuant to the
covenant described under "Change of Control."
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A" (or higher) according to Standard &
Poor's Ratings Service or Moody's Investors Service, Inc. at the time as of
which any investment or rollover therein is made.
"Existing Stockholders" means (A) R.S. Lauder, Gaspar & Co., L.P.,
("RSLAG"), (B) partners in RSLAG and Lauder Gaspar Ventures LLC and their
Affiliates, in each case as of the Closing Date, (C) Itzhak Fisher, Ronald S.
Lauder, Leonard A. Lauder, Jacob Z. Schuster, Nir Tarlovsky, Nesim N. Bildirici,
Andrew Gaspar and Eugene Sekulow, (D) family members of any of the foregoing,
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(E) trusts, the only beneficiaries of which are persons or entities described in
clauses (A) through (D) above and (F) partnerships which are controlled by the
persons or entities described in clauses (A) through (D) above.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged and
which have a remaining weighted average life to maturity of not less than one
year from the date of Investment therein.
"Guarantee" by any person means any obligation, contingent or otherwise, of
such person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such person:
(i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or to purchase (or to advance or supply
funds for the purchase of) any security for the payment of such
Debt,
(ii) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt, or
(iii) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Debt (and "Guaranteed"
and "Guaranteeing" shall have meanings correlative to the
foregoing);
provided, however, that the Guarantee by any person shall not include
endorsements by such person for collection or deposit, in either case, in the
ordinary course of business.
"Incremental Paid-in Capital" means as of any date the cumulative aggregate
amount of the increase in paid-in capital (determined in accordance with
generally accepted accounting principles applied on a consistent basis) since
September 30, 1997, as determined based on the most recent unaudited quarterly
or audited annual financial statements of the Guarantor and its consolidated
subsidiaries filed with the SEC, as compared with the Guarantor's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
"Incur" means, with respect to any Debt or other obligation of any person,
to create, issue, incur (by conversion, exchange or otherwise), assume, enter
into a Guarantee in respect of or otherwise become liable in respect of such
Debt or other obligation including by acquisition of Subsidiaries or the
recording, as required pursuant to generally accepted accounting principles or
otherwise, of any such Debt or other obligation on the balance sheet of such
person (and "Incurrence", "Incurred", "Incurrable" and "Incurring" shall have
meanings correlative to the foregoing); provided, however, that a change in
generally accepted accounting principles that results in an obligation of such
person that exists at such time becoming Debt shall not be deemed an Incurrence
of such Debt and that neither the accrual of interest nor the accretion of
original issue discount shall be deemed an Incurrence of Debt.
"Interest Rate or Currency Protection Agreement" of any person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Investment" by any person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise), to, or purchase or acquisition of Capital
Stock, bonds, notes, debentures or other securities or evidence of Debt issued
by, any other person, including any payment on a Guarantee of any obligation of
such other person, but excluding any loan, advance or extension of credit to an
employee of the Guarantor or any of its
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Subsidiaries in the ordinary course of business and commercially reasonable
extensions of trade credit. Without limiting the foregoing, the term
"Investment" shall include:
(i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary; and
(ii) the fair market value of the Capital Stock (or any other
Investment), held by the Guarantor or any of its Restricted
Subsidiaries, of (or in) any person that has ceased to be a
Restricted Subsidiary.
For purposes of the definition of "Unrestricted Subsidiary" and the "Limitation
on Restricted Payments" covenant, (i) "Investment" shall include the fair market
value of the assets (net of liabilities (other than liabilities to the Guarantor
or any of its Restricted Subsidiaries)) of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary,
(ii) the fair market value of the assets (net of liabilities (other than
liabilities to the Guarantor or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer. Notwithstanding the foregoing, an acquisition of assets
(including, without limitation, Capital Stock or rights to acquire Capital
Stock) by the Guarantor or any of its Restricted Subsidiaries shall be deemed
not to be an Investment to the extent that the consideration therefor consists
of Common Stock of the Guarantor.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness), encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including, without limitation,
any conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Marketable Securities" means:
(i) Government Securities;
(ii) any certificate of deposit maturing not more than 270 days after
the date of acquisition issued by, or time deposit of, an
Eligible Institution;
(iii) commercial paper maturing not more than 270 days after the date
of acquisition issued by a corporation (other than an Affiliate
of the Guarantor) with a rating, at the time as of which any
investment therein is made, of "A-1" (or higher) according to
Standard & Poor's Ratings Service or "P-1" (or higher)
according to Moody's Investor Service, Inc.;
(iv) any banker's acceptances or money market deposit accounts issued
or offered by an Eligible Institution;
(v) time deposits, certificates of deposit, bank promissory notes and
bankers' acceptances maturing not more than 180 days after the
acquisition thereof and guaranteed or issued by any of the ten
largest banks (based on assets as of the immediately preceding
December 31), organized under the laws of any jurisdiction in
which one of the Restricted Subsidiaries does business or any
foreign country recognized by the United States and which are not
under intervention, bankruptcy or similar proceeding, not to
exceed $10 million outstanding at any one term; and
(vi) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above.
