UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission file number 0-23139
RSL COMMUNICATIONS, LTD.
------------------------
(Exact name of the registrant as specified in its charter)
Bermuda N/A
------- ---
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
Clarendon House
Church Street
Hamilton HM CX Bermuda
----------------------
(Address of principal executive offices)
(441) 295-2832
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No|_|
As of May 10, 2000, the registrant had 32,026,486 of its Class A common shares,
par value $0.00457 per share, and 24,267,283 of its Class B common shares, par
value $0.00457 per share, outstanding.
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RSL COMMUNICATIONS, LTD.
Table of Contents
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2000 (Unaudited) and December 31, 1999................. 3
Condensed Consolidated Statements of Operations for the
Three Month Periods Ended March 31, 2000
(Unaudited) and 1999 (Unaudited)................................. 4
Condensed Consolidated Statements of Cash Flows for the Three Month
Periods Ended March 31, 2000 (Unaudited) and 1999 (Unaudited).... 5
Notes to Condensed Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 22
PART II - OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds....................... 23
Item 4. Submission of Matters to a Vote of Security Holders............ 23
Item 5. Other Information.............................................. 24
Item 6. Exhibits and Reports on Form 8-K............................... 24
Signatures.................................................................. 27
Exhibit Index............................................................... 28
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
As of As of
March 31, December 31,
2000 1999
----------- -----------
(unaudited)
Assets
- ------
Cash and Cash Equivalents ........................ $ 361,722 $ 238,724
Accounts Receivable, Net ......................... 287,061 258,983
Marketable Securities - Available for Sale ....... 83,603 72,813
Prepaid Expenses and Other Current Assets ........ 131,707 116,929
----------- -----------
Total Current Assets ............................. 864,093 687,449
----------- -----------
Marketable Securities - Available for Sale ....... 11,341 11,341
Property and Equipment ........................... 639,643 610,095
Less: Accumulated Depreciation ................... (157,752) (134,559)
----------- -----------
Property and Equipment, Net ...................... 481,891 475,536
Investment in Unconsolidated Subsidiaries ........ 15,344 16,872
Goodwill and Other Intangibles, Net .............. 607,516 606,039
Deposits and Other Assets ........................ 10,041 6,071
----------- -----------
Total Assets ................................ $ 1,990,226 $ 1,803,308
=========== ===========
Liabilities and Shareholders' Deficit
- -------------------------------------
Accounts Payable and Other Liabilities ........... $ 431,692 $ 500,371
Short-term Debt .................................. 21,430 23,348
----------- -----------
Total Current Liabilities ........................ 453,122 523,719
----------- -----------
Total Long-term Debt ............................. 1,481,466 1,273,961
Other Liabilities - Noncurrent ................... 19,396 15,986
----------- -----------
Total Liabilities ................................ 1,953,984 1,813,666
----------- -----------
Minority Interest ................................ 72,587 73,254
----------- -----------
Shareholders' Equity ............................. 774,288 641,778
Accumulated Deficit .............................. (810,633) (725,390)
----------- -----------
Total Shareholders'Deficit ....................... (36,345) (83,612)
----------- -----------
Total Liabilities and Shareholders'Deficit .. $ 1,990,226 $ 1,803,308
=========== ===========
See notes to condensed consolidated financial statements.
3
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RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except loss per share)
Three Months Ended
March 31,
2000 1999
--------- ---------
Revenues ............................................. $ 375,883 $ 340,281
Operating Costs and Expenses:
Cost of Services (exclusive of depreciation and
amortization shown separately below) ............... 261,366 250,391
Selling, General and Administrative Expenses ......... 119,661 97,842
Non-cash Compensation Expense ........................ 3,055 --
Depreciation and Amortization ........................ 49,252 37,079
--------- ---------
Total Operating Costs and Expenses ................... 433,334 385,312
--------- ---------
Loss From Operations ................................. (57,451) (45,031)
Interest Income ...................................... 4,874 6,055
Interest Expense ..................................... (38,559) (28,998)
Other Income (Expense)- Net .......................... (392) 115
Foreign Exchange Transaction Gain- Net ............... 5,049 9,688
Minority Interest .................................... 3,332 1,431
Loss in Equity Interest of
Unconsolidated Subsidiaries - Net .................. (1,927) (224)
Income Tax Expense ................................... (169) --
--------- ---------
Net Loss ............................................. $ (85,243) $ (56,964)
========= =========
Basic and Diluted Net Loss Per Share of Common Stock $ (1.54) $ (1.08)
Weighted Average Number of Shares of Common Stock
Outstanding 55,374 52,930
See notes to condensed consolidated financial statements.
4
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RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended
------------------
March 31,
---------
2000 1999
--------- ---------
Net loss ................................................. $ (85,243) $ (56,964)
Depreciation and amortization ............................ 49,252 37,079
Working capital change and other ......................... (79,304) (32,297)
--------- ---------
Net cash used in operations ......................... (115,295) (52,182)
--------- ---------
Acquisitions of subsidiaries ............................. (5,542) (16,653)
Purchase of property and equipment ....................... (46,614) (52,442)
Purchase of marketable securities ........................ (10,788) (69,067)
Other .................................................... 32 1,274
--------- ---------
Net cash used in investing activities ............... (62,912) (136,888)
--------- ---------
Proceeds from the issuance of Notes ...................... 197,123 --
Proceeds from the issuance of preferred shares ........... 115,000 --
Payment of underwriting fees and expenses ................ (9,687) --
Proceeds from long term debt ............................. 7,671 14,287
Payment of short term debt ............................... (4,758) (17,845)
Proceeds from issuance of Class A shares ................. 343 864
--------- ---------
Net cash provided by financing activities ................ 305,692 (2,694)
--------- ---------
Increase (Decrease) in cash and cash equivalents ......... 127,485 (191,764)
Effects of foreign currency on cash and cash equivalents . (4,487) (1,104)
Cash and cash equivalents at beginning of period ......... 238,724 367,823
--------- ---------
Cash and cash equivalents at end of period ............... $ 361,722 $ 174,955
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest ................................... $ 13,074 $ 10,197
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-
CASH INVESTING AND FINANCING ACTIVITIES:
Exchange of Class A Common Stock for stock of subsidiaries $ 2,840 $ --
========= =========
Assets acquired under capital lease obligations .......... $ 6,749 $ 1,747
========= =========
Stock of subsidiaries issued.............................. $ 10,450 $ --
========= =========
See notes to condensed consolidated financial statements.
5
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RSL COMMUNICATIONS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of which these notes are part
have been prepared by us and RSL Communications PLC, our wholly owned subsidiary
("RSL PLC"), pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, in the opinion of our management, the Condensed
Consolidated Financial Statements include all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the financial information
for such periods. These Condensed Consolidated Financial Statements should be
read in conjunction with our Consolidated Financial Statements and the notes
thereto included in our Annual Report on Form 10-K, as amended, for the year
ended December 31, 1999.
2. COMPREHENSIVE LOSS
Comprehensive loss consists of net loss and other gains and losses affecting
shareholder's equity that, under generally accepted accounting principles, are
excluded from net income. For us, such items consist of foreign currency
translation gains and losses and unrealized gains and losses on marketable
equity investments.
The components of total comprehensive loss for interim periods are presented in
the following table:
Three Months Ended
March 31,
2000 1999
-------- --------
(unaudited)
(in thousands)
Net Loss ........................................... $(85,243) $(56,964)
Other Comprehensive Income (Loss)
Foreign currency translation adjustments ....... 5,526 (7,252)
Unrealized gain (loss) on securities ........... 7 (8)
-------- --------
Total Comprehensive Loss ........................... $(79,710) $(64,224)
======== ========
3. NET LOSS PER SHARE
Net loss per share is computed on the basis of the weighted average number of
common shares outstanding during the period. Diluted loss per share amounts are
not presented because the inclusion of these amounts would be anti-dilutive.
6
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4. SUMMARIZED FINANCIAL INFORMATION FOR RSL PLC
The following presents summarized financial information of RSL PLC as of
March 31, 2000 and as of December 31, 1999. RSL PLC had no independent
operations other than serving solely as a foreign holding company for our North
American and European operations. Notes issued by RSL PLC are fully and
unconditionally guaranteed by us and RSL COM USA. We have not presented separate
financial statements and other related disclosures concerning RSL PLC because
management has determined that such information is not material to shareholders
or holders of the notes issued by RSL PLC. Our financial statements are, except
for our capitalization, deltathree.com operations, Asia/Pacific operations,
Latin American operations, corporate overhead expenses and drawn credit
facilities, identical to the financial statements of RSL PLC.
As of As of
March 31, December 31,
2000 1999
----------- -----------
(unaudited)
(in thousands)
Current Assets ....................... $ 706,268 $ 520,411
Non-current Assets ................... $ 975,063 $ 972,319
Current Liabilities .................. $ 397,468 $ 453,089
Non-current Liabilities .............. $ 1,834,803 $ 1,635,765
Three Months Ended
March 31,
2000 1999
----------- -----------
(unaudited)
(in thousands)
Revenues ............................. $ 321,543 $ 300,530
Net Loss ............................. $ (71,619) $ (46,125)
5. ACQUISITIONS
In February 2000, our subsidiary deltathree.com announced that it acquired
YourDay.com for 229,443 shares of deltathree.com common stock.
In March 2000, we entered into an agreement to acquire REDNET Limited, one of
the United Kingdom's leading business-to-business Internet Service Providers
(ISP). This transaction is expected to close in the second quarter.
7
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6. SUBSEQUENT EVENTS
In April 2000, we entered into an agreement to acquire Voyager Internet Limited
and Voyager Networks Limited, ISPs specializing in network design and business
internet access in the United Kingdom. This acquisition is expected to close in
the second quarter.
In April 2000, we acquired the remaining 67% outstanding interest in Consorcio
Europeo para las Telecomunicaciones S.A. (Cetel). We also announced the
acquisition of the 70% interest in ALO Comunicaciones, S.A. (ALO) that was not
already owned by Cetel. The shareholders of Cetel and ALO will receive
approximately 7% of the total equity in our subsidiary RSL COM Spain as
consideration for the acquisitions.
In May 2000, we formed an alliance with Seat Pagine Gialle Spa. (SEAT), a
leading publisher of telephony directories and a leading Internet business in
Italy. As a part of the transaction (the "Telegate Transaction"), we and SEAT
entered into a joint venture agreement under which we will provide SEAT with
various Internet/data communications services on a non-exclusive basis for the
European and United States expansion of telegate, our German directory
subsidiary. In addition, the agreement provides that (i) we will sell
approximately 2% of our interest in Telegate Holding in the second quarter of
2000 and (ii) upon termination of the alliance with SEAT, we have the right to
sell to SEAT, and SEAT will have the right to purchase from us, our remaining
equity interest in Telegate Holding for consideration with value of a minimum
of approximately 415 and a maximum of 525 million Euros. The total amount of
consideration will be determined based on the average value of a telegate share
during a predetermined reference period. The transaction is subject to customary
closing conditions.
In May 2000, we launched an initial public offering of our Australian subsidiary
to divest 100% of our interest in this operation. Subject to market conditions
and the determination of the final price, we expect to receive gross proceeds of
between $185 million and $235 million, based on the indicative price range. The
disposition of our Australian operations is consistent with the recent decision
to focus on our core markets in Europe and North America. The proceeds of the
public offering will be used to enhance our business in these regions.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We are a rapidly growing facilities-based communications company that provides a
broad range of voice, data / Internet and value-added products and service
solutions primarily to small and medium-sized businesses and residential
customers in selected markets around the globe. We have built a local presence
and currently have revenue-generating operations in Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Luxembourg,
Mexico, The Netherlands, New Zealand, Portugal, Spain, Sweden, Switzerland, the
United Kingdom, the United States and Venezuela. Through our subsidiary,
deltathree.com, we also own and operate a privately-managed Internet Protocol
(IP) telephony network with 46 points of presence in 29 countries around the
world. deltathree.com completed its initial public offering on November 29, 1999
and as a result we currently own approximately 68% of the equity of
deltathree.com. Accordingly, we will continue to report the financial results of
deltathree.com as a part of our consolidated results of operations. Prior to its
initial public offering, we combined results from deltathree.com's operation
with our other operations. We currently present the results of deltathree.com's
operations as a separate segment.
Consolidated Results Of Operations For The Three Month Period Ended March 31,
2000 Compared To The Three Month Period Ended March 31, 1999
Revenues
Revenues from our voice services are derived primarily from the number of
minutes of use (or fractions thereof) that we bill and are recorded upon
completion of telephone calls. We also derive revenues from prepaid calling
cards. Revenues from prepaid calling cards are recognized at the time of usage
or upon expiration of the card. Data service revenue is derived from both fixed
monthly charges and variable charges based on usage. We maintain local market
pricing structures for our services and generally price our services at a
discount to prices charged by the local incumbent telecommunications operators
and other established carriers. We have experienced, and expect to continue to
experience, declining revenue per minute in all of our markets as a result of
increasing competition, which we expect will be offset by increased minute
volumes and decreased operating costs per minute.
Revenues increased to $375.9 million for the three months ended March 31, 2000
compared to $340.3 million for the three months ended March 31, 1999, an
increase of 10.4%. The general strengthening of the U.S. dollar over the past
year relative to most foreign currencies in which we operate negatively impacted
the growth in revenues. Had we applied the first quarter 1999 foreign currency
exchange rates to the first quarter 2000 local currency amounts, reported
revenue would have increased by an additional $21 million. This increase is due
primarily to the growth in customers in our European operations partially offset
by declines in our North American operations.
Cost of Services (exclusive of depreciation and amortization shown separately
below)
Our cost of services is primarily comprised of costs associated with gaining
local access and the transport and termination of calls over our integrated
digital telecommunications network, RSL-NET. The majority of our costs of
services are variable, including local access charges and transmission capacity
leased on a per-minute-of-use basis. For certain key markets, we plan to make
significant investments in indefeasible rights of use, or IRUs, minimum
investments units, or MIUs and domestic circuits and, as a result, expect that
an increasing amount of out total operating costs will become fixed, as the
volume of our calls carried over our own facilities
9
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increases. As we migrate increasing amounts of traffic from leased facilities to
owned facilities, we experience improving operating results in those operations
where such traffic migration occurs. The depreciation expense with respect to
our MIUs and IRUs is not accounted for in cost of services. We have directly
linked certain of our local operators in Europe and the United States utilizing
lines leased on a fixed-cost, point-to-point basis and utilizing MIUs and IRUs.
To the extent traffic can be transported between local operators over MIUs and
IRUs, there is only marginal cost to us with respect to the international
portion of a call other than the fixed lease payment or the capital expenditure
incurred in connection with the purchase of the MIUs or IRUs. Our cost of
transport and termination will decrease to the extent that we are able to bypass
the settlement rates associated with the transport of international traffic.
We are expanding and upgrading our Pan-European network connecting ten European
international switching centers in nine countries. We expect that the new
network will replace more expensive, short-term leases for lower capacity
circuits, will improve our least-cost routing efficiency and will handle the
growing number of minutes of traffic on our European network. It is expected
that the network will be phased-in in three regions of Europe with the first
phase coming on-line late in the second quarter and the remaining phases to be
operational in the second half of the year.
While we intend to purchase or construct additional international transmission
facilities where such facilities are available for purchase or may be
constructed and such investments are cost effective and warranted by traffic
patterns, a significant percentage of our international transmission facilities
will continue to be leased on a variable cost basis. Accordingly, variable costs
will continue to be a majority of our cost of services for the foreseeable
future.
Our cost of services is primarily affected by the volume of traffic relative to
our owned facilities and facilities leased on a point-to-point, fixed -cost
basis and capacity leased on a per minute basis with volume discounts. To the
extent that volume exceeds capacity on leased facilities that have been arranged
for in advance, we are forced to acquire capacity from alternative carriers on a
spot rate per-minute basis at a higher cost. Acquiring capacity on such an
overflow basis has a negative impact on margins, but enables us to maintain
uninterrupted service to our customers.
Cost of services increased to $261.4 million for the three months ended March
31, 2000 from $250.4 million for the three months ended March 31, 1999, an
increase of 4.4%. However, as a percentage of revenues, cost of services
decreased to 69.5%, for the first quarter of 2000 compared to 73.6% for the
first quarter of 1999. The decrease in cost of services as a percentage of
revenues is primarily attributable to the increased utilization of our owned
facilities in Australia and North America, increases in higher-volume commercial
accounts and an increase in higher margin wireless subscribers.
Effect of Deregulation on Costs of Services (exclusive of depreciation and
amortization)
Our cost structure varies from country to country and is significantly impacted
by the extent of regulation in place in each country. In general, our cost
structure is lower in countries that have been substantially deregulated than in
those which are only partially deregulated. In countries that are not
substantially deregulated, our access to the local network is through more
expensive means (i.e. leased lines or dial-in access). This results in higher
costs to us for carrying international traffic into or out of such a country. In
addition, local regulations in many countries restrict us from purchasing
capacity on international cable and fiber systems. We must instead either enter
into long-term lease agreements for international capacity at a high fixed cost
or purchase per-minute-of-use termination rates from the dominant carrier.
Further deregulation in countries in which we operate is expected to better
enable us to interconnect our switches with the local exchange network and to
purchase our own international facilities. We believe that as a result of
further
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deregulation, particularly in certain countries in which we operate, our cost
structure will improve. Deregulation in a particular country is also expected to
permit us to terminate international inbound traffic in such country which we
expect will result in an improved cost structure for us as a whole.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist primarily of cost
incurred to gain new customers, introduce new products and services, provide
ongoing customer service and continue the expansion of RSL-NET. These costs are
principally comprised of costs associated with employee compensation, occupancy,
insurance, professional fees, sales and marketing (including sales commissions)
and bad debt expenses. In addition, as we commence operations in different
countries we incur significant start-up costs, particularly for hiring, training
and retention of personnel, leasing of office space and advertising.
We have grown by establishing operations in countries that were in the process
of being deregulated and that originate and terminate large volumes of
international traffic or offer other strategic benefits. Each of our operations
is in a different stage of development. The early stages of development of a new
operation have involved substantial start-up costs in advance of revenue. Upon
the commencement of such operations, we generally have incurred additional fixed
costs to facilitate growth. We expect that during periods of significant
expansion, selling, general and administrative expenses will increase
materially. Accordingly, our consolidated results of operations will vary
depending on the timing and speed of our expansion strategy and, during a period
of rapid expansion, will not necessarily reflect the performance of our more
established local operators.
Selling, general and administrative expense for the three months ended March 31,
2000 increased by $21.9 million, or 22.3%, to $119.7 million from $97.8 million
for the three months ended March 31, 1999. Selling, general and administrative
expense as a percentage of revenues increased to 31.8% in the first quarter of
2000 compared to 28.8%, in the first quarter 1999. The percentage increase is
due to significant increases in marketing, advertising, promotional, and start
up costs at our subsidiaries deltathree.com and telegate AG as these companies
expand their customer base and product offerings. The increase is also
attributable to higher customer acquisition costs.
Non-cash Compensation Expense
Non-cash compensation expense relates to variable stock incentive awards that
were previously granted to employees in various of our subsidiaries, primarily
deltathree.com. Non-cash compensation expense for the first quarter of 2000 was
$3.1 million.
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Special Charge
During the third quarter of 1999, we recorded a special charge of approximately
$32.1 million, primarily for consolidating locations, streamlining operations,
discontinuing certain prepaid calling card plans and exiting the telemarketing
business. The special charge was comprised of approximately $13.1 million for
terminating various operating leases, $12.4 million for the severance of 74
telemarketing employees, as well as world-wide staff reductions of 115
employees, and $6.6 million for the write down of certain telemarketing and
prepaid calling card assets of which $2.0 million was associated with the
write-off of inventory. As of March 31, 2000 the reserve balance was $12.9
million, of which $8.3 million is for terminating leases and $4.6 million is for
severance payments to be paid out primarily to former employees who have already
been severed, during the second and third quarters of 2000 in accordance with
local legal requirements.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 32.8% to $49.3 million for the
three months ended March 31, 2000 from $37.1 million for the three months ended
March 31, 1999. This increase is primarily attributable to the increased
amortization of goodwill and other intangibles recorded as a result of our
acquisitions and higher depreciation due to increased capital expenditures.
Depreciation expense is expected to increase in the future as we continue to
expand and enhance our network.
Interest Income
Interest income decreased from $6.1 million for the three months ended March 31,
1999 to $4.9 million for the three months ended March 31, 2000 primarily as a
result of a decline in the average outstanding balance of interest-bearing
investments in the first quarter of 2000 compared to the first quarter of 1999.
Interest Expense
Interest expense increased to $38.6 million for the three months ended March 31,
2000 from $29.0 million for the three months ended March 31, 1999. The increase
is primarily a result of the $175 million 9 7/8% Senior Notes issued in May 1999
and the $100 million and 100 million Euro-denominated 12 7/8% Senior Notes
issued in February 2000.
Foreign Exchange
We are exposed to fluctuations in foreign currencies relative to the U.S.
dollar, as our revenues, costs, assets and liabilities are, for the most part,
denominated in local currencies. The results of operations of our subsidiaries,
as reported in U.S. dollars, may be significantly affected by fluctuations in
the value of the local currencies in which we transact business.
We recorded a foreign currency translation adjustment of $5.5 million as a
component of equity as of March 31, 2000. Such amount is recorded upon the
translation of the foreign subsidiaries' financial statements into U.S. dollars,
and is dependent upon the various foreign exchange rates and the magnitude of
the foreign subsidiaries' financial statements.
We incur settlement costs when we exchange traffic via operating agreements with
foreign correspondents. These costs currently represent a small portion of total
costs, however, as our international operations increase, we expect that these
costs will become a more significant portion of our cost of services. Such costs
are settled
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by utilizing a net settlement process with our foreign correspondents comprised
of special drawing rights ("SDRs"). SDRs are the established method of
settlement among international telecommunications carriers. The SDRs are valued
based upon a basket of foreign currencies and we believe that this mitigates, to
some extent, our foreign currency exposure. We have monitored and will continue
to monitor our currency exposure.
We recorded a foreign exchange gain of $5.0 million for the three months ended
March 31, 2000 compared to $9.7 million for the three month period ended March
31, 1999. The gains are primarily a result of the decline in the value of the
Deutsche mark against the U.S. dollar associated with our 1998 Deutsche mark
denominated Senior Discount Notes. Also contributing to the foreign exchange
gain during the first quarter of 2000 is the gain in U.S. dollar terms
associated with the decline in the value of the Euro associated with our
Euro-denominated debt issued in February 2000.
Loss in Equity Interest of Unconsolidated Subsidiaries - Net
We recorded a loss in equity interest of unconsolidated subsidiaries - net of
$1.9 million for the three months ended March 31, 2000 compared to a loss of $.2
million for the three months ended March 31, 1999 and reflects additional
allocable loss in the investments of Maxitel Servicos e Gestao de
Telecommunicacoes, S.A., a Portugese international telecommunications carrier,
MK Telecom Network Inc., a Canadian microwave telecommunications facilities
company and Cetel, a Spanish international telecommunications carrier.
Net Loss
The net loss increased to $85.2 million for the three months ended March 31,
2000, as compared to the net loss of $57.0 million for the three months ended
March 31, 1999. The increase is due to the factors described above and in the
following discussion of segment results.
Segment Information
European Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
--------- ---------
(unaudited)
(in thousands, except percentages)
<S> <C> <C>
Revenue .............................................................. $ 222,076 $ 152,111
Operating costs and expenses:
Cost of services (exclusive of depreciation and
amortization shown separately below) ................................. 150,273 99,326
--------- ---------
Gross margin ......................................................... 71,803 52,785
Selling, general and administrative expenses ......................... 69,603 51,019
Non-cash compensation ................................................ 276 --
Depreciation and amortization ........................................ 18,773 13,323
--------- ---------
Loss from operations ................................................. $ (16,849) $ (11,557)
========= =========
Other Financial Data:
EBITDA (as defined) (1) .............................................. $ 2,200 $ 1,766
</TABLE>
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<TABLE>
<S> <C> <C>
Revenue as a percentage of consolidated revenue ...................... 59.1% 44.7%
Gross margin as a percentage of revenue .............................. 32.3% 34.7%
Selling, general and administrative expense as a percentage of revenue 31.3% 33.5%
</TABLE>
- ----------
(1) EBITDA, as used herein, consists of loss from operations before
depreciation and amortization and also excludes non-cash compensation.
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. Our
definition of EBITDA may be different than that used by other companies.
We derive our European revenues primarily from the provision of international
and domestic long distance voice services, including directory information
services in Germany and the sale and resale of wireless services in certain
countries in which we operate. We have introduced several new product groups,
such as data, Internet, value-added services and web based applications and
broadened existing services such as fixed voice and wireless services.
Substantially all revenues from our European operations are derived from
commercial sales to end-users. Sales are targeted towards small to medium-sized
corporate customers, and niche consumer markets. To reduce our credit risk to
such niche consumer markets, we primarily offer prepaid products to these
targeted consumers.
We operate in various countries in Europe, each of which is in a different state
of deregulation. In certain of these countries, current regulatory restrictions
limit our ability to offer a broader array of products and services and limit
the availability of those services to customers. We anticipate that deregulation
will have a favorable impact on revenues because (i) customers will be able to
access our services more easily and (ii) we will have the ability to provide a
broader array of products and services. We believe that, with established or
start-up operations in 14 European countries, we are well positioned to benefit
from the anticipated continued deregulation of European markets. We expect that
most European countries will further deregulate various aspects of the
telecommunications industry through 2000.
Revenue from our European operations increased by 46.0% to $222.1 million for
the three months ended March 31, 2000 compared to $152.1 million for the same
period in 1999. The increase in our European revenues was attributable to a
substantial increase in the number of business, residential and wireless
customers. The total number of customers in Europe increased by 330,000 or 74.2%
from 442,000 as of March 31, 1999 to 772,000 as of March 31, 2000. European
revenues as a percentage of consolidated revenues increased from 44.7% in the
first quarter of 1999 to 59.1%, in the first quarter of 2000. Europe currently
represents our largest market segment.
Cost of services increased 51.0% to $150.0 million in the first quarter of 2000
from $99.3 million in the first quarter of 1999. Costs of services as a
percentage of revenues in the first quarter of 2000 was 67.7% compared to the
65.3% recorded in the first quarter of 1999. The increase in the cost of
services as a percentage of revenue is primarily attributable to more traffic
carried on leased network capacity from other carriers rather than on our own
network, which is less expensive. We expect these costs to decrease as we
continue to implement our Pan-European network during the year.
Selling, general and administrative expense in the first quarter of 2000
increased to $69.6 million from $51.0 million in the first quarter of 1999.
Selling, general and administrative expenses as a percentage of revenue in the
first quarter of 2000 was 31.3%, as compared to 33.5% in the first quarter of
1999. These reductions were primarily attributable to lower start-up costs in
countries in which operations had already been established in the past year.
Depreciation and amortization in the first quarter of 2000 increased to $18.8
million from $13.3 million
14
<PAGE>
recorded in the first quarter of 1999. These increases were primarily
attributable to the amortization of intangible assets, principally goodwill,
recorded in connection with several acquisitions. Depreciation expense also
increased as a result of the substantial capital investment made over the past
year.
Net loss from European operations in the first quarter of 2000 increased to
$16.3 million from $11.6 million recorded in the first quarter of 1999. The
decline reflects the substantially higher revenue which was more than offset by
higher costs primarily due to increased customer acquisitions costs.
North American Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
--------- ---------
(unaudited)
(in thousands, except percentages)
<S> <C> <C>
Revenue ............................................ $ 99,467 $ 148,419
Operating costs and expenses:
Cost of services (exclusive of depreciation and
amortization shown separately below) ............... 77,283 120,171
--------- ---------
Gross margin ....................................... 22,184 28,248
Selling, general and administrative expenses ....... 18,435 28,909
Non-cash compensation .............................. 292 --
Depreciation and amortization ...................... 11,822 12,267
--------- ---------
Loss from operations ............................... $ (8,365) $ (12,928)
========= =========
Other Financial Data:
EBITDA (as defined) (1) ............................ $ 3,749 $ (661)
Revenue as a percentage of consolidated revenue .... 26.5% 43.6%
Gross margin as a percentage of revenue ........... 22.3% 19.0%
Selling, general and administrative expense as a
percentage of revenue ............................ 18.5% 19.5%
</TABLE>
- ----------
(1) EBITDA, as used herein, consists of loss from operations before
depreciation and amortization and also excludes non-cash compensation.
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. Our definition of EBITDA may be different than that used by
other companies.
Our North American revenues result primarily from the sale of long distance
voice services on a retail basis to commercial customers, on a wholesale basis
to other carriers and to a lesser extent on a bulk discount basis to
distributors of prepaid calling cards. We discontinued certain unprofitable
prepaid calling card plans and our telemarketing business beginning in September
1999. We also generate revenues from data, Internet and other value-added
services in North America. We experience significant month to month changes in
revenues generated by our carrier customers (i.e. customers who acquire our
services for the purpose of reselling such services on a wholesale basis to
other carriers or on a retail basis to end users). We believe such carrier
customers will react to temporary price fluctuations and spot market
availability that will impact our carrier revenues. Over the past two years, we
have shifted our marketing focus in the United States to focus on small
15
<PAGE>
and medium-sized businesses and have restructured our pricing of wholesale
services to other carriers.
Revenue from our North American operations decreased to $99.5 million for the
three months ended March 31, 2000 compared to $148.4 million for the same period
in 1999, a 33% decrease primarily as a result of our discontinuance of certain
unprofitable prepaid card and telemarketing businesses beginning in September
1999. The number of residential and business customers in North America declined
27.1% from 180,000 as of March 31, 1999 to 131,000 as of March 31, 2000. The
revenue decline was also partially attributable to lower low-margin carrier
revenues.
North American revenues as a percentage of consolidated revenues decreased from
43.6% in the first quarter of 1999 to 26.5% in the first quarter of 2000. This
decline is a result of our effort to reduce our dependence on certain prepaid
and telemarketing businesses and low-margin wholesale markets.
Cost of services decreased 35.7% to $77.3 million in the first quarter of 2000
from $120.2 million in the first quarter of 1999. The decrease is primarily a
result of lower revenues. Costs of services as a percentage of revenues in the
first quarter of 2000 was 77.7% an improvement from the 81.0% in the first
quarter of 1999, as a result of the focus to more profitable customer segments.
Selling, general and administrative expenses in the first quarter of 2000
decreased to $18.4 million from $28.9 million in the first quarter of 1999.
Selling, general and administrative expenses as a percentage of revenues,
decreased to 18.5% in the first quarter of 2000 as compared to 19.5% recorded in
the first quarter of 1999. The decrease is primarily a result of reduced
spending for customer acquisition and administration.
Depreciation and amortization in the first quarter of 2000 was $11.8 million
compared to $12.3 million recorded in the first quarter of 1999.
Loss from operations in North America decreased from $12.9 million in the first
quarter of 1999 to $8.4 million in the first quarter of 2000. The decrease is
primarily due to lower selling, general and administrative expenses.
Asia/Pacific and Other Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-------- --------
(unaudited)
(in thousands, except percentages)
<S> <C> <C>
Revenue ..................................................... $ 52,528 $ 39,308
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
Operating costs and expenses:
Cost of services (exclusive of depreciation and
amortization shown separately below) ........................ 32,879 30,669
-------- --------
Gross margin ................................................ 19,649 8,639
Selling, general and administrative expenses ................ 20,357 12,942
Non-cash compensation expense ............................... 89 --
Depreciation and amortization ............................... 6,562 2,723
-------- --------
Loss from operations ........................................ $ (7,359) $ (7,026)
======== ========
Other Financial Data:
EBITDA (as defined) (1) ..................................... $ (708) $ (4,303)
Revenues as a percentage of consolidated revenue ............ 14.0% 11.6%
Gross margin as a percentage of revenue ..................... 37.4% 22.0%
Selling, general and administrative expense as
a percentage of revenue ................................... 38.8% 32.9%
</TABLE>
- ----------
(1) EBITDA, as used herein consists of loss from operations before
depreciation and amortization and also excludes non-cash compensation.
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.
Asia/Pacific and other operations are comprised primarily of domestic and
international long distance and wireless services operations in Australia. This
segment also includes relatively small start-up operations in Venezuela, Mexico,
Hong Kong and Japan.
On May 2, 2000 we announced the launch of an initial public offering of our
Australian subsidiary and our intention to divest 100% of our interest in this
operation as a part of the IPO. Subject to market conditions and the
determination of the final price, we expect to receive gross proceeds of between
$185 million and $235 million, based on the indicative price range. This
announcement is consistent with the recent decision to focus on our core markets
in Europe and North America. We expect the proceeds of the public offering will
be used to enhance our business in these regions.
Revenues from our Asia/Pacific and Other operations increased 33.6 % to $52.5
million for the three months ended March 31, 2000 compared to $39.3 million for
the same period in 1999. The number of customers in Asia/Pacific and Other
operations increased by 96,000 or 53.5% from 178,000 as of March 31, 1999 to
274,000 as of March 31, 2000.
Revenues from our Asia/Pacific and Other operations as a percentage of
consolidated revenues increased to 14.0%, in the first quarter of 2000 from
11.6% the first quarter of 1999. The increase is primarily as a result of the
growth in customers in Australia over the past year.
Cost of services in the first quarter of 2000 increased to $32.9 million from
$30.7 million recorded in the first quarter of 1999 as a result of the higher
revenues. However, cost of services as a percentage of revenues in the first
quarter declined to 62.6 % from 78.0% as compared to the same period in 1999.
Selling, general and administrative expense in the first quarter of 2000
increased to $20.4 million from $12.9 million in the first quarter of 1999.
These increases were primarily due to the costs to acquire and retain customers.
Selling, general and administrative expenses as a percent of revenues in the
first quarter 2000
17
<PAGE>
increased to 38.8 % from 32.9 % in the first quarter 1999. The increase is a
result of the initial start-up costs incurred in Latin America and Japan and
costs incurred to acquire and retain customers in Australia.
Depreciation and amortization in the first quarter of 2000 increased to $6.6
million from $2.7 million primarily as a result of the increased depreciation
resulting from the network expansion primarily in Australia over the past year.
The loss from the Asia/Pacific and Other operations for the first quarter of
2000 increased to $7.3 million from $7.0 million recorded in the first quarter
of 1999. The increased operating losses are primarily due to the start-up costs
incurred in our Latin America and Japan operations substantially offset by
improved results in Australia.
deltathree.com Operations (1)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-------- --------
(unaudited)
(in thousands, except percentages)
<S> <C> <C>
Revenue ..................................................... $ 1,812 $ 443
Operating costs and expenses:
Cost of services (exclusive of depreciation and
amortization shown separately below) ........................ 931 224
-------- --------
Gross margin ................................................ 881 219
Selling, general and administrative expenses ................ 7,314 252
Non-cash compensation ....................................... 2,398 --
Depreciation and amortization ............................... 1,353 30
-------- --------
Loss from operations ........................................ $(10,184) $ (63)
======== ========
Other Financial Data:
EBITDA (as defined) (2) ..................................... $ (6,433) $ (33)
Revenues as a percentage of consolidated revenue ............ 0.4% 0.1%
Gross margin as a percentage of revenue ..................... 48.6% 49.4%
Selling, general and administrative expense as
a percentage of revenue ................................... 403.6% 56.9%
</TABLE>
- ----------
(1) The amounts presented are as included in our consolidated financial
results and differ from the separately reported results of deltathree.com
because our results exclude our intercompany transactions with
deltathree.com.
(2) EBITDA, as used herein, consists of loss from operations before
depreciation and amortization and also excludes non-cash compensation
expense. 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. Our definition of EBITDA may be different than that used by
other companies.
We acquired a 51% controlling interest in deltathree.com in 1997 and the
remaining 49% interest by April 1998. In November 1999, deltathree.com sold 6.9
million shares of common stock in its initial public offering at a price of $15
per share and received net proceeds from the offering of $96.2 million. These
proceeds will enable deltathree.com to provide its growing base of subscribers
expanded worldwide infrastructure, new distribution channels as well as fund
additional marketing, advertising, promotional, and technological
18
<PAGE>
initiatives. After the initial public offering of its common stock, we continue
to own approximately 68% of the equity of deltathree.com
Revenues from deltathree.com operations increased from $.4 million in the first
quarter of 1999 to $1.8 million in the first quarter of 2000 primarily as a
result of the growth in subscribers from .5 million last year to 2.2 million as
of March 31, 2000.
Cost of services for deltathree.com increased from $.2 million the first quarter
of 1999 to $.9 million of the first quarter of 2000 primarily as a result of the
increased costs of terminating traffic.
Selling, general and administrative expenses increased from $.3 million in the
first quarter of 1999 to $7.3 million in the first quarter of 2000 primarily due
to the expansion of marketing, advertising and promotional activities, and
additional personal and occupancy costs as the Company executes its aggressive
growth strategy.
Liquidity and Capital Resources
We have incurred significant operating losses, net losses and negative cash flow
from operations, due in large part to the start-up and development of our
operations and the development of RSL-NET our integrated digital
telecommunications network. We expect that our net losses and negative cash flow
will continue as we continue to implement our growth strategy. Historically, we
have funded our losses and capital expenditures through borrowings, capital
contributions, and a portion of the net proceeds of prior securities offerings.
Cash used in operating activities for the three months ended March 31, 2000
totaled $115.3 million compared with $52.2 million for the same period in 1999
reflecting the use of cash to fund operating losses and working capital
requirements. Capital expenditures, which include assets acquired under capital
lease obligations, for the three months ended March 31, 2000 were $53.4 million
compared with $54.2 million for the comparable period in 1999. These capital
expenditures are principally for switches, fiber, and related telecommunications
equipment as well as the build-out of our Pan-European network. We also began
the build-out of the wireless local loop network in Spain as a result of the
award of a license to a consortium in which we have a 30% economic interest. We
intend to continue to expand and develop our infrastructure, in part by
replacing leased transmission facilities with owned transmission lines,
purchasing IRUs and interests in inter-city fiber routes in certain key markets
and installing additional national and international telephone gateway switches.
Excluding the capital requirements of our build-out in Spain, we expect to
invest in the aggregate approximately $260 million in 2000 to expand and enhance
our communications network. We expect our share of the working capital and
capital expenditures for the new network in Spain to be in the range of $20
million to $30 million. Cash expended for acquisitions were $5.5 million during
the three months ended March 31, 2000 primarily reflecting payments for
properties acquired at the end of 1999 compared with $16.7 million for the first
quarter of 1999. At March 31, 2000, we had $411.0 million of working capital as
compared to $163.7 million of working capital at December 31, 1999.
Our indebtedness was approximately $1.5 billion at March 31, 2000, substantially
all of which represented long-term debt. Nearly all of our indebtedness is
attributable to the debt securities issued by RSL PLC and guaranteed by RSL COM
and RSL COM U.S.A. These debt securities include various Senior Notes and Senior
Discount Notes which are due from 2006 through 2010 (the "Notes"), totaling $1.4
billion, net, as of March 31, 2000. The Notes were issued under indentures
containing certain restrictive covenants which impose limitations on the
Company's ability to, among other things: (i) incur additional indebtedness,
(ii) pay dividends or make certain other distributions, (iii) issue capital
stock of certain subsidiaries, (iv) guarantee
19
<PAGE>
debt, (v) enter into transactions with shareholders and affiliates, (vi) create
liens, (vii) enter into sale-leaseback transactions, and (viii) sell assets.
At March 31, 2000 our subsidiary telegate had $40 million of revolving credit
facilities with various banks that accrue interest at a weighted average rate of
approximately 6.0%, all of which was available.
One of our primary equipment vendors has provided to certain of our subsidiaries
$50 million in vendor financing commitments to fund the purchase of additional
switching and related telecommunications capital equipment. At March 31, 2000,
all available amounts were utilized under this facility. Borrowings from this
equipment vendor accrue interest at a rate of LIBOR plus either 5.25% or 4.5%
depending on the equipment purchased.
In February 2000, we issued 2.3 million Series A Cumulative Convertible
Preferred Shares ("Preferred Shares") at a price of $50 per share, and received
net proceeds of approximately $111 million. The Preferred Shares are convertible
at any time by the holders into our Class A common shares at a conversion rate
of 2.2584 shares for each Preferred Share subject to adjustments under certain
circumstances. Dividends accrue at the rate of 7 1/2% per year and are payable
quarterly. Beginning in February 2005, we will have the right to redeem some or
all of the Preferred Shares at a predetermined redemption price plus accrued
dividends, if any. We will be required to redeem any Preferred Shares still
outstanding on February 1, 2012 at a redemption price of $50 per share plus
accrued dividends. Holders of the Preferred Shares are generally not entitled to
any voting rights. The Preferred Shares, which have a liquidation value of $50
per share, rank junior to all of our existing and future debts and obligations.
Concurrent with the issuance of the preferred shares, RSL PLC issued $100
million and 100 million Euro-denominated Senior Notes due 2010 (the "2000
Notes"). The 2000 Notes, which are guaranteed by us and by RSL COM U.S.A., a
wholly owned subsidiary of RSL PLC, bear interest at an annual rate of 12 7/8%.
The debt isssuances generated combined proceeds to us of approximately $ 192.2
million. In connection with the guarantee of the 2000 Notes, RSL COM U.S.A. also
became a guarantor of RSL PLC's previously issued and outstanding Notes.
The limitation under our most restrictive covenants will likely prohibit us from
incurring any significant amount of additional indebtedness to fund net losses
unless we complete an equity offering or generate significant positive cash flow
from operations. We believe that the remaining net proceeds from the issuance of
the 2000 Notes and the Preferred Shares, together with the proceeds from the
initial public offering of our Australian operation and the Telegate
Transaction, and availability under our revolving credit facilities, short-term
lines of credit and overdraft facilities from local banks, will be sufficient to
fund our capital expenditures and operations through at least the end of 2001.
However, we may be required to raise additional capital regardless of market
conditions, if our plans or assumptions change or prove to be inaccurate, we
identify additional required or desirable infrastructure investments or
acquisitions, if we experience unanticipated costs or competitive pressures or
if the net proceeds from the issuance of our debt and equity securities,
together with other sources of liquidity otherwise prove to be insufficient.
Regardless, we plan to raise additional capital in 2000 to ensure that adequate
funding is available for capital expenditures and operations for the year 2001
and beyond.
Effects of Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No.133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and hedging activities. Generally, it
requires that an entity recognize all derivatives as either an asset or
liability and
20
<PAGE>
measure those instruments at fair value, as well as identify the conditions for
which a derivative may be specially designed as a hedge. SFAS No.133 is
effective for fiscal years beginning after June 15, 2000. Management is
currently addressing the financial reporting measures that will be needed in
order to comply with this disclosure. We have not participated in any hedging
activities in connection with foreign currency exposure.
Seasonality
Our European operations experience seasonality during January, August, October
and December, and, to a lesser extent, March, as these months are traditional
holiday months in most European countries and many European businesses, which
are our principal European customers, are closed during portions of these
months.
21
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have not entered into any financial instruments for trading or hedging
purposes.
We are exposed to fluctuations in foreign currencies relative to the U.S.
dollar, as our revenues, costs, assets and liabilities are, for the most part,
denominated in local currencies. The results of operations of our subsidiaries,
as reported in U.S. dollars, may be significantly affected by fluctuations in
the value of the local currencies in which we transact business. We recorded a
foreign currency translation adjustment of $5.5 million as a component of equity
as of March 31, 2000. Such amount is recorded upon the translation of the
foreign subsidiaries' financial statements into U.S. dollars, and is dependent
upon the various foreign exchange rates and the magnitude of the foreign
subsidiaries' financial statements. For the three month period ended March 31,
2000, we had recorded a foreign currency transaction gain of approximately $5.0
million, primarily as a result of the decrease in the Deutsche mark against the
U.S. dollar in connection with the DM296 million 10% Senior Discount Notes
issued during 1998 and the decrease in the Euro against the U.S. dollar in
connection with the 100 million Euro 12 7/8% Senior Notes issued in February
2000.
We incur settlement costs when we exchange traffic via operating agreements with
foreign correspondents. These costs currently represent a small portion of the
total costs of services; however, as our international operations increase, we
expect that these costs will become a more significant portion of our cost of
services. Such costs are settled by utilizing a net settlement process with our
foreign correspondents comprised of special drawing rights ("SDRs"). SDRs are
the established method of settlement among international telecommunications
carriers. The SDRs are valued based upon a basket of foreign currencies and we
believe that this mitigates, to some extent, our foreign currency exposure. We
have monitored and will continue to monitor our foreign currency exposure, and,
if necessary, may enter into forward contracts and/or similar instruments to
mitigate the potential impacts of such risks.
We are currently not exposed to material future earnings or cash flow exposures
from changes in interest rates on long-term debt obligations since the majority
of our long-term debt obligations are at fixed rates. We are exposed to interest
rate risk, as additional financing may be required due to the large operating
losses and capital expenditures associated with establishing and expanding our
networks and facilities. The interest rate that we will be able to obtain on
additional financing will depend on market conditions at that time, and may
differ from the rates we have has secured on our current debt. We do not
currently anticipate entering into interest rate swaps and/or similar
instruments.
The carrying value of our cash and cash equivalents, accounts receivable,
accounts payable, marketable securities - available for sale, accrued expenses
and notes payable is a reasonable approximation of their fair value.
At March 31, 2000, the fair value of our long-term debt (excluding capital lease
obligations) was estimated to be $1.3 billion based on the overall weighted
average rate of our long-term debt of 10.8% and an overall weighted average
maturity of 8.4 years compared to terms and rates currently available in
long-term financing markets. Market risk is estimated as the potential decrease
in fair value of our long-term debt resulting from a hypothetical increase of
108 basis points in interest rates (ten percent of our overall weighted average
borrowing rate). Such an increase in interest rates would result in
approximately a $91.3 million decrease in fair value of our long-term debt.
22
<PAGE>
PART II
OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds
In February 2000, we, through RSL Communications PLC, issued $100
million aggregate principal amount at maturity of 12 7/8% Senior Notes due
2010 and [EURO]100 million Senior Notes due 2010 (which we refer to
collectively as the 12 7/8% Notes) unconditionally guaranteed by us and
RSL COM U.S.A., Inc. pursuant to indentures governing the 12 7/8% Notes.
The placement agents for the offering of the 12 7/8% Notes were Goldman,
Sachs & Co., Lehman Brothers Inc., Merrill Lynch, Pierce Fenner & Smith
Incorporated and Morgan Stanley & Co. Incorporated. The aggregate
commissions were approximately $5.0 million. The 12 7/8% Notes were sold
outside the U.S. to non-U.S. persons in reliance on Regulation S under the
Securities Act and in the U.S. only to "qualified institutional buyers" in
reliance on Rule 144A under the Securities Act.
In February 2000, we issued $100 million aggregate liquidation
preference of our 7 1/2% Series A preferred shares. The placement agents
for the Series A preferred shares were Goldman, Sachs & Co., Lehman
Brothers Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and
Morgan Stanley & Co. Incorporated. In March 2000, the placement agents
exercised their over-allotment option with respect to an additional $15
million aggregate liquidation preference of Series A preferred shares. The
aggregate commissions were approximately $4.0 million. The Series A
preferred shares were sold outside the U.S. to non-U.S. persons in
reliance on Regulation S under the Securities Act and in the U.S. only to
"qualified institutional buyers" in reliance on Rule 144A under the
Securities Act.
In February 2000, we issued to Jean Paul Flachsman 11,765 Class A
common shares in connection with our acquisition of Prime Line AG, a
company controlled by Mr. Flachsman. The issuance of such Class A common
shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof.
In March 2000, we issued to European Telecom Inc., Leigh Smith,
Lucien Gaumier, Bernard Burton, Marc de Mote, Mohammed Chtouki and Rudi
van Laer, an aggregate of 82,611 Class A common shares in exchange for
shares of RSL COM Belgium N.V. owned by such persons. The issuance of such
Class A common shares was exempt from registration under the Securities
Act pursuant to Section 4(2) thereof.
Item 4. Submission of Matters to a Vote of Security Holders
On February 10, 2000, we held a special general meeting of our
shareholders. At the meeting, there were present in person or by proxy a
total of 10,601,359 Class A common shares out of a total 31,026,791 shares
of such stock issued and outstanding and entitled to vote at the meeting,
and a total of 24,267,283 Class B common shares out of a total of
24,267,283 issued and outstanding and entitled to vote at the meeting (or,
in the aggregate 253,274,189 votes out of a total of 273,699,621 potential
votes).
Our shareholders voted in favor of the proposal to amend our
bye-laws to authorize the issuance of preferred shares by our board of
directors, without any further action by our
23
<PAGE>
shareholders, from time to time in one or more series with the
designations, preferences, rights, qualifications, limitations and
restrictions relating to such series, including voting rights, dividend
rights, dividend rates, conversion rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any
series, as our board of directors sees fit as follows: 249,625,037 votes
for, 3,649,112 votes against and 40 abstention votes.
Item 5. Other Information
Forward-Looking Statements
Certain matters discussed in this Report under the heading
"Management's Discussion and Analysis of Financial Condition and Results
of Operation - Liquidity and Capital Resources" contain certain
forward-looking statements which involve risks and uncertainties and
depend upon certain assumptions, some of which may be beyond the Company's
control, including, but not limited to changing market conditions,
competitive matters (such as the size and financial resources of
competitors, pricing pressures, etc.), regulatory environment (such as
timing and extent of deregulation of telecommunications market), the
integration of acquisitions and new operations, substantial capital
requirements, the availability of transmission facilities, reliance on
sophisticated information systems, devaluation and currency risks, general
economic conditions in the markets in which the Company operates, as well
as other risks referenced from time to time in the Company's filings with
the Securities and Exchange Commission and, accordingly, there can be no
assurance with regard to such statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Incorporation of RSL Communications, Ltd., issued by the
Bermuda Registrar of Companies on March 14, 1996 (incorporated by
reference to Registrant's Registration Statement on Form S-4
(Registration No.333-25749)).
3.2 Memorandum of Association of RSL Communications, Ltd., filed with the
Bermuda Registrar of Companies on March 14, 1996 (incorporated by
reference to Registrant's Registration Statement on Form S-4
(Registration No.333-25749)).
3.3 Bye-Laws of RSL Communications, Ltd., as amended to date (incorporated
by reference to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999).
3.4 Certificate of Designation relating to 7 1/2% Series A Convertible
Preferred Shares (incorporated by reference to the Registrant's
Registration Statement on Form S-3 (Registration No. 333-35864)).
4.1 Form of Class A Common Share (incorporated by reference to Registrant's
Registration Statement on Form S-1 (Registration No. 333-34281)).
4.2 Note Deposit Agreement, dated as of February 22, 2000, among RSL
Communications PLC, RSL Communications, Ltd. and the Chase Manhattan
Bank, as Book-Entry Depositary (incorporated by reference to
Registrant's Registration Statement on Form S-4 (Registration No.
333-36494)).
4.3 Dollar Note Indenture, dated as of February 22, 2000, among RSL
Communications PLC, RSL Communications, Ltd. and the Chase Manhattan
Bank, as Trustee (incorporated by reference to Registrant's Registration
Statement on Form S-4 (Registration No. 333-36494)).
4.4 Euro Note Indenture, dated as of February 22, 2000, among RSL
Communications PLC, RSL Communications, Ltd. and the Chase Manhattan
Bank, as Trustee (incorporated by reference to Registrant's Registration
Statement on Form S-4 (Registration No. 333-36494)).