"Net Available Proceeds" from any Asset Disposition by any person means
cash or readily marketable cash equivalents received (including amounts received
by way of sale or discounting of any note installment receivable or other
receivable, but excluding any other consideration received in
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the form of assumption by the acquiror of Debt or other obligations relating to
such properties or assets) therefrom by such person, net of:
(i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred and all federal, state,
provincial, foreign and local taxes required to be accrued as a
liability as a consequence of such Asset Disposition,
(ii) all payments made by such person or its Subsidiaries on any Debt
which is secured by such assets in accordance with the terms of
any Lien upon or with respect to such assets or which must by
the terms of such Lien, or in order to obtain a necessary
consent to such Asset disposition or by applicable law, be
repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments made to minority interest
holders in Subsidiaries of such person as a result of such
Asset Disposition and
(iv) appropriate amounts to be provided by such person or any
Subsidiary thereof, as the case may be, as a reserve in
accordance with generally accepted accounting principles against
any liabilities associated with such assets and retained by such
person or any Subsidiary thereof, as the case may be, after such
Asset Disposition including without limitation, liabilities under
any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, in each
case as determined by the Board of Directors of such person, in
its reasonable good faith judgment;
provided, however, that any reduction in such reserve within twelve months
following the consummation of such Asset Disposition will be treated for all
purposes of the Indenture and the Notes as a new Asset Disposition at the time
of such reduction with Net Available Proceeds equal to the amount of such
reduction.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Issuer by first class mail, postage prepaid, to each holder of
notes at his address appearing in the note register on the date of this offering
to purchase up to the principal amount of notes specified in such Offer at the
purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase which shall
be, subject to any contrary requirements of applicable law, not less than
30 days or more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of notes within five Business Days after the
Expiration Date. The Issuer shall notify the trustee at least 15 Business Days
(or such shorter period as is acceptable to the trustee) prior to the mailing of
the Offer of the Issuer's obligation to make an Offer to Purchase, and the Offer
shall be mailed by the Issuer or, at the Issuer's request, by the trustee in the
name and at the expense of the Issuer. The Offer shall contain information
concerning the business of the Guarantor and its Subsidiaries which the
Guarantor and Issuer in good faith believe will enable such holders to make an
informed decision with respect to the Offer to Purchase (which at a minimum will
include (i) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the trustee
pursuant to the Indenture (which requirements may be satisfied by delivery of
such documents together with the Offer), (ii) a description of material
developments in the Guarantor's business subsequent to the date of the latest of
such financial statements referred to in clause (i) (including a description of
the events requiring the Issuer to make the Offer to Purchase), (iii) if
applicable, appropriate proforma financial information concerning the Offer to
Purchase and the events requiring the Issuer to make the Offer to Purchase and
(iv) any other information required by applicable law to be included therein).
the Offer shall contain all instructions and materials necessary to enable such
holders to tender notes pursuant to the Offer to Purchase. The Offer shall also
state:
a. the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
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b. the Expiration Date and the Purchase Date;
c. the aggregate principal amount at maturity of the outstanding notes
offered to be purchased by the Issuer pursuant to the Offer to
Purchase (including, if less than 100%, the manner by which such
has been determined pursuant to the Section of the Indenture
requiring the Offer to Purchase) (the "Purchase Amount");
d. the purchase price to be paid by the Issuer for each $1,000
aggregate principal amount at maturity of notes accepted for
payment (as specified pursuant to the Indenture) (the "Purchase
Price");
e. that the holder may tender all or any portion of the notes
registered in the name of such holder and that any portion of a
note tendered must be tendered in an integral multiple of $1,000
principal amount at maturity;
f. the place or places where notes are to be surrendered for tender
pursuant to the Offer to the Purchase;
g. that interest on any note not tendered or tendered but not
purchased by the Issuer pursuant to the Offer to purchase will
continue to accrue;
h. that on the Purchase Date the Purchase Price will become due and
payable upon each note being accepted for payment pursuant to the
Offer to Purchase and that interest thereon shall cease to accrue
on and after the Purchase Date;
i. that each holder electing to tender a note pursuant to the Offer to
Purchase will be required to surrender such note at the place or
places specified in the Offer prior to the close of business on the
Expiration Date (such note being, if the Issuer or the trustee so
requires, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Issuer and the trustee duly
executed by, the holder thereof or his attorney duly authorized in
writing);
j. that holders will be entitled to withdraw all or any portion of
notes tendered if the Issuer (or their paying agent) receives, not
later than the close of business on the Expiration Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of the note the holder
tendered, the certificate number of the Note the holder tendered
and a statement that such holder is withdrawing all or a portion of
his tender;
k. that (a) if notes in an aggregate principal amount at maturity less
than or equal to the Purchase Amount are duly tendered and not
withdrawn pursuant to the Offer to Purchase, the Issuer shall
purchase all such notes and (b) if notes in an aggregate principal
amount at maturity in excess of the Purchase Amount are tendered
and not withdrawn pursuant to the Offer to Purchase, the Issuer
shall purchase notes having an aggregate principal amount at
maturity equal to the Purchase Amount on a pro rata basis (with
such adjustments as may be deemed appropriate so that only notes in
denominational of $1,000 or integral multiples thereof shall be
purchased); and
l. that in the case of any holder whose notes is purchased only in
part, the Issuer shall executed, and the trustee shall authenticate
and deliver to the holder of such note without service charge, a
new note or notes, of any authorized denomination as requested by
such holder, in an aggregate principal amount at maturity equal to
and in exchange for the unpurchased portion of the notes so
tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Permitted Interest Rate or Currency Protection Agreement" of any person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the
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ordinary course of business that is designed to protect such person against
fluctuations in interest rates or currency exchange rates with respect to Debt
Incurred and which shall have notional amount no greater that the payments due
with respect to the Debt being hedged thereby and not for purposes of
speculation.