24
<PAGE>
10.1 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 9 7/8% Senior Notes due 2009 (incorporated
by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.2 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee regarding 10 1/2% Senior Notes due 2008 (incorporated
by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.3 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 9 1/8% Senior Notes due 2008 (incorporated
by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.4 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 12 1/4% Senior Notes due 2006 (incorporated
by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.5 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 12% Senior Notes due 2008 (incorporated by
reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.6 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 10 1/8% Senior Discount Notes due 2008
(incorporated by reference to Registrant's Registration Statement on
Form S-4 (Registration No. 333-36494)).
10.7 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 10% Senior Discount Notes due 2008
(incorporated by reference to Registrant's Registration Statement on
Form S-4 (Registration No. 333-36494)).
10.8 Registration Rights Agreement, dated as of February 22, 2000 among RSL
Communications, Ltd. and the Initial Purchasers named therein
(incorporated by reference to the Registrant's Registration Statement on
Form S-3 (Registration No. 333-35864)).
10.9 Exchange and Registration Rights Agreement, dated as of February 22,
2000 among RSL Communications, Ltd., RSL Communications PLC, and
Goldman, Sachs the Initial Purchasers named therein (incorporated by
reference to the Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.10 Put and Call Option Agreement dated March 28, 2000 relating to the sale
and purchase of the entire issued share capital of Voyager Networks
Limited and Voyager Internet Limited, by and among RSL Communications,
Ltd., J.B. Shaw, C.L. Windley, N.P. Williams and Walbrook Trustees (IOM)
Limited (filed herewith).
27.1 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K.
We filed a Form 8-K with the SEC dated January 25, 2000, reporting that
we had issued press releases regarding (i) the purchase of network
capacity for our European operations and our expectations regarding 4th
quarter 1999 EBITDA and (ii) offerings of our cumulative convertible
preferred stock, and senior notes of our wholly-owned subsidiary, RSL
Communications PLC. The press releases were filed as exhibits to the
Form 8-K.
25
<PAGE>
We filed a Form 8-K with the SEC dated February 10, 2000, reporting that
deltathree.com, Inc., our subsidiary, had issued a press release
regarding its fourth quarter financial results. The press release was
filed as an exhibit to the Form 8-K.
We filed a Form 8-K with the SEC dated March 2, 2000, reporting that we
had issued a press release regarding our fourth quarter financial
results. The press release was filed as an exhibit to the Form 8-K.
We also filed a Form 8-K with the SEC dated March 16, 2000, reporting
that we had issued press releases announcing that we had entered into
agreements relating to the acquisition of Rednet Limited and Voyager
Internet Limited and Voyager Networks Limited. The press releases were
filed as exhibits to the Form 8-K.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
RSL COMMUNICATIONS, LTD.
Date: May 15, 2000 By /s/ Joel S. Beckoff
-----------------------------
Name: Joel S. Beckoff
Title: Vice President - Controller
and Chief Accounting Officer
27
<PAGE>
Exhibit Index
3.1 Certificate of Incorporation of RSL Communications, Ltd., issued by the
Bermuda Registrar of Companies on March 14, 1996 (incorporated by
reference to Registrant's Registration Statement on Form S-4
(Registration No.333-25749)).
3.2 Memorandum of Association of RSL Communications, Ltd., filed with the
Bermuda Registrar of Companies on March 14, 1996 (incorporated by
reference to Registrant's Registration Statement on Form S-4
(Registration No.333-25749)).
3.3 Bye-Laws of RSL Communications, Ltd., as amended to date (incorporated
by reference to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999).
3.4 Certificate of Designation relating to 7 1/2% Series A Convertible
Preferred Shares (incorporated by reference to the Registrant's
Registration Statement on Form S-3 (Registration No. 333-35864)).
4.1 Form of Class A Common Share (incorporated by reference to Registrant's
Registration Statement on Form S-1 (Registration No. 333-34281)).
4.2 Note Deposit Agreement, dated as of February 22, 2000, among RSL
Communications PLC, RSL Communications, Ltd. and the Chase Manhattan
Bank, as Book-Entry Depositary (incorporated by reference to
Registrant's Registration Statement on Form S-4 (Registration No.
333-36494)).
4.3 Dollar Note Indenture, dated as of February 22, 2000, among RSL
Communications PLC, RSL Communications, Ltd. and the Chase Manhattan
Bank, as Trustee (incorporated by reference to Registrant's Registration
Statement on Form S-4 (Registration No. 333-36494)).
4.4 Euro Note Indenture, dated as of February 22, 2000, among RSL
Communications PLC, RSL Communications, Ltd. and the Chase Manhattan
Bank, as Trustee (incorporated by reference to Registrant's Registration
Statement on Form S-4 (Registration No. 333-36494)).
10.1 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 9 7/8% Senior Notes due 2009 (incorporated
by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.2 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee regarding 10 1/2% Senior Notes due 2008 (incorporated
by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.3 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 9 1/8% Senior Notes due 2008 (incorporated
by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.4 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 12 1/4% Senior Notes due 2006 (incorporated
by reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.5 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 12% Senior Notes due 2008 (incorporated by
reference to Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.6 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 10 1/8% Senior Discount Notes due 2008
(incorporated by reference to Registrant's Registration Statement on
Form S-4 (Registration No. 333-36494)).
28
<PAGE>
10.7 Second Supplemental Indenture, dated as of February 22, 2000, by RSL
Communications PLC and RSL Communications, Ltd. to The Chase Manhattan
Bank, as Trustee, regarding 10% Senior Discount Notes due 2008
(incorporated by reference to Registrant's Registration Statement on
Form S-4 (Registration No. 333-36494)).
10.8 Registration Rights Agreement, dated as of February 22, 2000 among RSL
Communications, Ltd. and the Initial Purchasers named therein
(incorporated by reference to the Registrant's Registration Statement on
Form S-3 (Registration No. 333-35864)).
10.9 Exchange and Registration Rights Agreement, dated as of February 22,
2000 among RSL Communications, Ltd., RSL Communications PLC, and
Goldman, Sachs the Initial Purchasers named therein (incorporated by
reference to the Registrant's Registration Statement on Form S-4
(Registration No. 333-36494)).
10.10 Put and Call Option Agreement dated March 28, 2000 relating to the sale
and purchase of the entire issued share capital of Voyager Networks
Limited and Voyager Internet Limited, by and among RSL Communications,
Ltd., J.B. Shaw, C.L. Windley, N.P. Williams and Walbrook Trustees (IOM)
Limited (filed herewith).
27.1 Financial Data Schedule (filed herewith).
29
PRIVATE & CONFIDENTIAL
DATED 28 March 2000
(1) MR J B SHAW
-and-
(2) MR C L WINDLEY
-and-
(3) MR N P WILLIAMS
-and-
(4) WALBROOK TRUSTEES (IOM) LIMITED
-and-
(5) RSL COMMUNICATIONS, LTD.
- --------------------------------------------------------------------------------
PUT AND CALL OPTION AGREEMENT
relating to the sale and purchase of the entire issued share capital of
Voyager Networks Limited
and Voyager Internet Limited
- --------------------------------------------------------------------------------
READ HIND STEWART
S O L I C I T O R S
TRAFALGAR HOUSE, 29 PARK PLACE, LEEDS,
WEST YORKSHIRE, LS1 2SP
TEL: (0113) 2468123 FAX: (0113) 2442863
DX 14085 LEEDS PARK SQUARE
<PAGE>
CONTENTS PAGE
1. Definitions and Interpretation 2
2. Option and Sale of Shares 9
3. Conditions 10
4. Continuation of business pending Completion 10
5. Consideration 12
6. The Consideration Shares 13
7. Additional Consideration 14
8. Adjustment to the Purchase Price 17
9. Completion 18
10. Post Completion Matters 18
11. Warranties 19
12. Reverse Warranty 21
13. Restrictive Covenants 22
14. Indemnity and Covenant 23
15. Purchaser's Covenants 23
16. Announcements 24
17. Assignment 24
18. General 24
19. Further Assurance 24
20. Entire Agreement 24
21. Notices 25
22. Illegality 25
23. Law and Jurisdiction 25
24. Costs 25
25. Counterparts 26
26. Releases 26
27. Waivers and Remedies 26
28. Third Party Rights 26
SCHEDULE 1
Part 1A - Information Concerning Voyager Networks Limited 27
Part 1B - Information Concerning Voyager Internet Limited 28
Part 2 - Details of the Vendors and their Shareholdings in the Companies 29
Part 3A - VNL Initial Consideration 31
Part 3B - VIL Initial Consideration 33
<PAGE>
SCHEDULE 2
Part 1 - General Taxation 34
Part 2 - Taxation Covenant 45
Part 3 - Taxation Warranties 47
SCHEDULE 3
General Warranties 51
SCHEDULE 4
Provisions for the protection of the Vendors 74
SCHEDULE 5
Trustee Protections 80
SCHEDULE 6
Part I - Deed of Adherence 84
Part II - Deed of Adherence 87
Part III - Deed of Adherence 91
SCHEDULE 7
Matters to be dealt with on Completion 94
SCHEDULE 8
Preparation of the Completion Accounts 97
SCHEDULE 9
The Properties 99
SCHEDULE 10
Earn Out Provisions 101
SCHEDULE 11
Accounting Principles 104
<PAGE>
AGREEMENT DATED: 2000
BETWEEN
(1) THE PERSONS whose names and addresses are set out in column 1 of part 2 of
schedule 1 ("Vendors");
(2) WALBROOK TRUSTEES (IOM) LIMITED (registered in the Isle of Man under
Company Number: 552601) whose registered office is at PO Box 250 Grosvenor
House, 66/67 Atholl Street, Douglas, Isle of Man in its capacity as
trustee of the Windley Settlement, the Shaw Settlement and the Williams
Settlement ("Trustees"); and
(3) RSL COMMUNICATIONS, LTD. (a company incorporated in Bermuda) whose
principal office is at Clarendon House, Church Street, Hamilton, Bermuda
("Purchaser").
RECITALS:-
A. The Purchaser wishes to purchase and the Vendors wish to sell the entire
issued share capital of Voyager Networks Limited and Voyager Internet
Limited on the terms and subject to the conditions of this Agreement.
IT IS AGREED as follows:-
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement unless the context otherwise requires:-
"Accounts" means the audited annual accounts (as
defined in section 262 CA 1985) of each
Company, prepared in accordance with
section 226 CA 1985 for the financial
year ended on the Accounts Date and all
notes, reports and other documents
annexed thereto in accordance with any
legal requirement;
"Accounts Date" means 30 June 1999;
"Actual Taxation Liability" has the meaning given to it in part 1
of schedule 2;
"Additional Consideration" means the additional consideration
payable to the Vendors in respect of
the Shares as set out in clause 7;
"Agreement" means this agreement including its
schedules;
"Bank Guarantee" means a guarantee substantially in the
agreed form to be issued by a UK
clearing bank in respect of the Loan
Notes;
"Business" means the business of the Companies as
carried on at the date hereof;
2
<PAGE>
"business day" means 9 a.m. to 5 p.m. on any day
(other than a Saturday or Sunday) on
which clearing banks are open for
business in London;
"CA 1985" means the Companies Act 1985 as amended;
"Call Option" has the meaning given to it in clause 2.2;
"Charges" means the charges referred to in
paragraph 11 of part 1A and part
1B of Schedule 1;
"Companies" means together Voyager Networks and
Voyager Internet , and "Company" means
either of them;
"Completion" means completion of the sale and
purchase of the Shares by the
performance by the Parties of their
respective obligations under clause 9
and schedule 7;
"Completion Accounts" shall have the meaning set out in
schedule 8;
"Completion Date" means the date upon which this
Agreement completes in accordance with
clause 9;
"Condition" means the condition referred to and
contained in clause 3;
"Confidential Information" means all confidential
information used in or otherwise relating to
the business, customers or other affairs of
the Companies;
"Consideration" means the aggregate of the Initial
Consideration and the Additional
Consideration to be paid by the
Purchaser to the Vendors for the Shares;
"Consideration Shares" means the class A common shares of
$0.00457 of the Purchaser to be issued to
the Vendors pursuant to clauses 5, 6 and 7
as part of the Consideration;
"Current Assets" means the aggregate of the stock,
trade debtors, cash in hand, pre-payments to
suppliers and other current assets of the
Company at the Completion Date as shown in
the Completion Accounts;
"Default Rate" means 3% above the base rate for the time
being of National Westminster Bank PLC
compounded quarterly;
3
<PAGE>
"Disclosure Bundle" means the bundle of documents in the
agreed form which are attached or
deemed to be attached to the Disclosure
Letter;
"Disclosure Letter" means the letter of today's date in
agreed form from the Vendors to the
Purchaser (including the Disclosure
Bundle) disclosing certain matters in
relation to the Warranties and
expressed to be the Disclosure Letter;
"$" and "Dollars" means US Dollars;
"EBITDA" means the aggregate earnings of the
Companies before interest, Taxation,
depreciation and amortisation
determined or agreed in accordance with
clause 7 as at the First EBITDA
Accounts Date or (as the case may
require) at the Second EBITDA Accounts
Date (in each case as defined in clause
7);
"E&Y Information Memorandum" means the information memorandum dated
February 2000 which was prepared by the
Vendors' Accountants and a copy of which is
disclosed in the Disclosure Bundle;
"E&Y Report" means the report (consisting of the
Vendors due diligence and appendices)
dated February 2000 which was prepared
by the Vendors' Accountants a copy of
which is disclosed in the Disclosure
Bundle;
"Encumbrance" means any mortgage, charge, pledge, lien,
option, restriction, right of first refusal,
right of pre-emption, third party right, any
other encumbrance or security interest of
any kind;
"Estimated Net Liabilities" means(pound)864,380;
"Exercise Notice" means a written notice given in
accordance with clause 2 in order to
exercise either the Put Option or the Call
Option as the case may be;
"FRS" means a Financial Reporting Standard
issued or adopted by the Accounting
Standard Board Limited;
"GAAP" means generally accepted accounting
practices and principles in the United
Kingdom;
4
<PAGE>
"group company" means in relation to any company, any
subsidiary or holding company of that
company or any subsidiary of that
holding company;
"Initial Consideration" means the aggregate sum of(pound)35,000,000
less the amount of the Net Liabilities
as adjusted pursuant to clause 8;
"Intellectual Property" means any and all patents, trademarks,
service marks, registered designs,
utility models, unregistered trademarks
and service marks, trade and business
names, copyrights, rights in designs,
inventions, rights under licences and
consents in relation to any such
rights, applications and the right to
make applications for any of the
foregoing;
"Liabilities" means all of the liabilities of the
Company at the Completion Date as shown
in the Completion Accounts other than
the Mortgage;
"Loan Notes" means the Guaranteed Unsecured Loan Notes of
the Purchaser in the agreed form to be
issued to the Vendors as part satisfaction
of the Consideration;
"Management Accounts" means the unaudited profit and loss account
of the Company for the financial period
ended on, and the unaudited balance sheet of
the Company as at, the Management Accounts
Date;
"Management Accounts Date" means 29 February 2000;
"Mortgage" means the sum of(pound)624,549 owed by
Voyager Networks to Northern Rock Plc
in respect of the Property at 9 Sir
William Lyons Road, University of
Warwick Science Park, Coventry;
"Net Liabilities" means the amount (not being less than
zero) by which the Liabilities exceed
the Current Assets;
5
<PAGE>
"Nominated Account" means the Vendors' Solicitors'
client account as follows:
Account Name: Read Hind Stewart -
Client Account
Bank: National Westminster
Bank PLC
Address: 7 Hustlergate Bradford
BD1 1PP
Sort Code: 56-00-36
Account No: 89991419
"Parties" means the parties to this Agreement and
the expression "Party" shall be
construed accordingly;
"Properties" means the properties brief details of
which are set out in schedule 9 and a
reference to the Properties includes a
reference to the individual properties
comprised in the Properties or any part
or parts or any interest in, individual
properties;
"Purchaser's Accountants" means Deloitte & Touche
Tohmatsu International of Hill House, 1
Little New Street, London EC4A 3TR or such
other independent accountants as may be
engaged by the Purchaser;
"Purchaser's Solicitors" means Field Fisher Waterhouse of 35
Vine Street, London EC3N 2AA;
"Put Option" has the meaning given to it in clause
2.1;
"recognised investment means a recognised investment exchange
exchange" as defined in section 207 of the
Financial Services Act 1986 or any
similar regulated market dealing with
transactions in securities;
6
<PAGE>
"Registered" or means registered or registration (as
"Registration" the case may be) under the US
Securities Act 1933 as amended and
shall include, without limitation, a
resale registration;
"Relevant Proportions" means in relation to Voyager Networks
or any claim relating to it the
relevant proportions shown in column
(4) of part 3A of schedule 1 and in
relation to Voyager Internet or any
claims relating to it the relevant
proportions set out in column (4) of
part 3B of schedule 1;
"Retention Account" means a deposit account in the joint names
of the Vendors' Solicitors and the
Purchaser's Solicitors more particularly
described in the Retention Account
Agreement;
"Retention Account Agreement" means an agreement substantially in the
agreed form between the Vendors' Solicitors
and the Purchaser's Solicitors relating to
sums retained by the Purchaser pursuant to
clause 11.10 to 11.16;
"Service Agreements" means the service agreements in the agreed
form to be entered into between each of the
Shareholders with Voyager Networks on
Completion;
"Settlements" means together the Shaw Settlement the
Windley Settlement and the Williams
Settlement and "Settlement" shall mean
any of them;
"Shares" means together the VIL Shares and the
VNL Shares being the entire issued
share capital of the Companies;
"Shareholders" means together Jonathan Brian Shaw,
Christopher Leslie Windley and Nigel
Philip Williams three of the Vendors;
"Shaw Settlement" means the Mr J B Shaw 1996 Settlement
dated 27 June 1996;
"Spot Rate" means the mid point spot rate for the
purchase of the currency in question as
stated in the latest London edition of the
Financial Times available on the relevant
date;
"SSAP" means a Statement of Standard Accounting
Practice issued or adopted by the Accounting
Standards Board Limited
7
<PAGE>
"Sterling" and "(pound)" means the lawful currency of the United
Kingdom for the time being;
"Tax" and "Taxation" shall have the meaning given to it in
part 1 of schedule 2;
"Taxes Act" shall have the meaning give to it in
part 1 of schedule 2;
"Tax Covenant" means the covenant given by the Vendors
in respect of certain Tax liabilities
of the Companies which is referred to
in clause 11.3 and which, (subject to
part 1 of schedule 2) is contained in
part 2 of schedule 2;
"Tax Warranties" means the warranties set out in part 3
of schedule 2;
"Vendors' Accountants" means Ernst & Young of One Colmore Row,
Birmingham, B3 2DB;
"Vendors' Solicitors" means Read Hind Stewart of Trafalgar
House, 29 Park Place, Leeds, West
Yorkshire LS1 2SP;
"Voyager Internet" means Voyager Internet Limited a
company registered in England under
Company Number: 3310095 further
details of which are set out in part 1A
of schedule 1;
"Voyager Networks" means Voyager Networks Limited a company
registered in England under number 2780598
further details of which are set out in part
1B of schedule 1;
"VIL Shares" means the 3 ordinary shares of
(pound)1 each in the capital of Voyager
Internet being its entire issued share
capital at the date hereof;
"VNL Shares" means the 150,000 ordinary shares of
(pound)1 each in the capital of Voyager
Networks being its entire issued share
capital at the date hereof;
"Warranties" means the warranties contained in part 2 of
schedule 2 and schedule 3 and the expression
"Warranty" shall be construed accordingly;
"Williams Settlement" means the Mr N P Williams 1996
Settlement dated 27 June 1996;
"Windley Settlement" means the Mr C L Windley 1996 Settlement
dated 27 June 1996.
8
<PAGE>
1.2 In interpreting this Agreement:-
1.2.1 a document expressed to be "in the agreed form" means a document in
a form which has been agreed by the parties at or before the
execution of this Agreement and which has, for the purposes of
identification, been signed or initialled by them or on their
behalf;
1.2.2 references to a clause, sub-clause, schedule or annexure are to a
clause or sub-clause of or a schedule or annexure to, this Agreement
respectively, references to this Agreement include its schedules and
annexures and references in a schedule or part of a schedule to a
paragraph are to a paragraph of that schedule or that part of the
schedule respectively;
1.2.3 references to this Agreement or any other document or to any
specified provision of this Agreement or any other document are to
this Agreement, that document or that provision as in force at that
date hereof and as amended from time to time in accordance with the
terms of this Agreement or that document or, as the case may be,
with the agreement of the relevant parties and shall include,
without limitation, the provisions of the schedules to this
Agreement;
1.2.4 words importing the singular include the plural and vice versa,
words importing a gender include every gender and references to a
"person" include any individual, corporation, firm, partnership,
joint venture, association, organisation or trust (in each case
whether or not having separate legal personality) and references to
any of the same shall indicate a reference to the others;
1.2.5 words and phrases which are generally defined for the purposes of
the CA 1985 shall, unless the context requires otherwise, in this
Agreement bear the meanings attributed to them by that Act as at the
date of this Agreement;
1.2.6 a person is "connected with" another person or a "connected person"
of that other person if:
(i) such person is connected with the other person within the
meaning of section 839 Taxes Act; and/or
(ii) such person is a company under the control of the other person
within the meaning of section 840 Taxes Act.
1.2.7 the contents table and the descriptive headings to clauses,
schedules and paragraphs are inserted for convenience only, have no
legal effect and shall be ignored in the interpretation of this
Agreement;
1.2.8 the words and phrases "other", "including" and "in particular" shall
not limit the generality of any preceding words or be construed as
being limited to the same class as the preceding words where a wider
construction is possible;
1.2.9 references to statutory provisions shall be construed as references
to those provisions as respectively replaced, amended or re-enacted
(whether before or after the date of this Agreement) from time to
time and shall include any provisions of which they are
re-enactments (whether with or without modification) and any
subordinate legislation (as defined by section 21(1) Interpretation
Act 1978) made under such provisions save to the extent that such
replacements, amendments or re-enactments taking effect after the
date of this Agreement would impose any greater obligations or
liabilities on any Party under this Agreement.
9
<PAGE>
1.3 Unless otherwise stated, all warranties, representations, indemnities,
covenants, agreements and obligations made, given or entered into by more
than one person in this Agreement are made, given or entered into
severally.
2. OPTION AND SALE OF SHARES
2.1 The Purchaser grants to the Vendors, conditional upon the satisfaction of
the Condition, an irrevocable option (the "Put Option") to require the
Purchaser to purchase all but not some only of the Shares on the terms and
subject to the conditions of this Agreement.
2.2 The Vendors grant to the Purchaser, conditional upon the satisfaction of
the Condition, an irrevocable option (the "Call Option") to require the
Vendors to sell all but not some only of the Shares on the terms and
subject to the conditions of this Agreement.
2.3 The Put Option shall become exercisable by delivery of an Exercise Notice
executed by any two of the Shareholders and by the Trustees (as trustees
of any two of the Settlements) within the period commencing on the day
immediately following after the satisfaction of the Condition and ending
two business days later ("Put Option Exercise Period").
2.4 The Call Option shall be exercisable by delivery of an Exercise Notice
within the period commencing two business days after the satisfaction of
the Condition and ending 14 days later ("Call Option Exercise Period").
2.5 In the event that the Vendors wish to exercise the Put Option they shall
within the Put Option Exercise Period deliver an Exercise Notice to the
Purchaser. The Put Option shall be deemed to be exercised on the next
business day following the date on which such Exercise Notice is delivered
to the Purchaser ("Put Option Exercise").
2.6 In the event that the Purchaser wishes to exercise the Call Option it
shall within the Call Option Exercise Period deliver an Exercise Notice to
the Vendors. The Call Option shall be deemed to be exercised on the next
business day following the date on which such Exercise Notice is delivered
to the Vendors ("Call Option Exercise Date").
2.7 Delivery of an Exercise Notice, which shall be irrevocable, shall
constitute and give rise to an unconditional agreement between the Vendors
and the Purchaser for the sale of the Shares by the Vendors with full
title guarantee (save in the case of the Trustees who shall sell with
limited title guarantee), free from all Encumbrances together with all
rights attaching thereto from Completion, and the purchase by the
Purchaser of the Shares on and subject to the terms set out in this
Agreement.
2.8 Subject to clause 2.10, Completion shall take place on the day falling 3
business days after the Put Option Exercise Date or the Call Option
Exercise Date (as the case may be) or earlier if agreed with the
Shareholders and the Purchaser.
2.9 The Purchaser shall not be bound to complete the purchase of any of the
Shares unless the purchase of all the Shares is completed simultaneously.
2.10 If at any time after the service of an Exercise Notice either the Vendors
or the Purchaser becomes aware that it or they may be unable to comply
with it any of its or their obligations under schedule 7 (Completion
Requirements), it or they shall notify the other as soon as reasonably
practicable and in any event not later than 3.30 p.m. on date for
Completion. If either of the Vendors or the Purchaser shall so notify the
other then the proposed date for Completion shall be postponed to a date
no later than 5 business days from the original date scheduled for
Completion.
3. CONDITIONS
3.1 The condition isthe Vendors having received confirmation from the Board of
the Inland Revenue that the transactions contemplated hereunder:-
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(a) do not give rise to a notice under section 703(3) of the Income and
Corporation Taxes Act 1988 being given; and
(b) that section 135 of the Taxation of Capital Gains Act 1992 would not
be prevented from applying to such transactions.
3.2 The Vendors shall use their reasonable endeavours to procure the
fulfillment of the Condition.
3.3 If at any time the Vendors become aware of any circumstances which may
give rise to the non-fulfillment of the Condition, they shall immediately
give to the Purchaser written particulars of those circumstances and the
Vendors and the Purchaser shall co-operate fully with a view to procuring
fulfillment of the relevant Condition.
3.4 If the Condition is not satisfied on or before 15 June 2000 this Agreement
will (unless the Parties agree otherwise) forthwith terminate and be of no
effect and save for any rights which have accrued up to and including the
date of termination no Party shall be entitled to bring any action against
any other Party under this Agreement save pursuant to clause 3.2 above and
provided that such termination and cessation shall not affect the
provisions of clauses 16 (Announcements), 21 (Notices), 23 (Law and
Jurisdiction), 24 (Costs) and 28.2 (Third Party Rights) which the Parties
agree shall survive such termination.
4. CONTINUATION OF BUSINESS PENDING COMPLETION
4.1 Pending Completion the Vendors will and will instruct the Companies and
the Vendors' Accountants to furnish such information regarding the
business and affairs of the Companies, and give such explanations as the
Purchaser or the Purchaser's Accountants may reasonably request.
4.2 Pending Completion the Shareholders shall conduct the business of the
Companies in all respects so as to preserve it as a going concern and
shall, in particular, exercise the same degree of control and the same
care in the selection of customers as is customary in the ordinary and
usual course of the business of the Companies and shall keep the Purchaser
fully informed regarding the business of the Companies and save as
expressly provided in this Agreement or with the prior consent of the
Purchaser, the Vendors shall procure that the Companies shall:- .
4.2.1 not create, allot, issue, acquire, repay or redeem any share or loan
capital or agree to create, allot, issue, acquire, repay or redeem
any share or loan capital or acquire, or agree to acquire, any
interest in any shares of any other bodies corporate;
4.2.2 not acquire or dispose of, or agree to acquire or dispose of any
asset otherwise than in the ordinary and usual course of its
business or assume or incur, or agree to assume or incur, any
liability, expenditure or obligation otherwise than in the ordinary
and usual course of its business;
4.2.3 not declare, pay or make any dividend or distribution (including,
without limitation, any distribution within the meaning of the Taxes
Act);
4.2.4 not pass any resolution in general meeting;
4.2.5 maintain and continue all insurance policies of the Company which
are in force on the date hereof;
4.2.6 not amend the terms of employment or engagement of any of its
directors or employees or provide, or agree to provide, any
gratuitous payment or benefit to any of its directors or employees
or any of their dependents or employ, engage, or terminate the
employment or engagement of, any person;
4.2.7 not amend, or agree to amend, the terms of any loan capital,
borrowing or indebtedness in the nature of borrowing or create,
incur, or agree to create or incur, any loan capital,
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borrowing or indebtedness in the nature of borrowing (except
pursuant to facilities specifically disclosed in the Disclosure
Letter where the borrowing or indebtedness in the nature of
borrowing does not exceed the amount available to be drawn by the
Companies under those facilities);
4.2.8 not create, or agree to create, any further Encumbrance over any of
its assets or undertaking or redeem, or agree to redeem, any
existing Encumbrance over any of its assets or undertaking;
4.2.9 not give, or agree to give any guarantee, indemnity or other
agreement to secure any obligation of a third party;
4.2.10 not institute any civil, criminal, arbitration or other
proceedings;
4.2.11 not enter (except without the prior written consent of the
Purchaser) into any capital commitment in excess of (pound)50,000 or
any material or long term contract other than those of a type
normally entered into by the Companies in the ordinary course of
their trading activities;
4.2.12 not enter into any agreement which is not on bona fide arm's length
terms;
4.2.13 not enter into, terminate or vary any agreement with any of the
Vendors or any person connection with any Vendor;
4.2.14 not enter into any partnership or joint venture or acquire or
dispose of any business, undertaking or securities;
4.2.15 not appoint any agent or attorney;
4.2.16 not grant any underlease over or sell or vacate or sub-let with
possession of the whole or any part of the Properties or acquire any
interest in any property;
4.2.17 not engage any consultant or employee unless such engagement is
terminable on less than four weeks' notice and will not involve
payment of remuneration in excess of (pound)50,000 per annum;
4.2.18 not agree to do any of the foregoing.
4.3 Between the date of this Agreement and the earlier to occur of (i) 11:59
PM London time on 15 June 2000 and (ii) the termination of this Agreement
pursuant to its terms, the Vendors shall not, nor shall they permit the
Companies or any of their respective affiliates, financial advisors,
brokers or any other person acting on their behalf or on behalf of the
Companies to (i) enter into any agreement with a third party with respect
of the acquisition, directly or indirectly, of the Shares or other
securities of the Companies or a material part of their assets or any
merger, business combination, consolidation or reorganisation with the
Companies, (ii) enter into negotiations with a third party regarding such
an agreement, or (iii) provide a third party with general access to their
books, records or employees for the purposes of enabling such third party
to conduct a purchase investigation of the legal, financial or business
condition of the Companies.
5. CONSIDERATION
The VNL Consideration
5.1 The aggregate consideration payable for the VNL Shares shall be the sum of
(pound)10,503,268 ("the Provisional VNL Consideration") as adjusted
pursuant to clause 8 below together with twenty sixty fifths of the
Additional Consideration (if any).
5.2 The Provisional VNL Consideration shall be satisfied by the issue and
allotment on Completion to the Vendors in the Relevant Proportions of:
5.2.1 Loan Notes of an aggregate value of(pound)5,155,548; and
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5.2.2 the number of Consideration Shares calculated in accordance with the
provisions of clause 6.1 below ("the Initial VNL Consideration
Shares").
5.3 The Initial VNL Consideration Shares shall be issued within 10 business
days following Completion to the Vendors as set out in column (2) of part
3A of schedule 1.
5.4 The Loan Notes to be issued pursuant to clause 5.2.1 above shall be issued
on Completion to the Vendors as set out in column (3) of part 3A of
schedule 1.
The VIL Consideration
5.5 The aggregate consideration payable for the VIL Shares shall be the sum of
(pound)23,632,353 ("the Provisional VIL Consideration") as adjusted
pursuant to clause 8 below together with forty five sixty fifths of the
Additional Consideration (if any).
5.6 The Provisional VIL Consideration shall be satisfied by the issue and
allotment on Completion to the Trustees (being the shareholders of Voyager
Internet) in the Relevant Proportions of:
5.6.1 Loan Notes of an aggregate value of(pound)11,599,986; and
5.6.2 the number of Consideration Shares calculated in accordance with the
provisions of clause 6.2 below ("the Initial VIL Consideration
Shares").
5.7 The Initial VIL Consideration Shares shall be issued within 10 business
days following Completion to the Trustees in the Relevant Proportions.
5.8 The Loan Notes to be issued pursuant to clause 5.6.1 above shall be issued
on Completion to the Trustees in the Relevant Proportions.
6. THE INITIAL CONSIDERATION SHARES
6.1 The Initial VNL Consideration Shares (which together with the Initial VIL
Consideration Shares are hereinafter referred to as "the Initial
Consideration Shares") shall be such number of Consideration Shares as
shall have a value equal to (pound)5,347,719 (to the nearest Pound
Sterling and at the Spot Rate applicable on the business day immediately
before the Completion Date) such value being calculated for that purpose
in accordance with clause 6.3.
6.2 The Initial VIL Consideration Shares shall be such number of Consideration
Shares as shall have a value equal to (pound)12,032,367 (to the nearest
Pound Sterling and at the Spot Rate applicable on the business day
immediately before the Completion Date) such value being calculated for
that purpose in accordance with clause 6.3.
6.3 For the purpose of calculating the number of Initial Consideration Shares
to be issued the value of the Consideration Shares shall be calculated as
the average of the closing price for Class A common shares of the
Purchaser as traded on the Nasdaq National Market for the 30 business days
immediately preceding Completion ("the Closing Price").
6.4 The Initial Consideration Shares shall be unregistered shares, shall rank
pari passu with the existing Class A common shares of the Purchaser and
shall rank for any dividends declared made or paid after Completion.
6.5 The Purchaser agrees that if the closing price for class "A" common shares
of the Purchaser as traded on the Nasdaq National Market on the Relevant
Date (as defined in clause 6.6) ("the Relevant Price") is less than 75 per
cent of the Closing Price, the Purchaser shall at its option either:
6.5.1 issue to the Vendors in the Relevant Proportions further
unregistered Consideration Shares such that the aggregate value at
the Relevant Price of the Initial Consideration
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Shares and such further Consideration Shares is equal to 75 per cent
of the aggregate value at the Closing Price of the Initial
Consideration Shares or;
6.5.2 pay to the Vendors in cash in the Relevant Proportions a sum equal
to the aggregate value of such further Consideration Shares at the
Relevant Price.
6.6 For the purposes of clause 6.5 the "Relevant Date" is the earlier of:
6.6.1 the first anniversary of the issue of the Initial Consideration
Shares; and
6.6.2 the date on which the Purchaser procures the Registration of the
Relevant Initial Consideration Shares or the right of the resale in
respect thereof with the US Securities and Exchange Commission;
and for the purposes of paragraph 6.6.2 the "Relevant Initial
Consideration Shares" shall be such number of the Initial Consideration
Shares the aggregate value of which at the Relevant Price does not exceed
125 per cent of the aggregate value at the Closing Price of all the
Initial Consideration Shares.
6.7 The Registration of the Initial Consideration Shares shall be at the
absolute discretion of the Purchaser and at its cost but it is
acknowledged that any such Registration shall not in any event extend to
any further Consideration Shares which may be allotted pursuant to clause
6.5.
6.8 Each of the Vendors undertakes with the Purchaser with a view to the
preservation of an orderly market in the shares of the Purchaser that, if
the Purchaser procures the Registration of the Initial Consideration
Shares before the first anniversary of the issue of those shares, the
number of the Initial Consideration Shares which he shall be free to sell
or transfer in any one month before that first anniversary shall be:
S
-
M
Where:
S is the number of Initial Consideration Shares held by that Vendor in
respect of which Registration has been procured; and
M is the number of months until the first anniversary of the issue of
the Initial Consideration Shares, commencing on the Relevant Date
and treating any final part month as a whole month for this purpose.
6.9 Notwithstanding any other provision contained in this Clause 6, any Vendor
wishing to dispose of Consideration Shares shall notify the Purchaser of
his wish so to dispose and shall effect such disposal through such broker
as the Purchaser may reasonably nominate, such broker to be nominated
within 3 business days following such notification.
7. ADDITIONAL CONSIDERATION
7.1 The Additional Consideration (if any) payable for the Shares will be
calculated and paid to the Vendors in accordance with the following
provisions of this clause 7. Notwithstanding any other provision of this
clause, the Additional Consideration shall not exceed (pound)30,000,000 in
aggregate.
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7.2 Calculation of Additional Consideration
7.2.1 Within 30 days following each of 30 September 2000 ("First EBITDA
Accounts Date") and 31 March 2001 ("Second EBITDA Accounts Date")
the Purchaser shall procure the preparation of a profit and loss
account ("EBITDA Accounts") for the Companies for the 6 month period
ending on the First EBITDA Accounts Date or the 12 month period
ending on the Second EBITDA Accounts Date, as the case may be,
together with a statement ("Statement") of the EBITDA, Sales and New
Sales for that six or 12 month period, as the case may be.
7.2.2 In calculating the EBITDA the following adjustments shall be made:
(a) the sum of(pound)100,000 per quarter in respect of directors
remuneration shall be added back;
(b) the sum of (pound)52,500 in respect of sums payable to Mr
Peter Howells by way of loyalty bonus shall be added back
(such sum having been taken into account in the Completion
Accounts);
(c) the sum of (pound)100,000 in respect of Ernst & Young's fees
in connection with the preparation of the E&Y Information
Memorandum and the E&Y Report for the Company (such sum having
been taken into account in the Completion Accounts);
(d) the stamp duty payable by the Company pursuant to clause 14.2
shall be added back (such sum having been taken into account
in the Completion Accounts).
7.2.3 The EBITDA Accounts shall be drawn up in accordance with the bases
that appear, and in the order shown, below:
(a) the specific policies set out in schedule 11;
(b) to the extent not covered by (a) above the accounting
policies, principles, practices, evaluation rules and
procedures, methods and bases adopted by the Company in
preparation of the Accounts;
(c) to the extent not inconsistent with (a) or (b) above, in
accordance with GAAP as at the EBITDA Accounts Date.
7.2.4 The provisions of paragraph 3 of schedule 8 shall (mutatis mutandis)
apply to the submission and agreement of the EBITDA Accounts and the
Statement as if the references in such paragraph 3 of schedule 8 to
"Completion Accounts" and "Calculation" were to the EBITDA Accounts
and the Statement respectively Provided That the time period of 30
days referred to in paragraph 3.1.2 shall be 21 days and for the
purposes of this clause:
(a) "Sales" means the total revenues of the Companies;
(b) "New Sales" means the revenues of the Companies derived from
managed network services, internet solutions, security
solutions, and management solutions as such categories are
used in the E&Y Report.
7.2.5 the Additional Consideration shall be calculated in accordance with
column A of schedule 10 (in relation to the 6 month period ending on
the first EBITDA Accounts Rate ("the First Earn Out")) or column B
of schedule 10 (in relation to the 12 month
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period ending on the second EBITDA Accounts Date ("the Second Earn
Out")), as the case may be, so that:
(a) up to (pound)3,000,000 (on the First Earn Out) and up to
(pound)6,000,000 (on the Second Earn Out) is payable dependent
on the level of Sales achieved in that period on the scale set
out in row 1 of column A or B;
(b) up to (pound)4,500,000 (on the First Earn Out) and up to
(pound)9,000,000 (on the Second Earn Out) is payable dependent
on the level of New Sales achieved in that period, on the
scale set out in row 2 of column A or B (as appropriate); and
(c) up to (pound)2,500,000 (on the First Earn Out) and up to
(pound)5,000,000 (on the Second Earn Out) is payable dependent
on the level of EBITDA achieved in that period, on the scale
set out in row 3 of column A or B (as appropriate)
7.3 Satisfaction and Payment of the Additional Consideration
7.3.1 The Additional Consideration shall be satisfied:
(a) as to 50% thereof by the issue of Loan Notes to the Vendors in
the Relevant Proportions; and
(b) as to 50% thereof by the issue and allotment of such number of
Consideration Shares fully paid as shall have a value equal to
such percentage of the Additional Consideration (to the
nearest Pound Sterling and at the Spot Rate applicable on the
business day immediately before the Payment Date (as defined
in Clause 7.3.2 below). For the purposes of calculating the
number of Consideration Shares to be issued and allotted to
the Vendors the provisions of clause 6.2 (mutatis mutandis)
shall apply Provided That the words "Payment Date" (having the
meaning set out in clause 7.3.2) shall be substituted for the
word "Completion" at the end of the said clause 6.2.
7.3.2 That part of the Additional Consideration (if any) as is to be paid
in Loan Notes shall be satisfied by the issue of Loan Notes by the
Purchaser on or before the date falling five business days following
the agreement or determination of the EBITDA ("Payment Date") and
that part of the Additional Consideration as is to be paid in
Consideration Shares shall be satisfied by the allotment of such
shares within 10 business days following the Payment Date;
7.3.3 The Vendors acknowledge and agree that the Purchaser shall be under
no obligation to cause any Consideration Shares to be allotted in
relation to the First Earn Out to be Registered;
7.3.4 The Purchaser agrees that it shall at its cost cause such number of
Consideration Shares which may be allotted in relation to the Second
Earn Out with a value not exceeding (pound)10,000,000 (based on the
Closing Price) to be Registered on the date on which they fall to be
allotted pursuant to clause 7.3.2 and shall use its best endeavours
to procure the Registration of any remaining Consideration Shares so
to be allotted to be Registered as soon as practicable thereafter;
7.4 Vendor Protections relating to Additional Consideration
7.4.1 In calculating the EBITDA the following provisions shall apply in
respect of each Company:
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(a) the effects of the giving of any guarantee, indemnity or
security in respect of the obligation of any person other than
the Company or the Purchaser other than in the ordinary course
of business shall be excluded;
(b) any management, administration or like charge made by the
Purchaser (save for any charge in respect of services which
are reasonably required and are provided on an arm's length
basis), shall not be deducted (and in this clause 7
"Purchaser" shall where the context permits be deemed to
include any holding company from time to time of the Purchaser
or any subsidiary from time to time of the Purchaser or of any
such holding company from time to time other than the
Company);
(c) the fees, remuneration and pension contributions of any
director or officer of the Company nominated by the Purchaser
shall not be deducted unless approved in writing;
(d) in respect of any transaction between the Purchaser and the
Company which is not at arm's length, there shall be
substituted terms which are at arm's length and "transaction"
shall include without limitation:
(i) the lending or borrowing of money, or being party to any
bank netting arrangement for the purposes of calculating
interest;
(ii) the payment of remuneration or fees to any person who
does not work full time on the affairs of the Company;
(iii) the granting of assistance and facilities, including the
secondment of employees and the sharing or leasing of
premises;
(e) any other adjustment as may be agreed in writing between the
Vendors and the Purchaser shall be made.
7.5 The Purchaser covenants with the Vendors that during the period commencing
on Completion and ending on 31 March 2001 the Purchaser will procure that
none of the following will occur in respect of the Company unless
otherwise agreed in writing by the Vendors:
7.5.1 any material change in the overall nature of its trade or business;
7.5.2 the sale or other disposal of the whole or any substantial part of
its undertaking, assets or shares;
7.5.3 the presentation of a petition for its liquidation or the passing of
any resolution for its winding up unless in the reasonable opinion
of the directors of the Purchaser the Company is insolvent and such
action is necessary to ensure that all the directors of the Company
comply with their obligations under the Insolvency Act 1986;
7.5.4 the payment of any amount standing to the credit of any share
premium account or capital redemption reserve fund.
7.6 It is acknowledged and agreed by the Parties that, in order to allow the
Vendors to have a reasonable and fair opportunity to maximise and achieve
the First Earn Out and the Second Earn Out, the day to day operational and
management decisions relating to the Companies will rest with and be under
the control of the Shareholders until 31 March 2001 so long as those
decisions are materially consistent with the business plan for the
Companies as set out in the E&Y Report.
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7.7 If the Purchaser shall impose any operational or management decisions with
which the Shareholders notify the Purchaser in writing within 14 days of
becoming aware of the relevant decision that they disagree and which are
inconsistent with the provisions of clause 7.6 above then any adverse
effect upon the EBITDA, New Sales or Sales which can reasonably be said to
arise by reason of such decision shall be taken into account in
calculating and determining the EBITDA, New Sales and Sales achieved by
the Companies and the same shall be adjusted accordingly.
7.8 In respect of each of the Companies the Purchaser covenants with the
Vendors that until 31 March 2001 it will, unless the Shareholders agree
otherwise, continue to remunerate and provide benefits to the Companies'
employees (other than the Shareholders) at a rate and on terms not less
favourable than those in force at the date hereof unless the Purchaser is
able to demonstrate that the Companies have not performed materially
(being at least 70%) in accordance with the budgets set out in the E&Y
Report at the end of the First Earn Out period and is unlikely to do so by
31 March 2001.
7.9 The Purchaser undertakes that until the EBITDA Accounts Date it will not
terminate any of the Service Agreements (save in circumstances entitling
it to do so summarily).
7.10 The Vendors irrevocably confirm that where any provision of clauses 7.4
and 7.5 contemplates the consent agreement or approval of the Vendors the
Purchaser may rely on any consent agreement or approval given by the
Shareholders together.
7.11 If part of the Consideration (or any other sum) payable in cash or Loan
Notes by any Party is not paid or satisfied on the due date it shall carry
interest at the Default Rate from the date when the payment was due until
the date of actual payment and any such interest shall be paid in cash.
8. ADJUSTMENT TO THE PURCHASE PRICE
8.1 The Consideration payable for the Shares shall be adjusted in accordance
with this clause.
8.2 The Vendors and the Purchaser shall procure the preparation of the
Completion Accounts in accordance with the provisions of schedule 8.
8.3 If the Net Liabilities (determined or agreed in accordance with schedule
8) exceed the Estimated Net Liabilities ("Shortfall"):-
8.3.1 the VNL Provisional Consideration and the VIL Provisional
Consideration shall be reduced by an amount equal to the Shortfall
(such amount to be apportioned one third to the VNL Shares and two
thirds to the VIL Shares); and
8.3.2 within 5 business days following the determination or agreement of
the Net Liabilities the Vendors shall pay in cash an amount equal to
the Shortfall to the Purchaser.
8.4 If the Estimated Net Liabilities (determined or agreed in accordance with
schedule 8) exceed the Net Liabilities ("Excess"):-
8.4.1 the VNL Provisional Consideration and the VIL Provisional
Consideration shall be increased by an amount equal to the Excess
(such amount to be apportioned one third to the VNL Shares and two
thirds to the VIL Shares); and
8.4.2 within 5 business days following the agreement or determination of
the Net Assets the Purchaser shall pay in cash an amount equal to
the Excess to the Vendors in the Relevant Proportions.
8.5 If the Net Liabilities (determined or agreed in accordance with schedule
8) are equal to the Estimated Net Liabilities no further payments shall be
made.
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9. COMPLETION
9.1 On Completion the Vendors and the Purchaser shall comply with their
respective obligations as set out in schedule 7.
10. POST COMPLETION MATTERS
10.1 Each of the Vendors hereby declares that for so long as he remains the
registered holder of any of the Shares after Completion he will:
10.1.1 hold the Shares and the dividends and other distributions of
profits or surplus or other assets declared, paid or made in respect
of them after the date hereof and all rights arising out of or in
connection with them after the date hereof in trust for the
Purchaser and its successors in title; and
10.1.2 deal with or dispose of the Shares and all such dividends,
distributions and rights as are described in sub clause 10.1.1 only
as the Purchaser or any such successor may direct in writing.
10.2 Each of the Vendors hereby irrevocably and unconditionally appoints the
Purchaser and any director of the Purchaser for the time being acting
severally, as his lawful attorney (and to the complete exclusion of any
rights he may have in such regard) for the purposes of exercising any and
all voting and other rights and receiving any and all benefits and
entitlements which may at any time hereafter attach to or arise in respect
of any of the Shares and receiving notices of any attending and voting at
all meetings of the members of the Company (or any class thereof) and
generally executing or approving such deeds or documents and doing any
such acts or things in relation to any of the Shares as the attorney may
think fit. For such purpose each of the Vendors hereby authorises the
Company to send any notices in respect of any of the Shares to the
Purchaser.
10.3 The Purchaser hereby undertakes to indemnify the Vendors and each of them
in full in respect of any claim, demand, debt, liability, loss, cost,
charge, expense, judgment, aware, demand, compensation, penalty, fine or
other liability or loss suffered by, awarded against or imposed upon the
Vendors or any of them in consequence of compliance by the Vendors with
any direction issued by the Purchaser pursuant to clause 10.1.2.
10.4 The Purchaser shall use its best endeavours to procure the release of the
Shareholders from their guarantees of the Companies indebtedness to
Northern Rock plc and shall, pending such release, indemnify the
Shareholders against all costs, claims, liabilities and expenses arising
from any such guarantees being enforced.
11. WARRANTIES
11.1 The Shareholders hereby jointly and severally warrant to the Purchaser in
the terms set out in part 3 of schedule 2 (Taxation Warranties) and in the
terms set out in schedule 3 (General Warranties) in relation to each of
the Companies. The Trustees hereby warrant to the Purchaser in the terms
set out in part 3 of schedule 2 (Taxation Warranties) and in the terms
(other than Warranty 1.2) set out in schedule 3 (General Warranties) in
relation to each of the Companies. The Warranties to be given by the
Vendors under this Agreement shall be deemed to have been repeated by the
Vendors immediately prior to Completion.
11.2 The Warranties are given subject to the provisions of schedule 4 (Vendor
Protections) and schedule 5 (Trustee Protections). The Warranties set out
in part 3 of schedule 2 (Taxation Warranties) are also subject to the
provisions of part 1 of schedule 2.
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11.3 The Vendors hereby covenant to the Purchaser in the terms of part 2 of
schedule 2 in relation to each of the Companies.
11.4 Each of the Warranties is independent and save as expressly provided
otherwise in this Agreement shall not be limited by reference to or by
inference from any other Warranty.
11.5 Where any Warranty is made or given "so far as the Vendors are aware" (or
so far as any other person is aware) or "to the best of the knowledge,
information and belief" of the Vendors or with any similar qualification
the Vendors shall be deemed to include an additional statement that it has
been made after reasonable enquiry (excluding enquiries of any employee of
the Companies other than a member of the board, Suresh Patel or any other
senior employee and excluding further any enquiries of any customer or
other third party other than professional advisers).
11.6 The Vendors agree with the Purchaser (for itself and as trustee for the
Companies and the Companies directors and employees) that in the absence
of fraud by a director or employee of either Company:
11.6.1 the giving by the Companies and/or any of their directors or
employees of any information or opinion in connection with the
Warranties or the Taxation Covenant or the Disclosure Letter or
otherwise in relation to the business or affairs of the Companies or
in connection with the negotiation and preparation of this Agreement
or the Disclosure Letter shall not be deemed a representation,
warranty or guarantee to the Vendors of the accuracy of such
information or opinion;
11.6.2 they will waive any right or claim which they may have against the
Companies and/or any of their respective directors or employees for
any error, omission or misrepresentation in any such information or
opinion; and
11.6.3 any such right or claim shall not constitute a defence to any claim
by the Purchaser under or in relation to the Warranties or the
Taxation Covenant.
11.7 The Warranties shall not be extinguished by Completion.
11.8 All claims brought by the Purchaser against the Vendors under the
Warranties or (to the extent so provided) the Taxation Covenant shall be
subject to the provisions for the protection of the Vendors which are set
out in schedules 4 (Vendor Protections) and schedule 5 (Trustee
Protections).
11.9 Subject to schedules 4 and 5 in the event that any amount payable as a
result of a breach of the Warranties or under the Taxation Covenant is
taxable ((including but not by way of limitation by any deduction or
withholding in respect of Taxation which any Vendor is required to make)
then the amount so payable shall be grossed up to such an amount as will
ensure that after the relevant taxation has been paid, deducted or
withheld there shall be left a sum equal to the amount that would
otherwise have been received and retained if the payment of the relevant
amount had not been so taxable provided that, if the payment is initially
made on the basis that it is not taxable on the recipient and subsequently
it is determined that it is, such adjustment shall be made as appropriate
in order to restore the after Taxation position of the recipient to that
which it would have been in had the payment been made on the correct basis
initially.