"Permitted Investment" means:
(i) any Investment in the Guarantor or a Restricted Subsidiary;
(ii) any Investment in any person as a result of which such person
becomes a Restricted Subsidiary of the Guarantor or upon the
making of which such person will be merged or consolidated with
or into or transfer all or substantially all of its assets to
the Guarantor or a Restricted Subsidiary;
(iii) any investment in Marketable Securities;
(iv) securities or other investments received in settlement of debts
created in the ordinary course of business and owing to the
ordinary course of business and owing to the Guarantor or any
Restricted Subsidiary, or as a result of foreclosure, perfection
or enforcement of any Lien, or in satisfaction of judgments,
including in connection with any bankruptcy proceeding or other
reorganization of another person;
(v) securities or other investments received as consideration in
sales or other dispositions of property or assets, including
Asset Dispositions made in compliance with the "Limitation on
Asset Sales" covenant; and
(vi) other investments not in excess of $50 million in the aggregate
at any time outstanding.
"Permitted Liens" means:
(a) Liens for taxes, assessments, governmental charges or claims which
are not yet delinquent or which are being contested in good faith
by appropriate proceedings, if a reserve or other appropriate
provision, it any, as shall be required in conformity with
generally accepted accounting principles shall have been made
therefor;
(b) other Liens incidental to the conduct of the Guarantor's and its
Restricted Subsidiaries' business or the ownership of its property
and assets not securing any Debt, and which do not in the
aggregate materially detract from the value of the Guarantor's and
its Subsidiaries' property or assets when taken as a whole, or
materially impair the use of such assets and property in the
operation of its business;
(c) Liens with respect to assets of a Subsidiary granted by such
Subsidiary to the Guarantor to secure Debt owing to the Guarantor;
(d) pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of statutory obligations;
(e) deposits made to secure the performance of tenders, bids, leases,
and other obligations of like nature incurred in the ordinary
course of business (exclusive of obligations for the payment of
borrowed money);
(f) zoning restrictions, servitudes, easements, rights-of-way,
restrictions and other similar charges or encumbrances incurred in
the ordinary course of business which, in the aggregate, do not
materially detract from the value of the property subject thereto
or interfere with the ordinary conduct of the business of the
Guarantor or its Restricted Subsidiaries;
(g) Liens on Capital Stock of Restricted Subsidiaries securing
obligations not exceeding $75 million at any time outstanding of
the Guarantor or any Restricted Subsidiary to
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repurchase or redeem shares of Capital Stock of such Restricted
Subsidiary held by Persons who are not Affiliates or Related
Persons of the Guarantor;
(h) Liens arising out of judgments or awards against the Guarantor or
any Restricted Subsidiary with respect to which the Guarantor or
such Restricted Subsidiary is prosecuting an appeal or proceeding
for review and the Guarantor or such Restricted Subsidiary is
maintaining adequate reserves in accordance with generally
accepted accounting principles; and
(i) any interest or title of a lessor in the property subject to any
lease other than a Capital Lease.
"Purchase Money Debt" means Debt of the Guarantor (including Acquired Debt
and Debt represented by Capital Lease Obligations, mortgage financings and
purchase money obligations) incurred for the purpose of financing all or any
part of the cost of construction, acquisition or improvement by the Guarantor or
any Restricted Subsidiary of the Guarantor of any Telecommunications Assets of
the Guarantor or any Restricted Subsidiary of the Guarantor, and including any
related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified or restated from time to time.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money.
"Receivables Sale" of any person means any sale of Receivables of such
person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such person relating thereto or
a disposition of defaulted Receivables for purpose of collection and not as a
financing arrangement.
"Related Person" of any person means any other person directly or
indirectly owning
(a) 5% or more of the outstanding Common Stock of such person (or, in
the case of a person that is not a corporation, 5% or more of the
outstanding equity interest in such person) or
(b) 5% or more of the combined outstanding voting power of the Voting
Stock of such person, except that, for purposes of the covenant
entitled "Transactions with Affiliates and Related Persons,"
Related Person means any other person directly or indirectly
owning 10% or more of the combined outstanding voting power of the
Voting Stock of such person (or, in the case of a person that is
not a corporation, 10% or more of the outstanding equity interest
in such person).
"Restricted Subsidiary" means any Subsidiary of the Guarantor other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries:
(i) for the most recent fiscal year of the Guarantor, accounted for
more than 10% of the consolidated revenues of the Guarantor and
its Restricted Subsidiaries; or
(ii) as of the end of such fiscal year, was the owner of more than 10%
of the consolidated assets of the Guarantor and its Restricted
Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Guarantor for such
fiscal year.
"Strategic Investor" means a corporation, partnership or other entity
engaged in the Telecommunications Business that has, or 80% or more of the
Voting Stock of which is owned by a person that has, an equity market
capitalization or paid in capital, at the time of any Investment by such
corporation, partnership or other entity in a Restricted Subsidiary pursuant to
(iv)(2) of
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"Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries",
in excess of $100 million.