11.10 The Purchaser agrees that save as otherwise provided in clauses 11.11 to
11.16 below and save in the case of any claim under this Agreement which
arises as a result of fraud or willful non-disclosure on the part of the
Vendors the Consideration and each part of it shall be paid or satisfied
by the Purchaser without deduction, withholding or set off (whether by
counterclaim or otherwise).
11.11 For the purposes of clauses 11.12 to 11.16 below a claim shall be regarded
as having been "settled" if either:
20
<PAGE>
11.11.1 it has been admitted or agreed by the Vendors; or
11.11.2 has been awarded or adjudicated as being payable or due by the
Vendors by a court of competent jurisdiction from which there is no
appeal or where the Vendors' right to appeal has expired;
and shall include any costs which may be so admitted, agreed or awarded in
favour of the Purchaser.
11.12 If, prior to the date when any part of the Consideration remains to be
paid or satisfied by the Purchaser (but subject to the provisions of part
2 of schedule 2, and schedules 4 and 5 ("Limitations")) the Purchaser
shall have notified the Vendors of a claim under the Tax Covenant or the
Warranties or otherwise under this Agreement (a "Claim") then the
following clauses 11.13 to 11.16 (inclusive) shall apply:
11.13 If a Claim has been or is settled (and has not been withdrawn or set off
by any previous application of this clause) the Purchaser shall be
entitled to deduct from the Consideration the amount of the Claim which
has been settled in the following order (or such order as the Vendors may
elect by notice in writing to the Purchaser) ("Relevant Order"):
11.13.1 firstly from any part of the Additional Consideration which is to
be satisfied by the issue by the Purchaser of Consideration Shares;
11.13.2 secondly from any part of the Additional Consideration which is to
be paid or satisfied by the issue of Loan Notes to the Vendors;
11.13.3 thirdly from any amount otherwise due from the Purchaser in
respect of outstanding payments due under Loan Notes which are in
issue;
and the principal amount of the Loan Notes shall be permanently reduced by
any amount deducted pursuant to clause 11.13.2 or 11.13.3.
11.14 Subject to the Limitations to the extent that any Claim shall not have
been settled then on receipt of a letter from the Purchaser's Solicitors
informing the Vendors that the Purchaser has received an opinion of senior
counsel of at least 10 years standing practicing in the area which is the
subject of the Claim instructed by the Purchaser (or its solicitors) (in
reasonable detail) at the Purchaser's cost to the effect that the Claim
has a reasonable prospect of success then the amount which is claimed by
the Purchaser or if less the amount in respect of which counsel (so
instructed) shall advise as being the amount in respect of which there is
a reasonable prospect of success ("Retention Amount") shall be subject to
the provisions of clause 11.15.
11.15 If clause 11.14 applies at any time when any part of the Consideration
remains outstanding or unsatisfied then the Purchaser shall be entitled to
withhold the Retention Amount from the Consideration (in the Relevant
Order) provided that prior to the date upon which such Consideration was
or is due to be paid or satisfied it places an amount equal to the
Retention Amount not exceeding the maximum amount of Loan Notes which
remains unpaid or unissued into the Retention Account to be held by the
Purchaser's Solicitors and the Vendors' Solicitors (jointly) subject to
clause 11.16 and otherwise upon the terms of the Retention Account
Agreement.
11.16 The Vendors and the Purchaser hereby irrevocably instruct the Purchaser's
Solicitors and the Vendors' Solicitors to hold any sums paid into the
Retention Account until the Claim or Claims to which the sums relate have
been settled (or have been or is withdrawn) and to release the appropriate
amount (together with all interest accrued thereon) to the Vendors or the
Purchaser
21
<PAGE>
within 10 business days thereafter ("Release Date") as appropriate
Provided That if the Retention Amount or any part of it which is to be
paid to the Vendors ("Vendors Amount") has been withheld or deducted by
the Purchaser from the Consideration by a reduction in the amount of any
Loan Notes which would otherwise have been issued to the Vendors then, if
requested by the Vendors by notice in writing prior to the Release Date,
the Purchaser shall issue Loan Notes on the Release Date (or, if later,
the date on which such Loan Notes would have been issued under this
Agreement) to the Vendors in respect of such amount. Upon the issue of
such Loan Notes that part of the Vendors Amount represented by such Loan
Notes shall be paid to the Purchaser. The balance of the Vendors Amount
(if any) and any accrued interest on the Vendors Amount shall be paid to
the Vendors. The Purchaser shall, in addition, pay to the Vendors in cash
such sum as is equal to the amount by which the interest accrued on the
Vendors Amount whilst on the Retention Account is less than the interest
which would have accrued had Loan Notes in respect of it been issued to
the Vendors.
11.17 For itself and on behalf of the Company the Purchaser hereby acknowledges
that in respect of any claim where the Vendors are liable to the Purchaser
under the Warranties and which also gives rise to a liability under the
Tax Covenant the Vendors will not be obliged to meet any such liability
more than once so that a recovery by the Purchaser in respect of such
claim under the Warranties will be deemed (to the extent only of the
amount recovered thereunder) to be a recovery by the Company under the Tax
Covenant and a recovery by the Company under the Tax Covenant in respect
of such claim will be deemed (to the extent only of the amount recovered
thereunder) to be a recovery by the Purchaser under the Warranties.
12. REVERSE WARRANTY
The Purchaser hereby undertakes to and covenants with the Vendors that, as
at the date hereof neither it nor any of its officers have any knowledge
of any fact, circumstance or matter which would render any of the
Warranties inaccurate or untrue.
13. RESTRICTIVE COVENANTS
13.1 For the purpose of assuring to the Purchaser the full benefit of the
Companies and in consideration of the agreement of the Purchaser to buy
the Shares on the terms of this Agreement, each of the Shareholders
severally undertakes to the Purchaser (both for itself and as trustee for
the Companies) that without the written consent of the Purchaser such
Shareholder shall not, whether directly or indirectly and whether alone or
in conjunction with, or on behalf of any other person and whether as
partner, shareholder, director, manager, consultant, agent or employee or
in any other capacity whatsoever in relation to each Company:
13.1.1 for a period of two years immediately following the Completion
Date, canvass or solicit orders or facilitate the canvassing of or
the soliciting of orders from any person who at any time during the
12 months immediately preceding the Completion Date was a customer
or client of the Company where the orders are for goods or services
which are competitive with those supplied by the Company at any time
during the 12 months immediately preceding the Completion Date;
13.1.2 for a period of two years immediately following the Completion
Date, accept the custom of any person who at any time during the 12
months immediately preceding the Completion Date was a customer or
client of the Company where the custom involves the supply of goods
or services which are competitive with those supplied by the Company
at any time during the 12 months immediately preceding the
Completion Date;
22
<PAGE>
13.1.3 for a period of two years immediately following the Completion
Date, canvass, solicit or entice away from the Company any supplier
to the Company who had supplied goods and/or services to the Company
at any time during the 12 months immediately preceding the
Completion Date if such solicitation or enticement causes or would
cause such supplier to cease supplying, or materially to reduce its
supply of, those goods and/or services to the Company;
13.1.4 for a period of two years immediately following the Completion Date
work or be engaged or (save as the holder of shares or other
securities in any company which are quoted, listed or otherwise
dealt in on a recognised investment exchange or other securities
market and which confer not more than 5% of the votes which could be
cast at a general meeting of the company concerned) be concerned or
interested in or provide technical, commercial or professional
advice to any trade or business which operates in the United Kingdom
(or in any other jurisdiction in which the Company operates) and
which supplies goods and/or services which are competitive with or
of the type supplied by the Company at any time during the 12 months
immediately preceding the Completion Date;
13.1.5 for a period of two years immediately following the Completion
Date, canvass, solicit or entice away from the Company or the
Purchaser any person who was an employee of the Company, the
Purchaser or any subsidiary of the Purchaser any time during the
period of twelve months immediately preceding the Completion Date;
13.1.6 at any time in connection with any business carried on by the
Shareholders use the name or word "Voyager" or any colourable
imitation thereof or any name or word similar to or likely to be
confused therewith; or
13.1.7 attempt, or knowingly assist or procure any other person, to do any
of the foregoing things.
13.2 Each of the Shareholders undertakes with the Purchaser (both for itself
and as trustee for the Companies) that:-
13.2.1 he shall not divulge or communicate to any other person (other than
to any officer or employee of the Company who needs that knowledge
in the discharge of duties) Confidential Information; and
13.2.2 he shall use all reasonable endeavours to prevent the publication
or disclosure of any Confidential Information.
13.3 Each of the Shareholders acknowledges that each of the undertakings
contained in clauses 13.1 and 13.3 is reasonable and for the proper
protection of the business of the Company and further acknowledges that
having regard to that fact those covenants do not work harshly on him.
13.4 The restrictions on the Shareholders contained in clause 13.3 shall not
apply to any information which is or becomes generally available to the
public on a non-confidential basis through no act or default on the part
of any Vendor, or any third party or which they are required to disclose
as a matter of law.
13.5 The restrictions contained in the preceding sub-clauses are:
13.5.1 considered reasonable by the parties but in the event that any of
them should be found to be void but would be valid if some part of
such sub-clauses were deleted or the period or area of applicable
reduced, such restrictions shall apply with such modification as may
be necessary to make them valid and effective; and
23
<PAGE>
13.5.2 separate and severable and shall be enforceable accordingly.
13.6 Each of the parties agrees that the restrictions contained in this Clause
13 may be specifically enforced by preliminary and permanent injunction,
it being acknowledged that a breach of any such restriction will cause
injury to the Purchaser in respect of which damages will not provide an
adequate remedy.
14. INDEMNITY AND COVENANT
14.1 The Vendors jointly and severally covenant to pay to the Purchaser (by way
of an adjustment to the Consideration) an amount equal to any and all
liabilities, losses, costs, claims, interest and expenses suffered or
incurred by the Company or the Purchaser as a result of the failure of the
Company to register with the Data Protection Commissioner.
14.2 The Shareholders shall procure that prior to Completion or as soon as
possible thereafter the Company shall pay any stamp duty which remains
unpaid in respect of the transfer of the business known as LanSwitch to
the Company and the filing of forms 88(2) and 88(3) in respect thereof.
15. PURCHASER'S COVENANTS
15.1 The Purchaser agrees to use all reasonable endeavours to cause an opinion
of Counsel or such other documents that may reasonably be required by the
broker or transfer agents to be delivered as soon as practicable following
such request in order for the Vendors to effect sales of Consideration
Shares under Rule 144 (as defined in paragraph 15 of schedule 3) provided
that such Consideration Shares are eligible for sale under Rule 144.
15.2 The Purchaser hereby covenants with the Vendors that it will use all
reasonable endeavours to take all actions and timely make all filings that
may be required to keep Rule 144 available to the Vendors should they
elect to dispose of the Consideration Shares.
15.3 The Purchaser shall procure that, unless otherwise requested by the
Vendors, all of the Loan Notes are guaranteed by a UK clearing bank in the
terms of the Bank Guarantee.
16. ANNOUNCEMENTS
Save as (but only to the extent) expressly required by law or by a
recognised investment exchange (including without limitation NASDAQ
National Market) or by any relevant national or supra-national regulatory,
governmental or quasi-governmental authority (and then only after
consultation with the Shareholders if practicable), all announcements or
circulars by, of or on behalf of, the Parties hereto (or any of them) and
relating to the sale and purchase hereunder shall be in terms to be agreed
between the Shareholders and the Purchaser in advance of issue (such
consent not to be unreasonably withheld or delayed).
17. ASSIGNMENT
None of the Parties shall be entitled to assign the benefit of any rights
under this Agreement save that the Purchaser shall be entitled to assign
the benefit of this Agreement on the transfer of all the Shares to any
group company of the Purchaser.
18. GENERAL
The Warranties and all other provisions of this Agreement in so far as the
same shall not have been performed at Completion shall remain in full
force and effect notwithstanding Completion.
19. FURTHER ASSURANCE
24
<PAGE>
19.1 At any time after the date thereof the Vendors shall at their own cost at
the request and cost of the Purchaser execute such documents and do such
acts and things as the Purchaser may reasonably require for the purpose of
vesting the Shares in the Purchaser or its nominees and for obtaining for
the Purchaser the full benefit intended to be conferred upon the
Purchasers under this Agreement.
19.2 The Vendors undertake with the Purchaser that they will at any time during
the period of 6 years after the date hereof provide, on request, all such
information or documents relating to the business and affairs of the
Company which is in their possession or under their control.
20. ENTIRE AGREEMENT
This Agreement, the Disclosure Letter, any documents in the agreed form
and all agreements entered, or to be entered into pursuant to the terms of
this Agreement or entered into between the parties in writing and
expressly referring to this Agreement:
20.1 together constitute the entire agreement and understanding between the
parties with respect to the subject matter of this Agreement; and
20.2 (in relation to such subject matter) supersede all prior discussions,
understandings and agreements between the parties and their agents (or any
of them) and all prior representations and expressions of opinion by any
party (or its agent) to any other party (or its agent).
Each of the parties acknowledges that it is not relying on any statements,
warranties or representations given or made by any of them in relation to
the subject matter hereof, save for the Warranties, and that it shall have
no rights or remedies with respect to such subject matter otherwise than
under this Agreement (and the documents executed at the same time as it or
referred to in it) save to the extent that they arise out of the fraud or
fraudulent misrepresentation of any party.
21. NOTICES
21.1 Any notice required to be given hereunder shall be in writing, in the
English language and shall be served by sending the same by prepaid, first
class post or facsimile or by delivering the same by hand to:-
21.1.1 in the case of the Vendors their respective addresses shown in the
Agreement or any other address(es) notified to the Purchaser in
accordance with this clause;
21.1.2 in the case of the Purchaser its registered office for the time
being.
Notwithstanding the foregoing, any notice given to the Purchaser shall
simultaneously be sent to:
RSL Communications N. America Inc.
810 Seventh Avenue, 39th Floor
New York
NY 10019
Attention: Corporate Counsel
21.2 Any notice sent by post as provided in this clause 21 shall, in the
absence of evidence of earlier receipt, be deemed to have been served 48
hours after despatch and any notice sent by facsimile as provided in this
clause 21 shall, in the absence of evidence of earlier receipt, be deemed
to have been served 1 hour after the time of despatch and in proving
service of the same it will be
25
<PAGE>
sufficient to prove, in the case of a letter, that such letter was
properly stamped, addressed and placed in the post and in the case of a
facsimile transmission that such facsimile transmission was duly
despatched to a current fax number of the addressee.
22. ILLEGALITY
Each provision of this Agreement is severable and distinct from the
others. If any provision of this Agreement shall be held to be illegal,
void, invalid or unenforceable under the laws of any jurisdiction, the
legality, validity and enforceability of the remainder of this Agreement
in that jurisdiction shall not be affected, and the legality, validity and
enforceability of the whole of this Agreement in any other jurisdiction
shall not be affected.
23. LAW AND JURISDICTION
23.1 This Agreement shall be governed by and construed in all respects in
accordance with English Law.
23.2 In relation to any legal action or proceedings to enforce this Agreement
or arising out of or in connection with this Agreement ("proceedings") the
parties irrevocably submit to the non-exclusive jurisdiction of the
English Courts and waive any objection to proceedings in such courts on
the grounds of venue or on the grounds that the proceedings have been
brought in an inconvenient forum.
23.3 The Trustees hereby unconditionally and irrevocably appoint the Vendors'
Solicitors to act as their agents for the service of all process upon the
Trustees in England and Wales.
23.4 Nothing herein contained shall affect the right of the Purchaser to serve
process against the Vendors (or any of them) in any other manner permitted
by law.
24. COSTS
24.1 Subject to clause 24.2, each party to this Agreement shall pay its own
costs of and incidental to this Agreement and the sale and purchase hereby
agreed to be made.
24.2 The Parties agree that the fees and expenses incurred by the Purchaser in
securing of bank guarantees in respect of the Loan Notes, shall be borne
by the Vendors.
25. COUNTERPARTS
This Agreement may be executed in any number of counterparts each of which
when executed and delivered shall be an original but all the counterparts
shall together constitute one and the same instrument.
26. RELEASES
Any liability to the Purchaser under this Agreement may in whole or in
part be released compounded or compromised or time or indulgence given by
the Purchaser in its absolute discretion as regards any of the Vendors
without in any way prejudicing or affecting the rights of the Purchaser
against any other Vendor in respect of the same or a like liability
whether joint and several or otherwise.
27. WAIVERS AND REMEDIES
27.1 No failure or delay by any party hereto in exercising any right, power or
privilege under this Agreement shall impair such right, power or privilege
or be construed as a waiver thereof nor shall any single or partial
exercise of any right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
27.2 The rights and remedies of the Vendors and the Purchaser herein provided
are cumulative and not exclusive of any rights and remedies provided by
law.
26
<PAGE>
28. THIRD PARTY RIGHTS
28.1 The Warranties and other obligations and liabilities of the Vendors shall
be for the benefit of, and may be enforced by, the Purchaser and any
person to whom it may have assigned the benefit of this Agreement in
accordance with clause 17.
28.2 It is the intention of the parties that, subject to clause 28.1, no term
of this Agreement may be enforced by any person who is not a party to this
Agreement (a "third party") notwithstanding that any such term of this
Agreement may purport to confer, or may be construed as conferring, any
benefit on such third party and irrespective of whether such third party
is identified in this Agreement. Subject as aforesaid, the Contracts
(Rights of Third Parties) Act 1999 shall not apply to any provisions of
this Agreement.
EXECUTED by the parties as a Deed on the day and year first appearing above
27
<PAGE>
SCHEDULE 1
Part 1A
Information concerning Voyager Networks Limited
A. Voyager Networks Limited
1. Registered number: 2780598
2. Date of Incorporation: 18 January 1993
3. Registered Office: Wellesbourne House, Walton Road,
Wellesbourne, Warwickshire, CV35 9JB
4. Authorised share capital: 150,000 ordinary shares of(pound)1 each
5. Issued share capital: 150,000 ordinary shares of(pound)1 each
6. Shareholders: The issued share capital is legally held
as detailed in column (2) of part 2 of
schedule 1
7. Directors: J B Shaw, N P Williams, C L Windley and
P Howells
8. Secretary: J B Shaw
9. Auditors: Deloitte & Touche, 10-12 East Parade,
Leeds, LS1 2AJ
10. Accounting Reference Date: 30 June
11. Charges: 1. All monies legal charge dated
05.11.99 over land over property at
Warwick Science Park and other
assets in favour of Northern Rock
Plc;
2. All monies mortgage debenture over
land and property at Warwick
Science Park and other assets in
favour of Northern Rock Plc;
3. All monies mortgage debenture dated
20.04.99 constituting a specific
equitable charge over freehold and
leasehold property and other assets
in favour of National Westminster
Bank Plc;
4. A deposit agreement dated 28.9.99
in respect of the sum of
(pound)10,772 in favour of Legal
and General Assurance Society
Limited;
5. A Rent Deposit Deed dated 27.9.96
in respect of the sum of
(pound)22,500 in favour of ATS
Technirent Limited.
12. VAT Number: 585249701
28
<PAGE>
Part 1B
Information concerning Voyager Internet Limited
B. Voyager Internet Limited
1. Registered number: 03310095
2. Date of Incorporation: 30 January 1997
3. Registered Office: Wellesbourne House, Walton Road,
Wellesbourne, Warwickshire, CV35 9JB
4. Authorised share capital: (pound)1,000 divided into 1,000 ordinary
shares of(pound)1.00 each
5. Issued share capital: 3 ordinary shares of(pound)1.00 each
6. Shareholders: The Trustees
7. Directors: J B Shaw, N P Williams, C L Windley and
P Howells
8. Secretary: J B Shaw
9. Auditors: Deloitte & Touche, 10-12 East Parade,
Leeds, LS1 2AJ
10. Accounting Reference Date: 30 June
11. Charges: Debenture in favour of LanSwitch Limited;
Fixed and Floating charges over the
undertakings and all property and assets
present and future including goodwill,
book debts, uncalled capital buildings
fixtures fixed plant and machinery;
12. VAT Number: 688185381
29
<PAGE>
Part 2
Details of the Vendors and their Shareholdings in the Companies
Name and Address Shares in Voyager Shares in Voyager
Networks Limited Internet Limited
Jonathan Brian Shaw 25,500 None
Moor Lodge
Moor Road
Bramhope
Leeds
LS16 9HH
Christopher Leslie Windley 25,500 None
Church Cottage
Wychnor
Burton on Trent
Staffs
DE13 8BY
Nigel Philip Williams 25,500 None
40 Cambridge Road
Clevedon
N Somerset
BS21 7DW
Walbrook (Isle of Man) Limited 24,500 1
PO Box 250 Grosvenor House
66/67 Atholl Street
Douglas
Isle of Man
IM99 1XJ
Re: The Mr J B Shaw
Settlement established
pursuant to a settlement
dated 27 June 1996
Walbrook (Isle of Man) Limited 24,500 1
PO Box 250 Grosvenor House
66/67 Atholl Street
Douglas
Isle of Man
IM99 1XJ
Re: The Mr C L Windley
Settlement established
pursuant to a settlement
dated 27 June 1996
30
<PAGE>
Walbrook (Isle of Man) Limited 24,500 1
PO Box 250 Grosvenor House
66/67 Atholl Street
Douglas
Isle of Man
IM99 1XJ
Re: The Mr N P Williams
Settlement established
pursuant to a settlement
dated 27 June 1996
31
<PAGE>
Part 3 A
VNL Provisional Consideration
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Address Value of Value of Relevant
Consideration Loan Notes((pound)) Proportion %
Shares ((pound))
<S> <C> <C> <C>
Jonathan Brian Shaw 67,039 1,718,516 17
Moor Lodge
Moor Road
Bramhope
Leeds
LS16 9HH
Christopher Leslie Windley 67,039 1,718,516 17
Church Cottage
Wychnor
Burton on Trent
Staffs
DE13 8BY
Nigel Philip Williams 67,039 1,718,516 17
40 Cambridge Road
Clevedon
N Somerset
BS21 7DW
Walbrook (Isle of Man) Limited 1,715,534 Nil 16.333(recurring)
PO Box 250 Grosvenor House
66/67 Atholl Street
Douglas
Isle of Man
IM99 1XJ
Re: The Mr J B Shaw Settlement
established pursuant to a
settlement dated 27 June 1996
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
Walbrook (Isle of Man) Limited 1,715,534 Nil 16.333(recurring)
PO Box 250 Grosvenor House
66/67 Atholl Street
Douglas
Isle of Man
IM99 1XJ
Re: The Mr C L Windley
Settlement established pursuant
to a settlement dated 27 June
1996
Walbrook (Isle of Man) Limited 1,715,534 Nil 16.333(recurring)
PO Box 250 Grosvenor House
66/67 Atholl Street
Douglas
Isle of Man
IM99 1XJ
Re: The Mr N P Williams
Settlement established pursuant
to a settlement dated 27 June
1996
TOTAL 5,347,719 5,155,548
</TABLE>
33
<PAGE>
Part 3 B
VIL Provisional Consideration
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Address Value of Value of Relevant
Consideration Loan Notes((pound)) Proportion %
Shares ((pound))
<S> <C> <C> <C>
Walbrook (Isle of Man) Limited 4,010,789 3,866,662 One Third
PO Box 250 Grosvenor House
66/67 Atholl Street
Douglas
Isle of Man
IM99 1XJ
Re: The Mr J B Shaw Settlement
established pursuant to a
settlement dated 27 June 1996
Walbrook (Isle of Man) Limited 4,010,789 3,866,662 One Third
PO Box 250 Grosvenor House
66/67 Atholl Street
Douglas
Isle of Man
IM99 1XJ
Re: The Mr C L Windley Settlement
established pursuant to a
settlement dated 27 June 1996
Walbrook (Isle of Man) Limited 4,010,789 3,866,662 One Third
PO Box 250 Grosvenor House
66/67 Atholl Street
Douglas
Isle of Man
IM99 1XJ
Re: The Mr N P Williams Settlement
established pursuant to a
settlement dated 27 June 1996
TOTAL 12,032,367 11,599,986
</TABLE>
34
<PAGE>
SCHEDULE 2
Taxation
Part 1 - General
1. INTERPRETATION
1.1 In this schedule (unless the context otherwise requires):
"Accounts Relief" means any Relief which is shown as an
asset in the Accounts or the
Completion Accounts or is taken into
account in computing (and so reducing
or eliminating) any provision for
current Taxation which appears, or
which but for the presumed
availability of the Relief would have
appeared, in the Accounts or the
Completion Accounts;
"Actual Taxation Liability" means a liability of
the Company to make an actual payment of
Taxation whether or not such Taxation is
also or alternatively or primarily
chargeable against or attributable to any
other person;
"Auditors" means the auditors of the Company for
the time being;
"CAA" means the Capital Allowances Act 1990;
"Claims" means any assessment, notice, demand
or other document issued or action
taken by or on behalf of any Taxation
Authority or any form of return,
computation or self-assessment
required by law from which it appears
that the Company is subject to, or
will or might become subject to, any
Taxation Liability or that a breach of
any Taxation Warranty has occurred;
"Deemed Taxation Liability" means:
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(a) the setting off of a
Post-Completion Relief against
an Actual Taxation Liability of
the Company in respect of which
the Vendors would have been
liable under paragraph 1.1.1 of
part 2 or (as the case may be)
against income, profits or gains
which would have given rise to
such an Actual Taxation
Liability (a "Set Off
Liability") , in which event the
amount of the Set Off Liability
shall be, in the former case,
the amount of the Actual
Taxation Liability eliminated by
such setting off and, in the
latter case, the amount of the
Actual Taxation Liability of the
Company which would have arisen
but for such setting off;
(b) the unavailability of an Accounts
Relief in consequence of an Event
occurring on or before Completion in
which event the amount of the Deemed
Taxation Liability shall be:
(i) where the Accounts Relief which
is unavailable is a deduction
from or set-off against either
Taxation or income, profits or
gains (an "Unavailable Relief
Liability"), the amount of the
earliest Actual Taxation
Liability of the Company to arise
which would not have arisen or
could have been avoided but for
such unavailability; and
(ii) where the Accounts Relief which
is unavailable is a right to a
repayment of Taxation (an
"Unavailable Repayment
Liability"), the amount of
Taxation which would have been
repaid but for such
unavailability;
"Event" means any event, occurrence,
transaction, or act whatsoever;
"FA" means the Finance Act;
"ICTA" means the Income and Corporation Taxes
Act 1998;
"IHTA" means the Inheritance Tax Act 1984;
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"Independent Expert" means a member of the Chartered
Institute of Taxation or the Institute
of Chartered Accountants in England
and Wales independent of the parties
who has had a specialised Taxation
practice for at least ten years and
who shall be appointed by agreement
between the relevant parties or
(failing such agreement and upon the
first application made by any such
party) by the President of the
Chartered Institute of Taxation or the
Institute of Chartered Accountants in
England and Wales;
"Post-Completion Relief" means any Relief to which the Company
was not entitled before Completion and
which arises as a result of an Event
occurring or deemed to occur after
Completion and not as a result of any
Event occurring or deemed to occur on
or before Completion (but shall not
include any Relief referred to in
paragraph 3.2);
"Relief" means any loss, allowance, exemption,
set-off, deduction, credit or other
relief from any Taxation or in the
computation of income, profits or
gains for the purpose of any Taxation
and any right to a repayment of
Taxation;
"Taxation" means:
(a) any form of tax, and any levy, duty,
impost, deduction, or withholding in
the nature of tax whether governmental,
statutory, state, provincial, local
governmental or municipal whenever
created or imposed and whether of the
United Kingdom, part of the United
Kingdom or elsewhere but not including
uniform business rates, water rates,
community charge, council tax or any
tax, charge, rate or duty similar to,
corresponding with, replacing or
replaced by any of them; and
(b) all charges, surcharges, interest,
penalties and fines relating to any
Taxation falling within paragraph (a)
of this definition;
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<PAGE>
"Taxation Authority" means any authority or person, whether of
the United Kingdom, part of the United
Kingdom or elsewhere, competent to impose,
assess or collect any Taxation Liability;
"Taxation Liability" means any Actual Taxation Liability, any
Deemed Taxation Liability and any costs,
fees and expenses falling within paragraph
1.1.4 of part 2;
"Tax Refund" means a tax refund relating to an
accounting period within the
meaning of section 102 FA 1989;
"TCGA" means the Taxation of Chargeable
Gains Act 1992;
"Unavailability" means, in relation to an amount of
a Relief, the reduction,
modification, claw-back,
counteraction, disallowance or
cancellation of or failure to
obtain that amount of that Relief
but does not include the set-off of
any Relief against Taxation or any
income, profits or gains and
"unavailable" shall be construed
accordingly; and
"Vendors' Relief" means any Relief which is or
becomes available to the Company,
other than an Accounts Relief or a
Post-Completion Relief;
1.2 In this schedule (unless the context otherwise requires):
1.2.1 references to persons include an individual, corporation,
partnership, unincorporated association, or body of persons and any
state or any agency thereof;
1.2.2 references to parts are references to parts of this schedule and
reference in any part to a paragraph shall, unless otherwise stated,
be to the paragraph of that part.