"Subordinated Debt" means Debt of the Guarantor or its Restricted
Subsidiaries as to which the payment of principal of (and premium, if any) and
interest and other payment obligations in respect of such Debt shall be
subordinate to the prior payment in full of the notes to at least the following
extent:
(i) no payments of principal of (or premium, if any) or interest on
or otherwise due in respect of such Debt may be permitted for so
long as any default in the payment of principal (or premium, if
any) or interest on the notes exists;
(ii) in the event that any other default that with the passing of
time or the giving of notice, or both, would constitute an event
of default exists with respect to the notes, upon notice by 25%
or more in principal amount of the notes to the trustee, the
trustee shall have the right to give notice to the Guarantor or
such Restricted Subsidiary and the holders of such Debt (or
trustees or agents therefor) of a payment blockage, and
thereafter no payments of principal of (or premium, if any) or
interest on or otherwise due in respect of such Debt may be made
for a period of 179 days from the date of such notice; and
(iii) such Debt may not:
(x) provide for payments of principal of such Debt at the stated
maturity thereof or by way of a sinking fund applicable thereto
or by way of any mandatory redemption, defeasance, retirement
or repurchase thereof by the Guarantor or such Restricted
Subsidiary (including any redemption, retirement or repurchase
which is contingent upon events or circumstances, but excluding
any retirement required by virtue of acceleration of such Debt
upon an event of default thereunder), in each case prior to the
final stated maturity of the notes; or
(y) permit redemption or other retirement (including pursuant to an
offer to purchase made by the Guarantor or such Restricted
Subsidiary) of such other Debt at the option of the holder
thereof prior to the final stated maturity of the notes, other
than a redemption or other retirement at the option of the
holder of such Debt (including pursuant to an offer to purchase
made by the Guarantor or such Restricted Subsidiary) which is
conditioned upon a change of control of the Guarantor pursuant
to provisions substantially similar to those described under
"Change of Control" (and which shall provide that such Debt
will not be repurchased pursuant to such provisions prior to
the Guarantor's or such Subsidiary's repurchase of the notes
required to be repurchased by the Guarantor pursuant to the
provisions described under "Change of Control").
"Subsidiary" of any person means:
(i) a corporation more than 50% of the combined voting power of the
outstanding Voting Stock, of which is owned, directly or
indirectly, by such person or by one or more other Subsidiaries
of such person or by such person and one or more Subsidiaries
thereof; or
(ii) any other person (other than a corporation) in which such person,
or one or more other Subsidiaries of such person or such person
and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct
the policies, management and affairs thereof.
"Subsidiary Guarantor" means a Subsidiary of the Guarantor that has
unconditionally guaranteed, by supplemental indenture substantially in the form
attached to the Indenture and satisfactory to the trustee, the payment in full
of the principal of (and premium, if any) and interest on the notes.
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"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business, including a majority of
the Voting Stock of a person engaged in the Telecommunications Business.
"Telecommunications Business" means the business of:
(i) transmitting, or providing services relating to the transmission
of, voice, video or data through owned or leased transmission
facilities;
(ii) creating, developing or marketing communications related network
equipment, software and other devices for use in a
Telecommunications Business; or
(iii) evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in
(i) or (ii) above; provided that the determination of what
constitutes a Telecommunications Business shall be made in good
faith by the Board of Directors of the Guarantor.
"Unrestricted Subsidiary" means:
(i) any Subsidiary of the Guarantor that at the time of determination
shall be designated an Unrestricted Subsidiary of the Guarantor
by the Board of Directors in the manner provided below and
(ii) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary (including any
newly acquired or newly formed Subsidiary of the Guarantor) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Guarantor or any Restricted
Subsidiary; provided that:
(A) any Guarantee by the Guarantor or any Restricted Subsidiary of
any Debt of the Subsidiary being so designated shall be deemed
an "Incurrence" of such Debt and an "Investment" by the
Guarantor or such Restricted Subsidiary (or both, if
applicable) at the time of such designation, in each case, to
the extent such Debt is so Guaranteed by the Guarantor or such
Restricted Subsidiary;
(B) either
(I) the Subsidiary to be so designated has total assets of
$1,000 or less or
(II) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the "Limitation on
Restricted Payments" covenant described herein and
(C) if applicable, the Incurrence of Debt and the Investment
referred to in clause (A) of this proviso would be permitted
under the "Limitation on Consolidated Debt" and "Limitation on
Restricted Payments" covenants described herein.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that immediately after giving effect to such
designation (x) the Guarantor could Incur $1.00 of additional Debt under the
first paragraph of the "Limitation on Debt" covenant described below and (y) no
default or event of default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the trustee by
promptly filing with the trustee a copy of the board resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" of any person means Capital Stock of such person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such person, whether
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at all times or only so long as no senior class of securities has such voting
power by reason of any contingency.
"Wholly-Owned Subsidiary" of any person means a Subsidiary of such person
all of the outstanding Voting Stock or other ownership interests (other than
directors' qualifying shares) of which shall at the time be owned by such person
or by one or more Wholly-Owned Subsidiaries of such person or by such person and
one or more Wholly-Owned Subsidiaries of such person.
DESCRIPTION OF GUARANTEE BY RSL COMMUNICATIONS, LTD.
The Guarantor has unconditionally and irrevocably guaranteed the due and
punctual payment of the principal of and interest on and other amounts payable
under the new notes, when and as the same shall become due and payable, whether
at the stated maturity, by declaration of acceleration, upon redemption or
otherwise; provided that the new notes guarantee shall not be enforceable
against the Guarantor at the time that determination of such net worth is, under
applicable law, relevant to the enforceability of such new notes guarantee. The
obligations of the Guarantor under the new notes guarantee will be direct,
unsecured and unsubordinated obligations of the Guarantor and will rank pari
passu with other existing and future direct, unsecured and unsubordinated
obligations of the Guarantor. The new notes guarantee, as applicable, will
effectively rank junior to any secured indebtedness of the Guarantor to the
extent of the assets securing such indebtedness.