1.2.3 reference to income profits or gains earned accrued or received or a
supply made on or before a particular date or in respect of a
particular period shall include income profits or gains or a supply
which have been deemed or treated by any applicable law to have been
earned accrued or received or made at or before that date or in
respect of that period for the purposes of any Taxation.
1.2.4 this schedule shall be binding on the Vendors and their respective
successors assigns and personal representatives.
1.2.5 references to statutory provisions shall be construed as references
to those provisions as respectively replaced amended consolidated or
re-enacted or as their operation is modified by other provisions
(whether before or after the date hereof) and shall include (whether
with or without modification) provided that no liability of the
Warrantors
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under the provisions of this Deed shall be increased or shall arise
by reason of any such amendment re-enactment modification or
consolidation after the date hereof.
2. EXCLUSIONS AND LIMITATIONS
2.1 The Vendors shall not be liable for breach of any Tax Warranty in respect
of any Taxation Liability (or where the loss, liability or damage arising
in consequence of a breach of any Tax Warranty is any Taxation Liability)
or under the Tax Covenant contained in part 2 in respect of any Taxation
Liability to the extent that:
2.1.1 any provision, allowance or reserve for it is made in the Accounts
or any provision, allowance or reserve for it is made in the
Completion Accounts but only to the extent to which it has increased
the Net Liabilities;
2.1.2 it is a liability of the Company to account for advance corporation
tax which the Company is entitled to utilise by way of set-off
against its overall liability to corporation tax in respect of the
accounting period current at Completion or any earlier accounting
period;
2.1.3 it is a liability for breach of any Tax Warranty only to the extent
that it is fairly disclosed or expressed to be so disclosed in the
Disclosure Letter;
2.1.4 it arises in consequence of, or would have been reduced or
eliminated but for:
(a) any act or omission of the Company after Completion otherwise
than in the ordinary course of the business of the Company and
otherwise than pursuant to a legally binding obligation of the
Company in existence at Completion;
(b) the combined effect of any Event occurring before Completion
and any Event occurring after Completion;
(c) the Company paying an unusual or abnormal dividend after
Completion;
(d) the Company ceasing to carry on any trade or business after
Completion or effecting a major change after Completion in the
nature or conduct of any trade or businesses carried on by it,
the Company changing the date to which it makes up its
accounts or changing any of its accounting policies, bases or
practices (including, without limitation, the treatment of
timing differences and the bases on which the Company values
its assets) other than as necessary to comply with GAAP in
either case after Completion;
(e) the Company disposing of any capital asset, or ceasing to be a
member of a group for the purposes of any Taxation, after
Completion;
(f) the failure by the Company after Completion to make any claim,
election , surrender or disclaimer or to give any notice or
consent or to do any other thing, the making, giving or doing
of which was permitted by law and which is taken in account:
(i) in computing and so reducing any provision which appears
in the Accounts or the Completion Accounts (or
eliminating any provision which would otherwise have
appeared in the Accounts or the Completion Accounts); or
(ii) in computing any right to repayment of Taxation which
appears in the Accounts or the Completion Accounts;
where the Purchaser was aware or ought reasonably to have been
aware that it was so taken into account or the withdrawal or
amendment by the Company
39
<PAGE>
after Completion of any such claim, election, surrender,
disclaimer, notice or consent made by the Company prior to
Completion;
(g) any claim, election , surrender, disclaimer, notice or consent
made by the Company after Completion in respect of an
accounting period (or part of an accounting period) on or
before Completion, the making or doing of which was not taken
into account:
(i) in computing and so reducing any provision which appears
in the Accounts or the Completion Accounts (or
eliminating any provision which would otherwise have
appeared in the Accounts or the Completion Accounts); or
(ii) in computing any right to repayment of Taxation which
appears in the Accounts or the Completion Accounts.
(h) any failure by the Purchaser or the Company to comply with its
obligations under paragraph 6 ("Appeals and conduct of
claims") or paragraph 8 ("Taxation Computations");
(i) any legislation or any change in the rate of any Taxation or
any imposition of Taxation or change in the practice of, or
concession operated by, any Taxation Authority or change in
interpretation of law in each case coming into effect after
Completion;
(j) the rate or average rate of any Taxation for any period which
is applicable to the Company increasing as a result of the
sale and purchase of the Company under the Agreement,
including the Company ceasing to be subject to corporation tax
at the small companies' rate (or qualifying for relief under
section 13(2) ICTA) and becoming subject to corporation tax at
the rate applicable to companies generally;
(k) the Purchaser has recovered damages or any other amount under
this Agreement (whether for breach of Warranty, under this
schedule or otherwise) in respect of the same loss, liability,
damage or Event or the Purchaser or the Company have otherwise
obtained reimbursement or restitution from the Vendors.
3. OVER-PROVISIONS AND RELIEFS
3.1 The Purchaser shall at the request of the Vendors require the Auditors to
determine (as experts and not as arbitrators and at the expense of the
Vendors) whether:
3.1.1 any provision for Taxation in the Accounts or the Completion
Accounts has proved to be an over-provision and if so its amount;
3.1.2 any right to a repayment of Taxation treated as an asset in the
Accounts or the Completion Accounts has proved to be understated and
if so its amount or, where no right to repayment of Taxation was
treated as an asset in the Accounts or the Completion Accounts,
whether any such amount should have been treated as an asset in the
Accounts or the Completion Accounts and if so the amount; or
3.1.3 any Actual Taxation Liability which arises or would otherwise have
arisen (other than one which would otherwise have given rise to a
corresponding liability of the Vendors under paragraph 1 of the Tax
Covenant) is avoided or reduced or any repayment of an
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<PAGE>
amount of Taxation is obtained in either case by the use of a
Vendors' Relief, and, if so, the amount of Taxation so saved or the
amount of that repayment; and
if the Auditors determine that there has proved to be any such
over-provision, understatement or amount, the amount of such
over-provision, understatement or amount (as the case may be) shall be
dealt with in accordance with paragraph 3.3.
3.2 The Purchaser shall at the request of the Vendors require the Auditors to
determine (as experts and not as arbitrators and at the expense of the
Vendors) whether any Taxation Liability (or the Event giving rise to such
Taxation Liability or the discharge of it) which has resulted in any sum
having been paid or becoming payable by the Vendors under the Taxation
Covenant or for breach of any Taxation Warranty, has given rise to a
Relief which would not otherwise have arisen, and whether:
3.2.1 a liability of the Company to make an actual payment or increased
payment of Taxation has been or can be satisfied or avoided in whole
or in part by the use of that Relief; or
3.2.2 a right to a repayment of Taxation has or can be arisen as a result
of the use of that Relief;
(on the basis that the Company shall be deemed to have used such Relief,
to the extent permitted by law, before any other Relief available to the
Company) and, if the Auditors so determine, the amount by which that
liability has or could have been satisfied or avoided or an amount equal
to the amount of that repayment (as the case may be) shall be dealt with
in accordance with paragraph 3.3.
3.3 Where it is provided under paragraphs 3.1 or 3.2 that any amount is to be
dealt with in accordance with this paragraph 3.3:
3.3.1 the amount shall first be set off against any payment then due from
the Vendors under the Tax Covenant or for breach of any Taxation
Warranty;
3.3.2 to the extent there is an excess, a refund shall be made to the
Vendors of any previous payment made by the Vendors under the Tax
Covenant or for breach of any Taxation Warranty and not previously
refunded under this clause up to the amount of such excess; and
3.3.3 to the extent that the excess referred to in paragraph 3.3.2 is not
exhausted thereunder, the remainder of that excess shall be carried
forward and set off against any future payment which becomes due
from the Vendors under the Tax Covenant or for breach of any
Taxation Warranty.
3.4 Where such determination by the Auditors as is mentioned in paragraph 3.1
or 3.2 has been made, the Vendors or the Purchaser may within 14 days
following notification of such determination request the Auditors to
review such determination (at the expense of the person making the
request) in the light of all relevant circumstances, including any facts
which have become known only since such determination, and to determine
whether such determination remains correct or whether, in the light of
those circumstances the amount that was the subject of such determination
should be amended.
3.5 If the Auditors determine under paragraph 3.4 that an amount previously
determined should be amended, that amended amount shall be substituted for
the purposes of paragraph 3.1 and 3.2,
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<PAGE>
as the case may be, in place of the amount originally determined and such
adjusting payment (if any) as may be required by virtue of such
substitution shall forthwith be made by the Vendors to the Purchaser or,
as the case may be, by the Purchaser to the Vendors.
3.6 The Vendors shall pay all the Auditors', Purchaser's and the Company's
reasonable costs relating to any actions under this Clause 3.
4. THIRD PARTY RECOVERY
4.1 Subject to paragraph 6 if the Vendors have made a payment to the Purchaser
in respect of any claim under the Tax Covenant or under or in respect of
the Tax Warranties and the Company is entitled to recover from any third
party (including any Taxation Authority but excluding each Vendor, the
Purchaser and any officer or employee of the Purchaser or the Company) any
sum in consequence of any Event to which the payment made by, or liability
of the Vendors relates, the Purchaser shall and shall procure that the
Company shall, if so required by the Vendors and if the Vendors shall
indemnify the Purchaser against all reasonable costs and expenses properly
incurred by the Purchaser or the Company (subject to paragraph 5), use all
reasonable endeavours to effect such recovery.
4.2 The Purchaser covenants with the Vendors to pay to the Vendors an amount
equal to the lessor of (a) any sum so recovered under paragraph 4.1
(including any interest or repayment supplement) which the Company
actually recovers (whether or not pursuant to any action requested
pursuant to this Agreement) less any costs, fees or expenses incurred by
the Purchaser or the Company in respect of the matter in question and less
any Taxation paid or payable in respect of such recovery and (b) the
amount paid by the Vendors to the Purchaser under the Tax Covenant or the
Taxation Warranties in respect of any relevant claim less the amount
previously repaid to the Vendors under any provision of this Agreement, 5
business days after recovering such sums.
5. GROSS UP AND DEDUCTIONS
5.1 All sums payable by the Vendors under this schedule shall be paid free and
clear of all deductions or withholdings whatsoever, save only as may be
required by law.
5.2 If any deductions or withholdings are required by law to be made from any
payment under this Schedule (except a payment of interest under Clause 2.2
of part 2 to this schedule), the Vendors shall pay to the Purchaser such
sum as will, after the deduction or withholding has been made, leave the
Purchaser with the same amount as it would have been entitled to receive
in the absence of any such requirement to make a deduction or withholding.
5.3 If any amount paid or due to the Purchaser under this schedule results in
an Actual Taxation Liability of the Purchaser (ignoring the availability
of any Relief) the Vendors covenant with the Purchaser to pay the
Purchaser such further sum as will ensure that the net amount received and
retained by the Purchaser after such Actual Tax Liability is taken into
account shall equal the full amount which would have been received and
retained by the Purchaser in the absence of such Actual Taxation
Liability.
6. APPEALS AND CONDUCT OF CLAIMS
6.1 If the Purchaser or the Company after Completion shall become aware of any
Claim the Purchaser shall, or shall procure that the Company shall, give
written notice of the Claim to the Vendors as soon as is reasonably
practicable and in any event at least 14 days prior to the expiry of any
time limit for appeal or response to any such Claim. Such written notice
shall include an estimate of the Vendors' liability under this schedule in
respect of such Claim, the basis of calculation of that estimate and such
details of the Claim as are then available to the Purchaser or the
Company.
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6.2 The Purchaser shall, and shall procure that the Company shall, take such
action to appeal, protest against, mitigate, reduce, avoid, dispute,
resist or compromise the Claim and make available such documents,
information and assistance in connection with the Claim as the Vendors may
by written notice reasonably request provided the Vendors shall indemnify
the Purchaser and the Company against all reasonable costs and expenses
which the Purchaser or the Company incurs as a result of taking such
action or providing such information and assistance.
6.3 The Vendors may elect to have any action referred to in paragraph 6.2
conducted by professional advisers acting in the name of the Company but
reporting to the Vendors in which event the provisions of paragraph 6.4
shall apply.
6.4 The Vendors hereby undertake to the Purchaser to:
6.4.1 keep the Purchaser informed of all matters relating to the action
and deliver to the Purchaser copies of all material correspondence
relating to the action;
6.4.2 obtain the prior written approval of the Purchaser (not to be
unreasonably withheld or delayed) to the content and sending of
written communications relating to the action to a Taxation
Authority; and
6.4.3 obtain the prior written approval of the Purchaser (not to be
unreasonably withheld or delayed) to:
(a) the settlement or compromise of the Claim which is the subject
of the action; and
(b) the agreement of any matter in the conduct of the action which
is likely to affect the amount of the Claim.
6.5 The Purchaser shall not be obliged to procure that the Company take any
action under this paragraph which involves contesting any matter beyond
the first appellate body (excluding the Taxation Authority which has or
shall have made the Claim in question and the General and Special
Commissioners) unless the Vendors furnish the Purchaser with the written
opinion of Counsel of at least five years call who is experienced in the
subject matter of the Claim to the effect that an appeal in respect of the
matter in question has a reasonable prospect of being won.
6.6 If at any time the Vendors have not exercised the election referred to in
paragraph 6.3 but request that the Purchaser take, or procure that the
Company take, any action referred to in paragraph 6.2, the provisions of
paragraph 6.4 shall apply as if references to "the Vendors" are references
to "the Purchaser" and reference to "the Purchaser" are references to "the
Vendors".
7. DISPUTES
7.1 In the event of any dispute under any or all of paragraphs 3, 4, 5, 6, or
8 of this schedule, such dispute shall if the parties so agree be
determined by the Independent Expert (acting as expert and not as
arbitrator) and in the absence of manifest error his determination shall
be conclusive and binding on the parties. The proper charges and
disbursements of the Independent Expert shall be paid and borne on each
occasion by the parties concerned in such proportions as the Independent
Expert may in his absolute discretion consider fair and reasonable.
7.2 If either party is dissatisfied with any determination of the Auditors,
the matter shall be referred to the Independent Expert for determination
in accordance with the provisions of paragraph 8.1.
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8. TAXATION COMPUTATIONS
8.1 Subject to complying with the provisions of paragraph 8.2 below, the
Vendors or their duly authorised agents shall have the right, at the cost
and expense of the Vendors, to prepare the corporation tax returns of the
Company for all accounting periods ending on or prior to the Accounts Date
to the extent that the same shall not have been prepared before the date
hereof. The Vendors or their duly authorised agents shall have the right,
at the cost and expense of the Vendor, to prepare all documentation and
deal with all matters (including correspondence) relating to the
corporation tax returns of the Company for all accounting periods ending
on or prior to the Accounts Date.
8.2 The Vendors covenant with the Purchaser:
8.2.1 to keep the Purchaser and its duly authorised agents and the Company
informed of all material matters relating to the submission,
negotiation and agreement of such corporation tax returns and
computations;
8.2.2 that no such computations or returns nor any material correspondence
pertaining to the negotiations or agreement of such computations or
returns shall be transmitted to any Taxation Authority without first
being submitted to the Purchaser and the Company or their duly
authorised agents for their comments and for the Purchaser's
approval and shall only finally be submitted or transmitted on the
receipt of the written approval of the Purchaser or its duly
authorised agent, such approval not to be unreasonably withheld or
delayed.
8.3 In the event that the provisions of paragraph 8.2 have been complied with
by the Vendors the Purchaser shall procure that the Company shall cause
the returns mentioned in paragraph 8.2 (and all claims, elections,
disclaimers, surrenders and consents assumed to be made or given therein)
to be authorised, signed and submitted to the appropriate Taxation
Authority and generally do all such things as may be reasonably necessary
to give effect to such returns, claims, elections, disclaimers, surrenders
or consents.
8.4 The Purchaser shall (if requested in writing by the Vendors) procure that
the Company promptly makes or gives such returns, claims, elections,
disclaimers, surrenders and consents in relation to Taxation which it was
assumed would be made or given in computing any provision which appears in
the Accounts (or in eliminating any provision which would have so
appeared) or which relate to any Vendors' Relief, and generally does all
such things as may be necessary to give effect to such returns, claims,
elections, surrenders or consents.
8.5 If at any time the Vendors have not exercised their right pursuant to
paragraph 8.1, the provisions of paragraph 8.2 shall apply as if reference
to "the Vendors" are references to "the Purchaser", as if references to
"the Purchaser" are references to "the Vendors" and as if the words "and
the Company" in paragraphs 8.2.1 and 8.2.2 were deleted.
8.6 The Purchaser shall procure that the Company keeps the Vendors fully
informed of its Taxation affairs in respect of the accounting period of
the Company current at Completion and shall promptly provide the Vendors
with copies of all relevant documents and shall not submit any
correspondence or submit or agree any return or computation for such
period to any Taxation Authority without giving the Vendors a reasonable
opportunity to make representations thereon and without the written
consent of the Vendors (such consent not to be unreasonably withheld or
delayed).
8.7 The Purchaser shall provide, and shall procure that the Company provides,
the Vendors (at the expense of the Vendors) with such documents,
information and assistance (including, without limitation, access to
books, accounts, records and personnel) as the Vendors may reasonably
44
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require in connection with its conduct of the Company's Taxation affairs
pursuant to this paragraph 8.
9. PURCHASER'S COVENANT
9.1 The Purchaser covenants with the Vendors to pay to the Vendors an amount
equal to any Actual Taxation Liability of the Vendors or of any company
which is under the control of the Vendors at any time after Completion
(and any costs and expenses reasonably incurred by the Vendors or that
company in relation to such Actual Taxation Liability or in making any
claim under this paragraph 9.1), where such Actual Taxation Liability:
9.1.1 arises as a result of the failure by the Company to discharge after
Completion an Actual Taxation Liability for which the Company is
primarily liable and which is not within paragraph 1 of the Tax
Covenant;
9.1.2 arises as a result of the Company paying after Completion an
abnormal amount by way of dividend (within the meaning of section
709(4) ICTA) in the circumstances specified in section 704C ICTA.
9.2 If the Purchaser becomes liable to make a payment under paragraph 9.1, the
Purchaser shall pay such amount in cleared immediately available funds on
or before the later of the date two business days before that Actual
Taxation Liability is finally due and payable and the date two business
days after the date of written demand on the Purchaser by the Vendors.
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Part 2
Taxation Covenant
1. COVENANT BY THE VENDORS
1.1 Subject to the provisions of part 1 of this schedule and of schedules 4
and 5 (save as otherwise excluded), the Vendors hereby covenant with the
Purchaser to pay to the Purchaser an amount equal to:
1.1.1 any Actual Taxation Liability of the Companies arising as a result
of:
(a) an Event occurring on or before Completion or
(b) any income, profits or gains earned, accrued or received on or
before or in respect of any period ended on or before the date
of Completion on a supply of any goods or services made on or
before Completion.
1.1.2 any Deemed Taxation Liability;
1.1.3 any Actual Taxation Liability in respect of inheritance tax which:
(a) is at Completion a charge on, or gives rise to a power to
sell, mortgage or charge, any of the shares or assets of the
Companies; or
(b) after Completion becomes a charge on, or gives rise to a power
to sell, mortgage or charge, any of the shares or assets of
the Companies being an Actual Taxation Liability arising as a
result of the death of any person within seven years after a
transfer of value (or a deemed transfer of value) if a charge
on or power to sell, mortgage or charge any such shares or
assets could, if the death had occurred immediately before
Completion and the inheritance tax payable as a result thereof
had not been paid, have existed at Completion; or
(c) arises as a result of a transfer of value occurring or being
deemed to occur on or before Completion (whether or not in
conjunction with the death of any person whenever occurring)
which increased or decreased the value of the estate of the
Companies; or
1.1.4 any reasonable third party costs, fees and expenses reasonably
incurred by the Purchaser or the Companies as a result of any Actual
Taxation Liability within paragraph 1.1.1 or 1.1.3 or any Deemed
Taxation Liability within paragraph 1.1.2 or in successfully taking
any action under this part 2.
2. PAYMENT
2.1 If the Vendors are or become liable to make a payment under this part 2 in
respect of:
2.1.1 an Actual Taxation Liability, the Vendors shall pay such amount on
or before the date five business days after the date of written
notice from the Purchaser to the Vendors of the amount which the
Vendors are required to pay and requesting payment or, if later, the
date two business days before the date on which the Actual Taxation
Liability in question is due for payment;
2.1.2 a Deemed Taxation Liability, the Vendors shall pay such amount five
business days after the later of the date of written notice from the
Purchaser to the Vendors of the amount which the Vendors are
required to pay and requesting payment, and:
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(a) in the case of a Set Off Liability, the date on which the
Actual Taxation Liability referred to in the definition of
that term would otherwise have become due for payment;
(b) in the case of an Unavailable Relief Liability, two business
days before the date on which the Actual Taxation Liability
referred to in the definition of that term is actually due for
payment; or
(c) in the case of an Unavailable Repayment Liability, the date on
which the repayment of Taxation would have been made but for
that unavailability; or
2.1.3 any amount within paragraph 1.1.4 the Purchaser will notify the
Vendors in writing of such amount specifying details of the services
for which those costs, fees and expenses were incurred and the
circumstances in which they were obtained and the Vendors shall pay
such amount on or before the date five business days after the date
of such notice.
2.2 Sums not paid by the Vendors on the dates specified in paragraphs 2.1 and
2.2 shall bear interest at the Default Rate from the date following the
specified date up to and including the day of actual payment of such sums.
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Part 3
Taxation Warranties
1. POST ACCOUNTS DATE
1.1 Since the Accounts Date:
1.1.1 no accounting period (as defined in section 12 ICTA) of the Company
has ended as referred to in section 12(3) ICTA;
1.1.2 the Company has not paid any Taxation after its due date for
payment;
1.1.3 the Company has not declared or paid any dividend or made any other
distribution for the purposes of any Taxation.
2. PROVISION FOR TAXATION IN ACCOUNTS AND RETURNS AND ADMINISTRATION
2.1 All necessary information, notices, computations and returns in respect of
Taxation (all of which are accurate and none of which is disputed by any
Taxation Authority which should have been or which are required to be
submitted to any relevant Taxation Authority prior to the date hereof have
been so submitted by the Company have been and there is no reason to
suppose that any such computations and returns will not in due course be
accepted by the Inland Revenue or other Taxation Authority.
2.2 The Company has properly operated the Pay As You Earn system deducting tax
as required by law from all payments to or treated as made to employees
and ex-employees of the Company and accounting to the Inland Revenue for
all tax so deducted and all tax chargeable on benefits provided for
employees of the Company.
2.3 The Company has paid all national insurance and graduated pension
contributions for which it is liable and has kept proper books and records
relating to the same.
2.4 The Company is a registered and taxable person for the purposes of and has
complied with all requirements in respect of Value Added Tax and has
maintained or obtained full complete up to date records, invoices and
other documents (as the case may be) appropriate or requisite for the
purposes thereof and has not been required by H. M. Customs and Excise to
give security under such legislation and all Value Added Tax duties and
other sums payable to H. M. Customs and Excise due and payable by the
Company at the date hereof have been paid.
3. COMPLIANCE
3.1 There is no dispute and there has not at any time in the last two years
been any dispute between the Company and any Taxation Authority, the
Company is not the subject of an investigation, audit or review by any
Taxation Authority and as far as the Vendors are aware there are no facts
which are likely to give rise to any such dispute, investigation, audit or
review.
3.2 The Company is not and has not at any time within the two years prior to
the date hereof been liable to pay any penalty, fine, surcharge, interest
or similar amount in relation to Taxation and as far as the Vendors are
aware there are no facts which are likely to cause it to become liable to
pay any such penalty, fine, surcharge, interest or similar amount.
3.3 Within the last six years, the Company has duly and punctually complied
with all its obligations to deduct Taxation from payments made by it and
to account for such Taxation to any Taxation Authority.
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4. CLOSE COMPANIES
4.1 The Company is not and has never been a close investment-holding company
within the meaning of section 13A ICTA.
4.2 The Company has not at any time:
4.2.1 made or agreed to make any loan or advance which loan or advance
remains outstanding or effected or agreed to effect any transaction
within section 419, 421 or 422 ICTA or since the Accounts Date
released or written off or agreed to release or write off the whole
or any part of any such loan or advance; or
4.2.2 made a transfer of value within the provisions of section 94 IHTA;
or 4.2.3 made or agreed to make any distribution within section 418
ICTA.
5. DISTRIBUTION AND PAYMENTS
5.1 No distribution (within the meaning of sections 209 and 210 ICTA) has been
made by the Company during the six years ended on the Accounts Date
(except as provided in the Accounts).
5.2 The Company has not made or received any exempt distribution within the
meaning of section 213 ICTA, and has at no time been a relevant company in
relation to an exempt distribution for the purposes of that section or
concerned in an exempt distribution for the purposes of section 214 ICTA.
5.3 The Company has not at any time received a capital distribution to which
section 189 TCGA could apply.
5.4 The Company has not paid, and has not elected that any dividend it has
paid or declared be treated as, a foreign income dividend as described in
Chapter VA Part VI ICTA.
5.5 The Company has not on or after 6th April 1965:
5.5.1 repaid, redeemed or purchased or agreed to repay, redeem or purchase
any of its share capital; or
5.5.2 capitalised or agreed to capitalise in the form of shares or
debentures, any profits or reserves of any class or description, or
otherwise issued or agreed to issue share capital otherwise than for
new consideration (as defined in section 254 ICTA).
6. EMPLOYEE BENEFITS
6.1 The Disclosure Letter contains full details of all long-term incentive
plans, share option schemes and profit sharing schemes established by the
Company whether or not approved by the Inland Revenue under the provisions
of schedule 9 ICTA and of all bonus or profit related pay schemes
established by the Company.
6.2 The Company has not established a qualifying employee share ownership
trust within the meaning of section 74 and schedule 5 FA 1989.
7. GROUP TRANSACTIONS
7.1 The Company is not liable to make any payment for any Group Relief, a Tax
Refund or advance corporation tax surrendered or to be surrendered to it
and there are no amounts due or which may become due to the Company in
respect of the surrender of any Group Relief, a Tax Refund or advance
corporation tax. The Company is not liable to surrender any Group Relief,
a Tax Refund or advance corporation tax under those provisions. There are
no arrangements whereby the Company may become liable to repay any sums
paid to it for the surrender of any Group Relief, a Tax Refund or advance
corporation tax.
7.2 The Company has not within the last six years:
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7.2.1 acquired any capital asset from any company which at the time of the
acquisition was a member of the same group of companies as defined
in section 170 TCGA;
7.2.2 joined in the making of any election pursuant to section 247 ICTA or
paid any dividend without paying ("ACT") or made any payment without
deduction of income tax in circumstances such that ACT ought to have
been paid or income tax ought to have been deducted as mentioned in
section 247(6) ICTA;
7.2.3 been the subject of or otherwise involved in any agreements as are
referred to in section 240(11) or 410 ICTA;
7.2.4 acquired an asset as trading stock from a member of the same group
where the asset did not form part of the trading stock of any trade
carried on by the other member, as mentioned in section 173(1) TCGA,
or disposed of an asset which formed part of the trading stock of
any trade carried on by the Company to another member of the same
group which acquired the asset otherwise than as trading stock of a
trade carried on by the other member, as mentioned in section 173(2)
TCGA; and
7.2.5 been, and there are no circumstances by virtue of which the Company
could be, assessed or charged to corporation tax by virtue of the
provisions of section 178(9), 179(11), 190 or 191 TCGA and is not
entitled to recover or liable to have recovered from it any sums
pursuant to any of those sections.
8. RESIDENCE AND OFFSHORE INTERESTS
8.1 The Company is and has at all times been resident in the United Kingdom
for Tax purposes and is not and has not been treated as resident or as
having a branch or permanent establishment in any other jurisdiction for
any Taxation purpose (including under any double taxation treaty or
agreement).
8.2 The Company is not liable for any Taxation as the agent or Tax
representative of any other person or business and does not constitute a
permanent establishment of any other person, business or enterprise for
any Taxation purposes.
8.3 The Company does not and has at no time owned a beneficial interest in the
capital of a company which is resident outside the United Kingdom and
which would be a close company if it were resident in the United Kingdom,
in circumstances such that a chargeable gain accruing to that other
company could be appointed to the Company under section 13 TCGA.
9. NON-ARM'S LENGTH TRANSACTIONS
9.1 There is no outstanding Inland Revenue charge (as defined in section 237
IHTA) over any asset of the Company or over any of the Sale Shares and
there are no circumstances in which such a charge could arise.
9.2 There are in existence no circumstances by virtue of which any such power
as is mentioned in section 212 IHTA could be exercised in relation to any
asset of the Company or to any of the Sale Shares or by virtue of which
any such power could be exercised but for the provisions of section 204(6)
IHTA.
9.3 The Company has not been a party to associated operations in relation to a
transfer of value within the meaning of section 268 IHTA.
9.4 The Company has not received any asset by way of gift as mentioned in
section 282 TCGA.
9.5 No expenditure incurred by the Company on the acquisition of any shares is
liable to be reduced under the provisions of section 125 TCGA.
9.6 The Company has not been a party to a transaction otherwise than at arms
length during the last three years.
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10. VAT
10.1 The Company is duly registered for the purposes of VATA. Such registration
is not subject to any conditions imposed by or agreed with the
Commissioners of Customs and Excise. Within the last three years, the
Company has complied in all respects with VATA and all orders, provisions,
directions or other conditions made or imposed thereunder or under any
other law relating to VAT.
10.2 The Company is not and has never been a member of a group for the purpose
of section 43 VATA.
10.3 No direction has been issued to the Company or the representative member
of any group of which it was a member under schedule 9A VATA and there are
no circumstances in which such a direction could be issued.
10.4 The Company has not within the two years ending on the date of this
Agreement been served with any penalty liability notice under section 64
VATA or any surcharge liability notice 59 VATA or been issued with any
written warning under section 76(2) VATA.
10.5 Full details of all elections made by the Company or a relevant associate
of it (within the meaning of paragraph 3, schedule 10 VATA) pursuant to
paragraph 2, schedule 10 VATA are set out in the Disclosure Letter and
there are no circumstances in which a supply relating to the grant of an
interest in right over a licence to occupy any land or building or any
part of any land or building comprised within such an election could be
other than a taxable supply by virtue of paragraph 2(3AA), schedule 10
VATA or otherwise.
10.6 No asset of the Company is a capital item the input tax on which may be
subject to adjustment in accordance with the provisions of Part XV of the
Value Added Tax Regulations 1995.
10.7 The Company has not registered, and is not required to register, for VAT
purposes (or for the purposes of any similar tax on added value or
turnover) in any country other than the United Kingdom.
11. STAMP DUTY AND STAMP DUTY RESERVE TAX
11.1 All documents which confer any right or title upon the Company to which
the Company was a party as a purchaser, lessee or assignee and which
attract stamp or transfer duty in the United Kingdom have been duly
stamped.
11.2 The Company has not been party to any transaction whereby the Company is
or could become liable to or to account for stamp duty reserve tax.
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SCHEDULE 3
General Warranties
1. THE COMPANY AND THE VENDORS
1.1 Capacity
Each Vendor has full power to enter into and perform this Agreement and
this Agreement constitutes binding obligations on the Vendors in
accordance with its terms.
1.2 Vendors' Bankruptcy
None of the Vendors has ever:-
1.1.1 been the subject of any order under the Company Directors
Disqualification Act 1986;
1.1.2 been adjudged bankrupt;
1.2.3 been the subject of a petition for a bankruptcy order duly presented
to the Court;
1.2.4 entered into a voluntary arrangement (within the meaning given in
section 253 of the Insolvency Act 1986);
1.2.5 been the subject of an interim order under section 252 of the
Insolvency Act 1986;
1.2.6 been the subject of any equivalent order, judgement, petition or
arrangement under any earlier bankruptcy legislation.
1.3 Liabilities owing to or by Vendors
There is not outstanding any indebtedness or other liability (actual or
contingent) owing by the Company to any Vendor or any Director or any
person connected with any of them nor is there any indebtedness owing to
the Company by any such person.
2. THE COMPANY'S CONSTITUTION
2.1 The Shares
2.1.1 All the information in schedule 1 is accurate.
2.1.2 There is no Encumbrance nor is there any agreement, arrangement or
obligation to create or give any Encumbrance on, over or affecting
any of the Shares or unissued shares of the Company and no claim has
been made by any person to be entitled to any Encumbrance.
2.1.3 Save as provided in this Agreement there is no agreement,
arrangement or obligation in force which calls for the present or
future allotment, issue or transfer of or the grant to any person of
the right (whether conditional or otherwise) to call for the
allotment, issue or transfer of, any share capital of the Company;
and
2.1.4 The Shares constitute the entire issued share capital of the Company
and all the Company's issued shares are fully paid and are
beneficially owned by the Vendors who have the full right, power,
legal capacity and authority to transfer and deliver the Shares in
accordance with this Agreement.
2.2 Memorandum and Articles
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A copy of the memorandum and articles of association of the Company is
annexed to the Disclosure Letter and has embodied therein or annexed
thereto a copy of every such resolution or agreement as is referred to in
section 380 of the Act.
2.3 Ability to Sell
Each of the Vendors is entitled to sell or procure the sale of the full
legal and beneficial interest in the Shares on the terms of this
Agreement.
2.4 Shadow Directors
There is no shadow director of the Company.
2.5 Repurchase of share capital and financial assistance
The Company has not at any time:
2.5.1 purchased or redeemed or repaid or agreed to purchase, redeem or
repay any share capital; or
2.5.2 given or agreed to give any financial assistance in connection with
any such acquisition of share capital as would fall within sections
151 to 158 (inclusive) CA 1985.
2.6 Distributions by the Company
The Company has not made and is not proposing to make a distribution
except out of profits available for the purpose.
3. THE COMPANY AND THE LAW
3.1 Compliance with laws
The Company has conducted its business in all material respects in
accordance with all applicable laws and regulations of the United Kingdom
and neither the Company nor the Vendors have received notice of any
violation of or default in respect of any statute, regulations, order,
decree or judgement of any court or any governmental agency of the United
Kingdom which could have a material effect upon the assets or business of
the Company.
3.2 Litigation
Apart from (if relevant) the collection of debts in the ordinary course of
business not exceeding (pound)5,000 in the aggregate the Company is not
engaged nor has it during the two years ending on the date of this
Agreement, been involved in any litigation or other legal proceedings
(whether civil or criminal) or in any proceedings or hearings before any
statutory or governmental body, department board or agency and so far as
the Vendors are aware no such matters are pending or threatened by or
against the Company and the Vendors are not aware of any circumstances
likely to give rise to any such matter.
3.3 Investigations
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The Company has not received notification that any governmental or other
investigation or enquiry of the Company's affairs is being or has been
conducted and the Vendors are not aware of any circumstances existing
which are likely to give rise to any such investigation or enquiry.
4. INSOLVENCY
4.1 No order has been made or resolution passed and no petition has been
presented for the winding up of the Company or for an Administration Order
in respect of the Company.
4.2 No receiver or receiver and manager has been appointed by any person of
the whole or any part of the business or assets of the Company.
4.3 No voluntary arrangement has been proposed under section 1 of The
Insolvency Act 1986 in respect of the Company and no compromise or
arrangement has been proposed, agreed to or sanctioned under section 425
of the Act in respect of the Company.
4.4 The Company is not insolvent or unable to pay its debts within the meaning
of section 123 of The Insolvency Act 1986.
4.5 The Company has not stopped paying its debts as they fall due.
4.6 No distress, execution or other process has been levied or, so far the
Vendors are aware, threatened in respect of any of the assets of the
Company.
4.7 No unsatisfied judgement or court order is outstanding against the Company
or any Vendor. 4.8 No circumstances have arisen which are likely to result
in:
4.8.1 a transaction to which the Company or any Vendor is a party being
set aside pursuant to the provisions of the Insolvency Act 1986; or
4.8.2 a third party claim involving the Shares or any asset owned or used
by the Company or any Vendor being made under section 238 or 339
(Transactions at an under value) or sections 239 or 340
(Preferences) Insolvency Act 1986.
5. ACCOUNTING AND FINANCIAL MATTERS
5.1 Accounts
The Accounts:
5.1.1 comply with the requirements of the CA 1985 and UK GAAP;
5.1.2 comply with applicable SSAPs;
5.1.3 comply with applicable FRSs and have been prepared in accordance
with the historical cost convention, on a recognised and consistent
basis and on the same basis and in accordance with the same
accounting policies as the corresponding accounts for the preceding
3 financial years;
5.1.4 give a true and fair view of the state of affairs of the Company as
at the Accounts Date and of its assets and liabilities as at the
Accounts Date and its profit or losses for the financial year ended
on that date and have not been affected by any unusual,
extraordinary, exceptional or non-recurring items or by any other
factor rendering its profits for all or any such periods unusually
high; and
5.1.5 make proper provision for (or contain a note in accordance with good
accounting practice respecting) all established liabilities and all
deferred or contingent liabilities (whether liquidated or
unliquidated) at the date thereof, including (without limitation)
deferred taxation.
5.2 Without limiting paragraph 5.1 above:
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5.2.1 proper provision has been made in the Accounts:
(a) for depreciation of assets;
(b) in valuing stock for any foreseeable losses which may arise on
completion or realisation;
(c) for any foreseeable liabilities in relation to the disposal of
any assets; and
(d) for bad or doubtful debts;
5.2.2 stock has been valued in the Accounts at the lower of cost and net
realisable value.
5.3 Audited Accounts for Previous Financial Periods
The results shown by the audited accounts for each of the 3 financial
periods of the Company immediately preceding the financial year ended on
the Accounts Date were not (save as disclosed therein) affected by an
extraordinary, exceptional or non-recurring item.
5.4 Accounting records to the Company
The accounting records of the Company have been properly written up on a
consistent basis and in accordance with the provisions of CA 1985.
5.5 Management Accounts
The Management Accounts (copies of which are attached to the Disclosure
Letter):
5.5.1 have been prepared in the ordinary course of the Business adopting
policies and principles consistently applied throughout the period
to which such accounts relate;
5.5.2 accord with the books and accounts of the Company;
5.5.3 fairly state the profits, assets, liabilities and affairs of the
Company as at their respective dates of preparation.
5.6 Reports by financial or management consultants
5.6.1 All statements of fact (but excluding for the avoidance of doubt all
statements of opinion, all predictions and all forecasts in relation
to the performance of the Company following Completion) contained in
the E & Y Information Memorandum are materially accurate.
5.6.2 All opinions, forecasts and predictions contained in the E & Y
Information Memorandum and the E & Y Report are based on the
opinions of the Shareholders which opinions are honestly held.
5.7 Factoring or discounting of debts
The Company has not factored or discounted any of its debts or engaged in
financing of a type which would not require to be shown or reflected in
the Accounts.
5.8 Debts due to the Company
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5.8.1 All debts (less any provision made in the Accounts or the Management
Accounts) due to the Company included in the Accounts and all debts
now due to the Company (less any such provision made in the Accounts
or Management Accounts in respect thereof) have either prior to the
date hereof been realised or will to the best of the Vendor's
knowledge, information and belief within 6 months after such date
realise their full amount in cash.
5.8.2 As at the date hereof , no amount due to the Company by a top ten
turnover customer was in arrears by more than 60 days.
5.8.3 None of the Vendors owes nor do its officers or any persons
connected with any of the Vendors or any such officers owe any
amount to the Company.
5.9 Creditors of the Company
As at the date hereof, there were no creditors of the Company to whom the
Company had been indebted by more than (pound)5,000 for a period of more
than 90 days since the invoice date.
5.10 Transactions since the Accounts Date
Since the Accounts Date:
5.10.1 the Company has entered into transactions and incurred liabilities
in the ordinary course of its Business and not otherwise;
5.10.2 the assets of the Company have not, so far as the Vendors are
aware, been depleted by any unlawful act on the part of any person;
5.10.3 so far as the Vendors are aware, there has been no materially
adverse change in the trading position of the Company and the
Business has been carried on in the ordinary course and in the same
manner (including nature and scale) as immediately before the
Accounts Date;
5.10.4 no loan or loan capital (excluding for the avoidance of doubt
finance leases) has been repaid by the Company in whole or in part
or has become liable to be so repaid;
5.10.5 other than in respect of the Company's Annual General Meeting,
there has been no resolution of or consent by the members of the
Company;
5.10.6 the Company has not lost any significant customer (detailed as a
customer whose contributions to the Company's gross income in the
year ended on the Accounts Date was not less than 2.5 per cent) and
the Vendors are not aware that any such customer intends to cease to
do business with the Company after the date hereof
5.11 Details of bank accounts and balances
5.11.1 Details of all bank accounts maintained or used by the Company
(including, in each case, the name and address of the bank with whom
the account is kept and the number of the account) and statements
showing the balance on each account as at the close of business on a
date not being more than 2 business days prior to the date of this
Agreement are attached to the Disclosure Letter.
5.11.2 Since the Date of each statement referred to in paragraph 5.11, no
payment out of any of the accounts has been made, except for routine
payments in the ordinary course of trading, and the present balances
are not substantially different from those in the statement.
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5.12 Uncleared or outstanding obligations
Amounts represented by cheques, warrants, mandates or other payment
instructions issued or given by the Company which at the date of this
Agreement remain outstanding or unpaid or unperformed do not exceed in the
aggregate (pound)10,000.
5.13 Encumbrances and overdraft and other facilities etc
In relation to Encumbrances and in relation to all overdraft, loan and
other financial and leasing facilities available to the Company:
5.13.1 full details thereof and accurate copies of all documents relating
thereto are attached to the Disclosure Letter;
5.13.2 the Company is not currently in breach of any provision of any such
document;
5.13.3 no steps for the enforcement of any Encumbrances have been taken or
so far as the Vendors are aware threatened;
5.13.4 there has not been any alteration in the terms and conditions of
any of the said arrangements or facilities;
5.13.5 nothing has been done or omitted to be done whereby the continuance
of the said arrangements and facilities might be affected or
prejudiced; and
5.13.6 none of the arrangements is dependent on the guarantee or indemnity
of, or on any security provided by, a third party.
5.14 Bank facilities and borrowings of the Company
5.14.1 The total amount borrowed by the Company:
(a) from bank(s) does not exceed any applicable facility or
overdraft limits; or
(b) from whatsoever source does not exceed any limitation on
borrowing contained in the Articles of Association or any
debenture or loan instrument or other deed or document binding
on the Company.
5.14.2 Save for the borrowing referred to in paragraph 5.14 the Company:
(a) does not have outstanding any loan capital;
(b) has not incurred or agreed to incur any borrowing which it has
not repaid or satisfied;
(c) has not lent or agreed to lend any money which has not been
repaid to it;
(d) does not own the benefit of any debt present or future (other
than debts due to it in respect of the sale of trading stock
in the normal course of trading); and
(e) is not a party to and has no obligation under any loan
agreement, debenture, acceptance credit facility, bill of
exchange, promissory note, finance lease, debt or inventory
financing, discounting or factoring arrangement or sale and
lease back arrangement.
5.14.3 So far as the Vendors are aware, no event has occurred or been
alleged which is or, with the passage of a time and/or the giving of
any notice, certificate, declaration or demand, would become an
event of default under, or a breach of any of, the terms of
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any borrowing or debenture to which the Company is party or would
entitle any third party to call for repayment prior to normal
maturity.
5.15 Liabilities of the Company in respect of third parties
The Company is not obliged by any guarantee, indemnity or other agreement
to secure an obligation of a third party.
5.16 Indebtedness involving Vendors
5.16.1 Save as disclosed in the Disclosure Letter, there is no outstanding
indebtedness on any account whatsoever owing by the Company to any
of the Vendors or by any of the Vendors (or persons connected with
them) to the Company.
5.16.2 Save as disclosed in the Disclosure Letter, no Vendor has given any
guarantee or indemnity in support of the Company which remains
outstanding.
5.16.3 The Company has not given any guarantee or indemnity in support of
any of the Vendors.
5.17 Crystallisation of Encumbrances
Completion of this Agreement will not result in the creation,
crystallisation or enforcement of any Encumbrances over any asset of the
Company.
5.18 Grants, subsidies or other financial assistance in favour of the Company
The Disclosure Letter contains accurate details of each grant or subsidy
or other financial assistance received or receivable by the Company from
any governmental or quasi-governmental authority and the Company has not
done, or omitted to do, any act which could result in all or part of any
such assistance becoming repayable early or being forfeited or withheld.
5.19 No finder's fees or brokerage payable by the Company
No-one is entitled to receive from the Company any finder's fee, brokerage
or commission or other benefit in connection with the sale of the Sale
Shares.
6. THE BUSINESS AND TRADING (INCLUDING CUSTOMERS AND SUPPLIERS)
6.1 Terms on which the Company trades
6.1.1 Copies of all contracts and arrangements between the Company and its
top 30 customers and major suppliers are disclosed in the Disclosure
Letter and are:
(a) true, complete and up-to-date copies of all existing terms.
(b) validly executed by all parties to them; and
(c) not subject to any adverse consequences arising out of a
change of control of the Company.
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6.1.2 No material contract or arrangement with a customer or supplier
contains any unusual or onerous provisions.
6.1.3 The Company:
(a) has not been required to pay amounts in excess of
(pound)25,000 in aggregate in respect of claims for indirect
or consequential loss under its service agreements;
(b) has not received notice of any claim or likely claim for
failure to meet minimum supply commitments under contracts
containing such commitments; and
(c) has not in the 12 months preceding the date of this Agreement
credited material amounts under backbone availability
guarantees in its service level agreements;
and the Vendors have not received notice of any likely claim in
respect of any such matters.
6.2 Liability of the company for goods or services supplied by it
6.2.1 Save for any warranty implied by law, the Company has not given any
warranty or guarantee, or made any representation, in respect of
goods or services supplied or agreed to be supplied by it.
6.2.2 The Company has not received notification of any claim that it is
under a liability to replace or remedy defects in any goods which
have been sold by it or to make good any errors or omissions in
services which have been supplied by it.
6.3 Customers and suppliers
6.3.1 No part of the Company's business has been materially and adversely
affected by the loss during the 12 months ended on the Accounts Date
of:
(a) any important customer or source of supply, (being a customer
or supplier which over a period of 3 months or more during
those 2 years has accounted for 2.5 per cent or more in value
of the goods or services supplied by or to the Company during
that period); or
(b) an overall decrease in the value of orders received by or
supplies made to the Company,
and no such customer or supplier has given notice to the Company of
an intention to cease or reduce trading with or supplies to the
Company.
6.3.2 So far as the Vendors are aware, neither this Agreement nor
Completion is likely to cause any person who normally does business
with the Company to cease doing so on the same basis.
6.4 Restrictions on the Company
The Company is not party to any agreement or arrangement which restricts
the fields in which the Company may carry on its business.
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6.5 No bribes or inducements paid
The Company has not paid to any person any sum in the nature of a bribe or
inducement.
6.6 Confidentiality or secrecy arrangements which restrict the Company's
activities
The Company is not a party to any confidentiality or secrecy agreement or
undertaking which restricts its use or disclosure of any information other
than in the ordinary course of trading.
6.7 Consents etc required in relation to the Business
No substantial part of the Business is carried on under the agreement or
consent of a third party, nor is the Company party to any agreement which
significantly restricts the fields in which the Company carries on the
Business.
6.8 Contracts - no grounds for premature determination or invalidation etc.
So far as the Vendors are aware, no circumstances exist which constitute a
ground on which any contract or other arrangement to which the Company is
a party could be avoided, repudiated, rescinded, prematurely determined
(whether as a result of this Agreement, the sale of the Shares or
otherwise) or declared to be invalid by a third party or which would give
any other contracting party the right to impose any obligation (whether to
make payment on or otherwise) on the Company and the Company has not
received any notice of a claim to that effect or notice indicating that
such a claim is foreseeable.
6.9 Agreements not capable of discharge by performance within three months of
the date of this Agreement
The Company is not a party to any agreement for the supply by or to the
Company (whether as principal or as agent) of any goods or services
including (but not limited to) distributorship, agency, manufacturing,
licensing, supply or management agreements excluding agreements which in
the ordinary course and in accordance with their terms are likely to be
discharged by performance within 3 months of the date hereof.