EVENTS OF DEFAULT
The following are events of default under the Indenture:
(a) failure to pay principal of (or premium, if any, on) any note when
due;
(b) failure to pay any interest on any note when due, continued for
30 days;
(c) default in the payment of principal and interest on new notes
required to be purchased pursuant to an Offer to Purchase as
described under "Change of Control" when due and payable;
(d) failure to perform or comply with the provisions described under
"Mergers, Consolidations and Certain Sales of Assets" and
"Limitation on Asset Dispositions";
(e) failure to perform any other covenant or agreement of the Issuer
or Guarantor under the Indenture or the Notes continued for
60 days after written notice to the Issuer by the Trustee or
holders of at least 25% in aggregate principal amount at maturity
of outstanding notes;
(f) default under the terms of any instrument evidencing or securing
Debt of the Guarantor, the Issuer or any Subsidiary having an
outstanding principal amount of $10.0 million individually or in
the aggregate which default results in the acceleration of the
payment of such indebtedness or constitutes the failure to pay
such indebtedness when due;
(g) the rendering of a final judgment or judgments (not subject to
appeal) against the Guarantor, the Issuer or any Subsidiary of an
amount in excess of $10.0 million (net of indemnities and funds
actually received or to be received within 90 days of such
judgment) which remains undischarged or unstayed for a period of
60 days after the date on which the right to appeal has expired;
and
(h) certain events of bankruptcy, insolvency or reorganization
affecting the Guarantor, the Issuer or any Significant Subsidiary.
(Section 501)
Subject to the provisions of the Indenture relating to the duties of the trustee
in case an event of default shall occur and be continuing, the trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request or direction of any of the holders of notes,
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unless such holders shall have offered to the trustee reasonable indemnity.
(Section 603) Subject to such provisions for the indemnification of the trustee,
the holders of a majority in aggregate principal amount at maturity of the
outstanding notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee. (Section 512)
If an event of default (other than an event of default described in clause
(h) above) shall occur and be continuing, either the trustee or the holders of
at least 25% in aggregate principal amount at maturity of the outstanding notes
may accelerate the principal amount of the notes; provided, however, that after
such acceleration, but before a judgment or decree based on acceleration, the
holders of a majority in aggregate principal amount at maturity of such
outstanding notes may, under certain circumstances, rescind and annul such
acceleration if all events of default, other than the non-payment of accelerated
principal amount have been cured or waived as provided in the Indenture. If an
event of default specified in clause (h) above occurs, the outstanding notes
will ipso facto become immediately due and payable without any declaration or
other act on the part of the trustee or any holder. (Section 502) For
information as to waiver of defaults, see the heading "Modification and Waiver".
No holder of any note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the trustee written notice of a continuing event of
default and unless also the holders of at least 25% in aggregate principal
amount at maturity of the outstanding notes shall have made written request, and
offered reasonable indemnity, to the trustee to institute such proceeding as
trustee, and the trustee shall not have received from the holders of a majority
in aggregate principal amount at maturity of the outstanding notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a note for enforcement of payment of the principal
amount of and premium, if any, or interest on such note on or after the
respective due dates expressed in such note. (Section 508)
The Guarantor and the Issuer are required to furnish to the trustee
quarterly a statement as to the performance by the Guarantor and the Issuer of
certain of their obligations under the Indenture and as to any default in such
performance.
DEFEASANCE
DEFEASANCE AND DISCHARGE. The Indenture provides that the Issuer will be
deemed to have paid and will be discharged from any and all obligations in
respect of the notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
notes (except for, among other matters, certain obligations to register the
transfer or exchange of the notes, to replace stolen, lost or mutilated notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Issuer has irrevocably deposited or caused to be
irrevocably deposited with the trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest, premium, if any, and principal
in respect thereof in accordance with their terms will provide money in an
amount sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
trustee, to pay and discharge, without consideration of the reinvestment of such
interest and after payment of all state and local taxes or other charges and
assessments in respect thereof payable by the trustee,the principal amount of,
premium, if any, and accrued interest on the notes on the stated maturity of
such principal or interest or upon earlier redemption in accordance with the
terms of the Indenture and the notes, (B) the Issuer has delivered to the
trustee either (i) a ruling based on relevant law and practice at the time
directed to the trustee from the Inland Revenue or other relevant tax authority
to the effect that the holders will not recognize income, gain or loss for U.K.
income tax as a result of the Issuer's exercise, disregarding U.K. income tax on
any amounts that would have been received but for such exercise of its option
under this "Defeasance" provision and will be subject to U.K. income tax on the
same amount and in the same manner and at the
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same time as would have been the case if such option had not been exercised or
(ii) an opinion of counsel to the same effect as the ruling described in clause
(i) above, (C) the Issuer has delivered to the trustee (i) either (x) an opinion
of counsel to the effect that holders will not recognize income, gain or loss
for U.S. federal income tax as a result of the Issuer's exercise of its option
under this "Defeasance" provision and will be subject to U.S. federal income tax
on the same amount and in the same manner and at the same time as would have
been the case if such option had not been exercised, which opinion of counsel
must be based upon (and accompanied by a copy of) a ruling published by the
Internal Revenue Service to the same effect unless there has been a change in
relevant U.S. federal income tax law after the closing date or (y) a ruling
directed to the trustee received from the Internal Revenue Service to the same
effect as the aforementioned opinion of counsel and (ii) an opinion of counsel
to the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following the
deposit, the trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (D) immediately after giving effect to such deposit on a pro forma basis,
no default or event of default, or event that after the giving of notice or
lapse of time or both would become a default or an event of default, shall have
occurred and be continuing on the date of such deposit or during the period
ending on the 123rd day after the date of such deposit, and such deposit shall
not result in a breach or violation of, or constitute a default under, any other
agreement or instrument to which the Issuer or any of its Subsidiaries is a
party or by which the Issuer or any of its Subsidiaries is bound, (E) if at such
time the notes are listed on a national securities exchange, the Issuer has
delivered to the trustee an opinion of counsel to the effect that the notes will
not be delisted as a result of the Issuer's exercise of its option under this
"Defeasance" provision, and (F) the Issuer shall have delivered to the trustee
an officer's certificate and an opinion of counsel, in each case stating that
all the above conditions precedent have been complied with.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clauses (3) and (4) under "Mergers, Consolidations
and Certain Sale of Assets" and all the covenants described herein under
"Covenants" (other than "Mergers, Consolidations and Certain Sales of Assets"),
clauses (c), (f) and (g) under "Events of Default" with respect to such clauses
(3) and (4) under "Mergers, Consolidations and Certain Sale of Assets" and such
covenants and clauses (c), (f) and (g) under "Events of Default" shall be deemed
not to be events of default, upon, among other things, the deposit with the
trustee, in trust, of money and/or U.S. Government obligations that through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on the notes on the stated maturity of
such payments in accordance with the terms of the Indenture and the notes, the
satisfaction of the provisions described in clauses (C)(ii) and (D) of the
preceding paragraph and the delivery by the Issuer to the trustee of an opinion
of counsel to the effect that, among other things, the holders will not
recognize any income, gain or loss for U.S. federal income tax purposes as a
result of such deposit and defeasance of certain covenants and events of
default, and will be subject to U.S. federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the event the Issuer
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the notes as described in the immediately
preceding paragraph and the notes are declared due and payable because of the
occurrence of an event of default, that remains applicable, the amount of money
and/or U.S. Government obligations on deposit with the Trustee will be
sufficient to pay amounts due on the notes at the time of their stated maturity
but may not be sufficient to pay amounts due on the notes at the time of the
acceleration resulting from such event of default. However, the Issuer will
remain liable for such payments and the note guarantee with respect to such
payments will remain in effect.
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MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Issuer,
the Guarantor and the Trustee with the consent of the holders of a majority in
aggregate principal amount at maturity of the outstanding notes; provided,
however, that no such modification or amendment may, without the consent of the
holder of each outstanding note, affected thereby, (a) change the due date of
any installment of principal or interest on any notes, (b) reduce the principal
amount at maturity of, (or the premium) or interest on, any notes, (c) change
the currency of payment of principal of, (or premium) or interest on, any notes,
(d) impair the right to institute suit for the enforcement of any payment on or
with respect to any notes, (e) reduce the above-stated percentage of outstanding
Notes necessary to modify or amend the Indenture, (f) reduce the percentage of
aggregate principal amount of outstanding notesnecessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (g) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified, or (h) following the mailing of any
Offer to Purchase, modify any Offer to Purchase for the notes required under the
"Limitation on Asset Dispositions" and the "Change of Control" covenants
contained in the Indenture in a manner materially adverse to the holders
thereof. (Section 902)
The holders of a majority in aggregate principal amount at maturity of the
outstanding notes, on behalf of all holders of notes, may waive compliance by
the Guarantor with certain restrictive provisions of the Indenture. Subject to
certain rights of the Trustee, as provided in the Indenture, the holders of a
majority in aggregate principal amount at maturity of the outstanding notes, on
behalf of all holders of notes, may waive any past default under the Indenture,
except a default in the payment of principal, premium or interest or a default
arising from failure to purchase any note tendered pursuant to an Offer to
Purchase.
Notwithstanding the foregoing, without the consent of any holder of notes,
the Guarantor and the Trustee may amend or supplement the Indenture and the
notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated notes in addition to or in place of
certificated notes;
(c) to provide for the assumption of the Issuer's obligations to
holders of the notes in the case of a merger or consolidation or to secure
the notes;
(d) to make any change that would provide any additional rights or
benefits to the holders of the Notes or that does not adversely affect the
legal rights under the Indenture of any such holder; or
(e) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture
Act. (Section 901).
THE TRUSTEE
The Indenture provides that, except during the continuance of an event of
default, the trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an event of default, the trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its existence as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee, should it
become a creditor of the Issuer or Guarantor, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claim as security or otherwise. The trustee is permitted to engage in other
transactions with the Issuer, the Guarantor or any Affiliate, provided, however,
that if it acquires any conflicting interest (as defined in the Indenture or in
the Trust Indenture Act), it must eliminate such conflict or resign.
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ADDITIONAL AMOUNTS
Payments made by the Issuer or the Guarantor pursuant to the notes or the
notes guarantee will be made without withholding or deduction for taxes unless
required by law. In the event of (i) any change that becomes effective after the
date hereof in the laws of the U.K. or Bermuda or of any political subdivision
or taxing authority thereof or therein or any change in the interpretation or
administration thereof or (ii) a failure by the Issuer to list or maintain a
listing of the notes on a "recognized stock exchange" (within the meaning of
Section 841 of the U.K. Income and Corporation Taxes Act 1988) (a "Listing
Failure"), the effect of which, in each case, is to require the withholding or
deduction by the Issuer or the Guarantor pursuant to the notes or the notes
guarantee, respectively, of any amount for taxes that would not have been
required to be withheld or deducted absent such event, the Issuer or the
Guarantor will pay, to the extent it may then lawfully do so, such additional
amounts ("Additional Amounts") as may be necessary in order that every net
payment of the principal of and interest on the notes, after deduction for
withholding for or on account of any future tax, assessment or other
governmental charge will not be less than the amount provided for in the notes
to be then due and payable; provided, however, that the foregoing obligation to
pay Additional Amounts shall not apply in respect of:
(a) any tax, withholding, assessment or other governmental charge
which would not have been imposed but for (i) the existence of any present
or former connection between such holder (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or possessor of a power over, such
holder, if such holder is an estate, trust, partnership or corporation) and
the U.K. or Bermuda or any political subdivision or taxing authority
thereof including, without limitation, such holder (or such fiduciary,
settlor, beneficiary, member, shareholder or possessor) being or having
been a citizen or resident thereof or being or having been present or
engaged in trade or business therein or having or having had a permanent
establishment therein or (ii) the presentation of a note or a note
guarantee (where presentation is required) for payment on a date more than
30 days after the date on which such payment became due and payable or the
date on which payment thereof is duly provided for, whichever occurs later,
except for Additional Amounts with respect to taxes that would have been
imposed had the holder presented the note for payment within such 30-day
period;
(b) any estate, inheritance, gift, sale, transfer or personal property
tax;
(c) any tax, assessment or other governmental charge that is withheld
by reason of the failure to timely comply by the holder or the beneficial
owner of the note with a request in writing of the Issuer or the Guarantor
(which request shall be furnished to the Trustee) (i) to provide
information concerning the nationality, residence or identity of the holder
or such beneficial owner or (ii) to make any declaration or other similar
claim or satisfy any information or reporting requirement, which, in the
case of (i) or (ii), is required or imposed by a statute, treaty,
regulation or administrative practice of the taxing or domicile
jurisdiction as a precondition to exemption from or reduction of all or
part of such tax, assessment or other governmental charge; provided,
however, that this clause (c) shall not apply to limit the Issuer's or
Guarantor's obligation to pay Additional Amounts if the completing and
filing of the information described in subclause (i) or the declaration or
other claim described in subclause (ii) would be materially more onerous in
form, in procedure or in substance of information disclosed, in comparison
to the information reporting requirements imposed under U.S. tax law with
respect to Forms 1001, W-8 and W-9; or
(d) any tax, withholding, assessment or other governmental charge
resulting from a Listing Failure with respect to any note issued in the
form of a definitive registered note pursuant to the terms of the Deposit
Agreement and the relevant Indenture; or
(e) any combination of items (a), (b),(c) and (d) above; nor shall
Additional Amounts be paid with respect to any payment of the principal of,
or any interest on, any note or note guarantee to any holder who is not the
sole beneficial owner of such note or note guarantee or is a fiduciary or
partnership, but only to the extent that a beneficial owner, a beneficiary
or a settlor with respect to a fiduciary or a member of the partnership
would not have been entitled to the
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payment of the Additional Amount had the beneficial owner, beneficiary,
settlor or member of such partnership received directly its beneficial or
distributive share of the payment.
At least 30 days prior to each date on which any payment under or with
respect to the notes is due and payable, if the Issuer or the Guarantor will be
obligated to pay Additional Amounts with respect to such payment, the Issuer or
the Guarantor will deliver to the Trustee an officer's certificate stating the
fact that such Additional Amounts will be payable and the amounts so payable and
will set forth such other information necessary to enable the Trustee to pay
such Additional Amounts to holders on the payment date. Whenever in the
Indenture or in this prospectus there is mentioned, in any context, the payment
of principal (and premium, if any), redemption price, interest or any other
amount payable under or with respect to any note, such mention shall be deemed
to include mention of the payment of Additional Amounts to the extent that, in
such context, Additional Amounts are, were or would be payable in respect
thereof. See the heading "Optional Redemption."
The Issuer or the Guarantor, as the case may be, will also (i) make (or
cause to be made) such withholding or deduction and (ii) remit (or cause to be
remitted) the full amount deducted or withheld to the relevant authority in
accordance with applicable law. The Issuer or the Guarantor, as the case may be,
will make reasonable efforts to obtain certified copies of tax receipts
evidencing the payment of any taxes so deducted or withheld from each taxing
authority imposing such taxes. The Issuer or the Guarantor, as the case may be,
will furnish to the Trustee as promptly as practicable after the payment of any
taxes so deducted or withheld is due pursuant to applicable law, either
certified copies of tax receipts evidencing such payment or, if the receipts are
not obtainable, other evidence of such payments by the Issuer or the Guarantor.
CONSENT TO JURISDICTION AND SERVICE
Each of the Guarantor and the Issuer has appointed RSL Communications N.
America, Inc. as its agent for service of process in any suit, action or
proceeding with respect to the Indenture or the notes or the note guarantee and
for actions brought under federal or state securities laws brought in any
federal or state court located in the City of New York and will agree to submit
to such jurisdiction.
GOVERNING LAW
The Indenture, the new notes and the new notes guarantee are governed by,
and construed in accordance with, the laws of the State of New York.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material U.S. federal income tax
consequences of the exchange of old notes for new notes as of the date hereof.
Such opinion is not binding on any taxing authority or the courts, and no U.S.
tax ruling has been or will be sought. The discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations, rulings and judicial decisions as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in U.S. federal
income tax consequences different from those discussed below. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below.
The exchange of an old note for a corresponding new note pursuant to the
exchange offer will not be a taxable event for U.S. federal income tax purposes
because such new note will not be considered to differ materially in kind or
extent from the corresponding old note. As a result, there should be no material
U.S. federal income tax consequences to a holder exchanging an old note for a
corresponding new note pursuant to the exchange offer.
EACH HOLDER OF OLD NOTES SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING OLD NOTES FOR NEW NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CERTAIN UNITED KINGDOM TAX CONSIDERATIONS
The following summary describes the material U.K. income tax consequences
expected to result to holders whose old notes are exchanged for new notes in the
exchange offer. This summary is based on current U.K. law and U.K. Inland
Revenue practice which may change prospectively or retrospectively. There can be
no assurance that the U.K. Inland Revenue would not take a contrary view and no
ruling from the U.K. Inland Revenue has been or will be sought.
For U.K. tax purposes, the exchange of the old notes for the new notes will
have no U.K. tax consequences for a U.S. holder who is neither resident nor
ordinarily resident in the U.K. (nor has become non-U.K. resident or ordinarily
resident in the last five years), nor carries on a trade, profession or vocation
in the U.K. through a branch or agency to which the notes are attributable.
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of old notes that were acquired for the
account of such broker-dealer as a result of market-making or other trading
activities (other than old notes acquired directly from the Issuer or any
affiliate of the Issuer) may exchange such old notes for new notes pursuant to
the exchange offer, provided, that each broker-dealer that receives new notes
for its own account pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such new notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of new notes received in exchange
for old notes where such old notes were acquired as a result of market-making
activities or other trading activities. The Issuer has agreed to keep the
Registration Statement effective for a period of 90 days following the closing
of the exchange offer.
The Issuer will not receive any proceeds from any sale of new notes by
broker-dealers or any holder of new notes. New notes received by broker-dealers
for their own account pursuant to the exchange offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the new notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new
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notes and any commissions or concessions received by any such persons may be
deemed to be an underwriting compensation under the Securities Act. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Issuer has agreed to pay all expenses incident to the exchange offer
and to the Issuer's performance of, or compliance with, the registration rights
agreement (other than commissions or concessions of any brokers or dealers) and
will indemnify the holders of the notes (including any broker-dealers) against
any liabilities under the Securities Act.
Following consummation of the exchange offer, the Issuer may, in its sole
discretion, commence one or more additional exchange offers to holders of old
notes who did not exchange their old notes for new notes in the exchange offer
on terms which may differ from those contained in the registration rights
agreement. This prospectus, as it may be amended or supplemented from time to
time, may be used by the Issuer in connection with any such additional exchange
offers. Such additional exchange offers will take place from time to time until
all outstanding old notes have been exchanged for new notes pursuant to the
terms and conditions contained herein.
LEGAL MATTERS
Certain matters relating to the new notes are being passed upon for us by
Debevoise & Plimpton, New York, New York and by Levinson Gray, London, United
Kingdom.
Certain matters relating to the new notes and the new notes guarantee are
being passed upon for us by Conyers, Dill & Pearman, Hamilton, Bermuda.
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this prospectus by reference from the Guarantor's Annual Report
on Form 10-K for the year ended December 31, 1998 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
The Guarantor is a Bermuda corporation and the Issuer is a United Kingdom
corporation. Certain of their directors and officers, and certain of the experts
named herein, are not residents of the United States. All or a substantial
portion of the assets of such persons are or may be located outside the United
States. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons or to enforce against them
judgments obtained in the United States courts. The Guarantor has been advised
by its legal counsel in Bermuda, Conyers, Dill & Pearman, that there is doubt as
to the enforcement in Bermuda, in original actions or in actions for enforcement
of judgments of United States courts, or liabilities predicated upon U.S.
Federal securities laws, although Bermuda courts will enforce foreign judgments
for liquidated amounts in civil matters, subject to certain conditions and
exceptions. The Issuer has been advised by its legal counsel in the United
Kingdom, that there is doubt as to the enforceability of certain civil
liabilities under U.S. Federal securities laws in original actions of English
courts, but that, subject to certain exceptions and time limitations, English
courts may treat a final and conclusive judgment of a U.S. court for a
liquidated amount as a debt enforceable by fresh proceedings in the English
courts. Such counsel has expressed no opinion, however, as to whether an
enforcement by an English court of any judgment would be in pounds sterling or
as of which date, if any, the determination of the applicable exchange rate from
U.S. dollars to pounds sterling may be made.
WHERE YOU CAN FIND MORE INFORMATION
The Guarantor is subject to the informational requirements of the
Securities Exchange Act of 1934 and, accordingly, files reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy the reports, proxy statements and other information
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we file with the Commission at its public reference facilities at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. You may also obtain
information about us from the following regional offices of the Commission: 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048 or by calling the Public Reference
Room of the Commission at 1-800-SEC-0330. Copies of these materials can be
obtained at prescribed rates. Our filings with the Commission are also available
on the Commission's home page on the Internet at http://www.sec.gov.
We have filed with the Commission a Registration Statement on Form S-4.
This prospectus, which is a part of the registration statement, omits certain
information contained in the registration statement. Statements made in this
prospectus as to the contents of any contract, agreement or other document are
not necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the registration statement, we refer you to such
exhibit for a more complete description of the matter involved, and each such
statement is deemed qualified in its entirety to such reference.
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You should rely only on the information contained in this prospectus and
the information to which we have referred you. We have not authorized any person
to provide you with information different from the information contained in this
prospectus. This prospectus is not an offer to sell and it does not seek an
offer to buy these securities in any jurisdiction where an offer or sale is not
permitted. The information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Incorporation of Certain Documents By Reference................. 2
Certain UK Related Regulatory Issues............................ 2
Summary......................................................... 3
Risk Factors.................................................... 10
The Exchange Offer.............................................. 22
Description of Certain Indebtedness............................. 29
Description of the New Notes and the New Notes Guarantee........ 35
Certain United States Federal Income Tax Considerations......... 72
Certain United Kingdom Tax Considerations....................... 72
Plan of Distribution............................................ 72
Legal Matters................................................... 73
Experts......................................................... 73
Service of Process and Enforcement of Liabilities............... 73
Where You Can Find More Information............................. 73
</TABLE>
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$175,000,000
RSL COMMUNICATIONS PLC
9 7/8% Senior Exchange Notes due 2009
Guaranteed as to payment of principal
and interest by
RSL COMMUNICATIONS, LTD.
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