6.10 Terms of contracts to which the Company is a party
6.10.1 The Company is not a party to any contract, obligation or
arrangement which:
(a) has been entered into by the Company otherwise than on arm's length
terms or outside the ordinary and normal course of trading;
(b) imposes any commitment on the Company to obtain or supply goods or
services exclusively from or to any person;
(c) contains any commitment by the Company for the supply or purchase of
goods or services where the supply, purchase or delivery may take
place more than 6 months after the time of fixing of the price;
(d) is of a long term nature (that is, unlikely to have been fully
performed in accordance with its terms within 6 months after the
date on which it was entered into or undertaken);
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(e) is incapable of termination by the Company in accordance with its
terms on 6 months' notice or less;
(f) gives any party an option to acquire or dispose of any asset or
requires another person to do so;
(g) in the reasonable opinion of the Vendors cannot readily be fulfilled
or performed by the Company on time;
(h) involves payments by or to the Company by reference to fluctuations
in any index of retail prices, any other index, the rate of exchange
for any currency of the cost or value of any raw material or
commodity (other than contracts in the ordinary course of trading);
(i) (or in relation to which) any relevant requirements of section 319
CA 85 have not been complied with;
(j) creates any agency or distributorship arrangement;
(k) may reasonably be expected to result in any payment or receipt of
(pound)50,000 or more during any 12 month period after the date of
this Agreement,
and the Company has no offer, bid, tender or proposal outstanding
which by the acceptance or other act of some other person would give
rise to any such transaction.
6.10.2 The Company has no liability for industrial training levy or for any
other statutory or governmental levy or charge.
6.10.3 The Company is not a party to any agreement or arrangement or under any
obligation under which it is or may become liable to make any investment
(as defined in section 1(1) of the Financial Services Act 1986) with, or
to deposit any money with or to provide any loan or financial
accommodation or credit (other than normal trade credit) to, any person
or to subscribe, convert, acquire, dispose of or underwrite any
investment.
6.11 Outstanding powers of attorney or other authorities
There are no powers of attorney or other authorities (express or implied)
which are still outstanding or effective to or in favour of any person to
enter into any contract or commitment or to do anything on behalf of the
Company (other than on such authority or directors or of employees as
either is ostensible or is implied to enter into routine contracts in the
normal course of their duties).
6.12 Insider matters/transactions with related parties
6.12.1 There is not, nor during the six years prior to the date hereof has
there been, any agreement, arrangement, loan, quasi-loan or
undertaking to which the Company is a party and in which any of the
Vendors or any other person beneficially interested in the share
capital of the Company at that time or (except for service
agreements) any director of the Company or any person associated
with any of them within the meaning of section 435 Insolvency Act
1986 is or has been interested.
6.12.2 The Company has not been party to any transaction falling within
section 320 Companies Act 1985 (substantial property transaction).
6.12.3 the Company has not transferred any asset to any of the Vendors or
to any person beneficially interested in any part of the share
capital of the Company, or any director of the Company or any person
associated with any such director (within the meaning of section 435
Insolvency Act 1986), except at market value.
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6.12.4 None of the Vendors has any interest in any other company or
business which has a close trading relationship with or is in
competition with the Company.
7. EMPLOYEES AND PENSIONS
7.1 Details of employees
There is attached to the Disclosure Letter a schedule showing summary
details of the terms of engagement (including their names, ages, length of
service and remuneration (including commission, profit sharing and bonus
arrangements) and other benefits) of each of the Company's employees which
details are true and accurate.
7.2 Copies of contracts of employment and consultancy agreements
7.2.1 True, up-to-date and complete copies of all contracts of employment
and contracts for the provision of services between the Company and
its employees or contractors are attached to the Disclosure Letter.
The Company is not a party to any consultancy agreements.
7.2.2 There is no agreement or arrangement between the Company and any
employee or former employee or any contractor or former contractor
with respect to his employment, his ceasing to be employed or his
retirement or the provision of services or their cessation which is
not included in the written terms of his employment or contract for
the provision of services.
7.2.3 There is not in existence any contract of employment between the
Company and any person which is not determinable by the Company on
three months' notice or less without payment of compensation (save
as provided by statute).
7.2.4 There are no rules or provisions relating to the provision of,
entitlement to or use of Company cars other than those attached to
the Disclosure Letter.
7.3 Changes since the Accounts Date
7.3.1 Since the Accounts Date no change has been made in the terms of
employment by the Company of any of its employees and no such
change, and no negotiation or request for such a change, is due or
expected within 6 months from the date of this Agreement.
7.3.2 Since the Accounts Date, no employee has given notice terminating
his contract of employment or is under notice of dismissal and no
amount due to or in respect of any employee or former employee
(whether liability arises before or after the Accounts Date) is in
arrears and unpaid other than his salary for the month current at
the date of this Agreement and in respect of the reimbursement of
expenses.
7.4 Accuracy of records in relation to employees
The Company has maintained materially accurate records regarding the
service of each of its employees (including details of terms of
employment, payments of statutory or other sick pay, statutory or other
maternity pay, disciplinary and health and safety matters, income tax and
social security contributions and termination of employment).
7.5 No disputes in relation to employees
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7.5.1 The Company is not involved in any dispute with its employees or
ex-employees or any of them affected by (or in any negotiation under
or affected by) the Employment Rights Act 1996 ("ERA"), the Equal
Pay Act 1970, the Sex Discrimination Acts 1975 and 1986, the Race
Relations Act 1976, the Disability Discrimination Act 1995, the
Working Time Regulations 1998, the Trade Union and Labour Relations
(Consolidation) Act 1992 or any other legislative provision or any
rule of Common law and, so far as the Vendors are aware, there are
no present circumstances (including, without limitation, any
dismissals (including constructive dismissals) within the 6 months
prior to the date of this Agreement and any current disciplinary or
grievance procedures) which are likely to give rise to any such
dispute.
7.5.2 There is no existing, pending or, so far as the Vendors are aware,
threatened dispute between the Company and any material number or
category of its employees or any trade union or other organisation
formed for a similar purpose and, so far as the Vendors are aware,
there are no circumstances (including Completion) which are likely
to give rise to any such dispute. The Company does not recognise any
trade union and there are no collective or workforce agreements or
any works council in existence.
7.6 Payments on termination
Except as disclosed in the Accounts there is no liability:-
7.6.1 which has been incurred by the Company and is outstanding for breach
or termination of any service agreement with any of its employees
including, without limitation, redundancy payments, protective
awards, compensation for wrongful dismissal or unfair dismissal or
failure to comply with any order for the reinstatement or
re-engagement of any employee;
7.6.2 which has been incurred by the Company and is outstanding for breach
or termination of any consultancy agreement or any contract for the
provision of services.
7.7 Redundancies and transfer of business
Within the period of one year ending on the date of this Agreement the
Company has not:-
7.7.1 given notice of any redundancies to the relevant Secretary of State
or started consultations with any trade union under Part IV of the
Trade Union and Labour Relations (consolidation) Act 1992 nor has
the Company failed to comply with any of its obligations under Part
IV of that Act; and
7.7.2 been a party to any relevant transfer as defined in the Transfer of
Undertakings (Protection of Employment) Regulations 1981 (as
amended) nor has the Company failed to comply with any duty to
inform and consult any trade union under those Regulations.
7.7.3 The Vendor does not have any redundancy or rationalization schemes
which it operates or proposes to operate in connection with its
business (whether or not notified to employees).
7.8 Compliance
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The Company has complied in all material respects with:-
7.8.1 all obligations imposed on it by, and all orders and awards made
under, all statutes, regulations, codes of conduct and practice,
collective agreements, customs and practices relevant to the
relations between it and its employees or any trade union or the
terms of employment of its employees; and
7.8.2 all recommendations made by the Advisory Conciliation and
Arbitration Service and with all awards and declarations made by the
Central Arbitration Committee.
7.9 Outstanding payments or liabilities in relation to employees
7.9.1 With the exception of PAYE and national insurance contributions in
respect of the payment period current at Completion, the Company
does not have outstanding any undischarged liability to pay to any
governmental or regulatory authority any contribution, taxation or
other levy arising in connection with the employment or engagement
of personnel by the Company.
7.9.2 There are no training schemes arrangements or proposals in existence
nor have there been any such schemes or arrangements at any material
time in the past in respect of which a levy may become payable by
the Company under the Industrial Training Act 1982.
7.9.3 There is not in existence (and no indication has been given by the
Company to any employee to introduce) any contractual obligation or
commitment or proposal to increase the rates of remuneration of or
to make any bonus, commission or incentive payments to or on behalf
of any of its directors or employees at any future date other than
the bonus, commission or incentive payments details of which are
attached to the Disclosure Letter.
7.10 Share options/incentive plans
The Company does not have and is not proposing to introduce any share
incentive scheme, share option scheme or profit sharing bonus or other
incentive scheme for any director, officer or employee.
7.11 Pension arrangements
7.11.1 There is no superannuation, retirement benefit or other fund scheme
or arrangement to which the Company contributes or could become
liable to contribute under a commitment entered into before the date
of this Agreement (other than the Group Personal Pension, the
Personal Pension Plan and the Group Life Scheme referred to in the
Disclosure Letter (the "Schemes") under which any employee of the
Company or the widow(er) child or dependant of any such employee is
entitled to benefits of any kind upon retirement, death or
disability or on the attainment of a specified age or the completion
of a specified number of years of service.
7.11.2 The Company has not during the period of three years preceding the
date of this Agreement made any ex-gratia payments in respect of
retirement, death and disability to any of its former employees or
the widow(er) child or dependant of any such employees.
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7.11.3 Apart from pension and other benefits secured by the Schemes the
Company is not under any legal liability or voluntary commitment to
pay to or provide for any person any pension, superannuation
allowance, retirement gratuity or like benefit.
7.11.4 All amounts due from the Company to the trustees of the Schemes or
to any insurance company in connection therewith have been paid by
their due date and no payments fall to be made by the Company in
respect thereof in respect of periods of employment prior to the
commencement of the Schemes.
7.11.5 The Schemes are approved personal pension schemes under Chapter IV
Part XIV of the Income and Corporation Taxes Act 1988 ("ICTA") or,
in the case of the Group Life Scheme, in an exempt approved scheme
for the purposes of Chapter 1 of Part XIV ICTA, and the benefits
which are prospectively and contingently payable under the Schemes
are solely such as can be provided from the funds available for each
member under the Schemes or, in the case of death or incapacity
benefits, are fully insured and all premiums due up to Completion
have been paid.
7.11.6 The details of active members of the Schemes and the amounts
payable by the Company in respect of each of them in relation to the
Schemes as attached to the Disclosure Letter are accurate in all
material respects.
7.12 There are no outstanding payments due or likely to become due to any
employee as a result of the relocation of the headquarters of the Company
or the relocation of any employee's place of work.
7.13 The Company's directors and secretary are as set out in Part 1A and Part
1B of Schedule 1 and there are no other directors, shadow directors
(within the meaning of section 741 of the Companies Act 1985) or any other
Company Secretary.
7.14 No past employee of the Company or any current employee or contractor
absent on maternity, parental, sick or other leave has a right to return
to work or to be re-instated or re-engaged under the Employment Rights Act
1996 or otherwise.
8. OWNERSHIP OF ASSETS FREE FROM THIRD PARTY RIGHTS
The Company keeps an up to date plant register of the fixed assets used by
it in the Business ("the Fixed Assets") and such register (a copy of which
is attached to the Disclosure Letter) is accurate in all material
respects.
8.1 Condition of Fixed Assets, plant, machinery, vehicles and equipment
Having regard to their age, all Fixed Assets, vehicles and equipment owned
or used by the Company are in reasonably good condition, fair wear and
tear excepted, and in working order, have been serviced and maintained on
a regular basis by competent personnel and comply with compulsory safety
regulations.
8.2 Equipment which is not owned by the Company
In respect of all equipment held by the Company under any hire-purchase,
conditional sale, leasing or rental agreement:
8.2.1 copies of all such hire-purchase and conditional sale agreements,
leases and rental agreements are attached to the Disclosure Letter;
8.2.2 the amount of the last rental expressed in the copy agreements
referred to in the previous sub-paragraph is the amount currently
payable under such hire-purchase,
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conditional sale, leasing or rental agreement and, so far as the
Vendors are aware, at the date hereof, no circumstance exists by
virtue of which the lessor or the owner is or might be entitled to
require an upward adjustment to the rental or to payments at a
future date under the relevant agreement;
8.2.3 The Vendors have not received notice that the lessor or the owner
under any such hire-purchase, conditional sale, leasing or rental
agreement intends or is entitled to terminate any of the same and
are not aware of any circumstances which would entitle them to do
so; and
8.2.4 so far as the Vendors are aware, no inquiry or investigation is
being conducted by the Inland Revenue concerning the availability to
the lessor of capital allowances in respect of any of the items of
leased equipment.
8.3 Condition of trading stock
The Company's trading stock is not obsolete, obsolescent, slow-moving,
damaged, unusable or unsaleable.
9. PROPERTY MATTERS AND INTERESTS IN LAND
9.1 The Company is the legal and beneficial owner or occupier of the
Properties and the particulars of the Properties set out in schedule 9 are
true and complete and accurate in all respects at the date hereof.
9.2 The Properties comprise all the land and buildings which are owned, and
also all the land and buildings which are used or occupied, by the Company
at the date of this Agreement in connection with the business and no part
of the Properties is used or occupied for any purposes other than that of
the business and to the best of the Vendor's knowledge and belief such use
or occupation does not contravene any requirement or restriction having
the force of law.
9.3 The title to the Properties is properly constituted by documents of title
which are properly stamped and where necessary have been duly registered
and are in the possession and under the control of the Company other than
in respect of 9 Sir William Lyons Road, University of Warwick Science
Park, Coventry in respect of which the documents of title are held by
Northern Rock Plc.
9.4 There are appurtenant to the Properties all rights and easements necessary
for their use and enjoyment by the Company.
9.5 To the best of the Vendor's knowledge and belief the Properties are free
from any mortgage, charge, licence, rent charge, overriding interest,
lien, lease, underlease, tenancy, right, privilege, covenant, encumbrance,
restriction, option, right of pre-emption, stipulation, easement or other
agreement or arrangement affecting the Properties other than 9 Sir William
Lyons Road, aforesaid which is charged to Northern Rock Plc.
9.6 The Company has not received any notice alleging any breach of the
covenants contained in the title documents to the Properties or of any
statutory requirements planning consents bylaws orders and regulations
affecting the Properties.
9.7 The Company has paid all rent and other outgoings which have become due in
respect of the Properties and all tenant's covenants other than those
relating to the state of repair, decoration and condition have been
substantially complied with.
9.8 To the Vendors knowledge there are no facts or circumstances which would
render the Properties unmarketable and the covenants that would be implied
on the part of the Company if the Properties were conveyed or assigned to
a purchaser by conveyance or assignment for valuable consideration by the
Company being expressed therein to convey or assign with full title
guarantee shall be implied herein as if the Properties were being so
conveyed or assigned
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by the Vendors to the Purchaser provided that the Vendors are not liable
under the covenants implied by section 4 of the 1994 Act by reason of any
breach of any terms of the lease concerning the state of repair,
decoration or condition of the Properties.
9.9 No covenants or conditions affecting the Properties prejudicially affect
the use or continued use of the Properties for the purpose for and to the
extent to which they are now used and all such covenants or conditions
have been complied with.
9.10 To the Vendors' knowledge, all developments on and uses of the Properties
comply with all planning and other legislation and all regulations orders
or bye-laws made thereunder. No current planning permission granted in
respect of the Properties is due to terminate within the five years
beginning on the date hereof or has been suspended and all conditions
attached to each planning permission relating to the Properties have been
complied with.
9.11 There are no disputes existing or to the Vendors' knowledge anticipated
between the Company and the landlords under any of the leases of the
Properties or between the Company and any other tenant on the land or in
the buildings of which the Properties forms part.
9.12 Without prejudice to the generality of the foregoing no changes of use of
the Properties have been made by the Company without the written consent
of the landlord under the relevant lease where required.
9.13 Save as to the Properties the Company is not and has not become liable
whether as original landlord, original tenant, guarantor or original
landlord, guarantor of original tenant, successor in title to original
landlord, guarantor of successor in title to original tenant, or otherwise
under any covenants or provisions contained in any agreement, tenancy,
lease, sub-tenancy or sub-lease or any deed or document relating to the
creation or assignment of a leasehold estate or interest or any deed or
document relating to the consent to the creation or assignment of a
leasehold estate or interest so that the Company will remain liable under
such covenants or provisions on and after Completion.
9.14 The leases of the Properties can be assigned with the consent of its
landlord which consent cannot be unreasonably withheld.
9.15 To the best of the Vendors' knowledge there is no major expenditure
planned by the Vendor in the next 5 years to the Properties or the
buildings and/or estates of which they form part.
10. INTELLECTUAL PROPERTY
10.1 Intellectual Property Rights
10.1.1 The Company either beneficially owns or has the right to use
(pursuant to a valid licence or other agreement) all Intellectual
Property reasonably required by it for any of the operations of the
Company as presently carried on.
10.1.2 The Company is not registered as and has not applied to be
registered as the proprietor of any Intellectual Property.
10.1.3 Apart from that referred to in paragraph 10.1.1 the Company does
not require any Intellectual Property for any of the operations of
its business as presently carried on.
10.2 No disposals of Intellectual Property Rights since the Accounts Date
Since the Accounts Date, the Company has not sold or otherwise disposed of
any Intellectual Property owned or used by the Company.
10.3 No infringement of Intellectual Property Rights of third parties
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10.3.1 So far as the Vendors are aware, the Company has not infringed the
Intellectual Property of any other person.
10.3.2 The Company has not granted and is not obliged to grant any
licences under any Intellectual Property owned by it or licensed to
it or to furnish know-how to any person.
10.4 Licences and disclosures to third parties
10.4.1 The Company has not been granted any licence or right under or in
respect of any Intellectual Property Rights of a third party.
10.4.2 No disclosure has been made to any person other than the Purchaser
of any of the commercial or industrial know-how or the financial or
trade secrets of the Company except properly and in the ordinary
course of business and on the footing that such disclosure is to be
treated as being of a confidential nature.
10.4.3 There exists no actual or so far as the Vendors are aware,
threatened infringement (including misuse of confidential
information) or any event likely to constitute an infringement or
breach by any third party of any of the Intellectual Property Rights
currently held or used by the Company.
10.5 Corporate name
The Company does not use or otherwise carry on its business under any name
other than its corporate name.
10.6 Inventions by employees
All inventions made by any employees of the Company and used or enjoyed by
the Company were made in the course of the normal duties of the employee
concerned and no claim for compensation under section 40 Patents Act 1977
has been made against the Company nor to the best of the knowledge
information and belief of the Vendors is any such claim likely to be made.
11.1 INFORMATION TECHNOLOGY (INCLUDING COMPUTER HARDWARE AND SOFTWARE)
11.1 Back-up of computer systems
All necessary back-up systems are utilised to ensure that in the event of
any fault in any computer system used by the Company, no more than one
day's data might be lost and no such faults have occurred in the last 12
months.
11.2 Data Protection Acts 1984 and 1998
No order has been threatened against the Company for erasure of personal
data under section 24(3) Data Protection Act 1984 or the Data Protection
Act 1998.
11.3 Computer software used by the Company
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11.3.1 The Company does not use any computer software other than standard
off the shelf packages generally available to the public ("Standard
Software") which are listed in the Disclosure Letter and none of
such Standard Software has been materially modified by the Company.
11.3.2 No licensing requirements or restrictions have been contravened by
the Company in relation of the use of any of the Standard Software.
12. INSURANCE
12.1 Insurances required by law
The Company has effected all insurances required by law to be effected by
it and all assets of and risks relating to the Company normally insured by
companies carrying on similar businesses are covered.
12.2 Details of insurance cover
Particulars of all insurance policies maintained by the Company and
currently in force ("the Policies").
12.3 Other matters in relation to insurance cover and Policies
In respect of the Policies:
12.3.1 all premiums due to be paid by the Company have been paid;
12.3.2 all conditions of the Policies have been performed and observed by
the Company;
12.3.3 none of the Policies has become void or voidable as a result of an
act or omission of the Company;
12.3.4 the Policies, together with the receipts for the latest premiums
payable in respect thereof, are in the possession of the Company;
12.3.5 No insurances will be terminated, invalidated or adversely affected
by the sale of the Company to the Purchaser.
12.4 Outstanding claims
No claim brought by the Company under any of the Policies is outstanding
and there are no pending claims.
12.5 Entitlement of the Company to make claims
The Vendors are not aware of any circumstances which would or might
entitle the Company to make a claim under any of the Policies or which
would or might be required under any of the Policies to be notified to the
insurers where such circumstances have not yet been notified.
12.6 Claims made
Details of any claims made by the Company under any insurance policy in
the last 12 months are set out in the Disclosure Letter.
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12.6 Refusal of insurance cover
The Company has not been refused insurance cover in the last three years
in respect of the Business.
12.7 Keyman insurance
The Company has no keyman or equivalent insurance with respect to any of
its directors or employees.
13. ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS
13.1 In this paragraph 13 notwithstanding anything elsewhere in this Agreement,
the following terms have the following meanings:
"Environment" means the environment as defined in section
1(2) of the Environmental Protection Act
1990;
"Environmental Claim" means any claim, prosecution, demand,
abatement or other order or notice
(conditional or otherwise), relating to
Environmental Matters or requiring
compliance with the terms of any
Environmental Licence or Environmental Law;
"Environmental Law" includes all or any law in force at the date
of this Agreement (including all provisions
of the Environment Act 1995 whether or not
in force at the date of this agreement),
statute, rule, regulation, treaty,
directive, by-law, order, notice, decision
of the courts or of any governmental
authority or agency or any regulatory body
applicable in the United Kingdom and
relating to Environmental Matters applicable
to the Company and/or the business carried
on by the Company;
"Environmental Licences" means any permit, licence, authorisation,
consent or other approval required by the
Company and in relating to the business
carried on by the Company at the Properties
pursuant to any Environmental law;
"Environmental Matters" includes any of the following: (1) any
generation, deposit, disposal, keeping,
treatment, transportation, transmission,
handling or manufacture of any Relevant
Substance ; (2) nuisance and noise; and (3)
the pollution, contamination, conservation
or protection of the Environment.
"Health and Safety Matters" includes hygiene or health and safety at
work or elsewhere;
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"Relevant Substance" means any substance whatsoever (whether in a
solid or liquid form or in the form of a gas
or vapour and whether alone or in
combination with any other substance) or
waste (as defined in the Environmental
Protection Act 1990) which is capable of
causing significant harm to man, any living
organism supported by the Environment or the
Environment and is present or has
accumulated at the Property prior to the
date of Completion.
13.2 So far as the Vendors are aware, the Company complies and has at all times
complied in all material respects with all Environmental Laws.
13.3 The Company has obtained and maintained all Environmental Licences.
13.4 No Environmental Claim has been made or, so far as the Vendors are aware,
is threatened or is likely to be made or threatened against the Company or
any of its past or present directors, secretary or senior employees.
13.5 The Company complies and has at all times complied in all materials
respects with all Health and Safety Laws.
13.6 So far as the Vendors are aware, the Company has obtained and maintained
all Health and Safety Licences.
13.7 No Health and Safety Claim has been made or so far as the Vendors are
aware is threatened or is likely to be made or threatened against the
Company or any of its past or present directors, secretary or senior
employees.
14. MISCELLANEOUS
14.1 Documents and records etc.
The Company has exclusive ownership (free of any lien or other third party
right) of and control of and access to:
14.1.1 all documents of title relating to its assets;
14.1.2 all subsisting written agreements to which it is a party;
14.1.3 all records, systems, data and information held by it or on its
behalf.
14.2 EC/competition matters
14.2.1 The Company conducts, and has conducted the Business in all
material respects in accordance with the requirements of all UK and
EC competition laws applicable to its business activities and has
not infringed such requirements nor, so far as the Vendors are
aware, has it been investigated for any alleged non-compliance or
infringement nor has it given any undertakings in connection
therewith.
14.2.2 For the purposes of sub-paragraph the term "competition laws"
includes any applicable rules dealing with state aid, public
procurement, or anti-dumping and the requirements of any special
regulatory regime to which the Company may be subject in any area of
its activities.
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14.2.3 The Company is not subject to any prohibition, order, condition,
undertaking, assurance or similar measure or obligation imposed by
or under any of the laws referred to in sub-paragraph 14.2.1.
14.3 The Company has not received notice that any such action as is mentioned
in paragraph 14.2.3 will be taken against it in relation to any of its
current activities.
14.4 Compliance with legal requirements
Compliance has been made with CA 1985 by the Company concerning:
14.4.1 its Memorandum and Articles of Association;
14.4.2 the filing by it of documents at Companies House;
14.4.3 issues by the Company of shares, debentures or other securities;
14.4.4 payments by the Company of interest and dividends and the making by
the Company of other distributions; and
14.4.5 its Directors (including any shadow directors) and other officers.
14.5 Licences required to carry on the Business
So far as the Vendors are aware, the Company has obtained all licences,
permissions, consents and other approvals required for or in connection
with the carrying on by it of the Business in the places and in the manner
in which the Business is now carried on; copies of such licences,
permissions, consents and approvals are attached to the Disclosure Letter,
have been complied with by the company in all material respects and the
Company has not received notice that any of such licences, permissions,
consents, or approvals will or may be revoked.
14.6 Registers and minute books up to date
All registers and minute books required by CA 1985 to be kept by the
Company have been kept in accordance with CA 1985 and the Company has not
received any application or request for rectification of its statutory
registers or any notice or allegation that any of them is incorrect.
14.7 Subsidiaries
The Company has no, and never had any, subsidiaries.
14.8 This Agreement
The execution and delivery of this Agreement and the fulfilment and
performance of the terms of this Agreement:
(a) do not and will not conflict with, violate or result in a breach of
the terms of any law, agreement, mortgage, lease, lien, judgment,
decree, undertaking or order to which the Company is subject; and
(b) do not require the consent, approval or authority of any other
person.
15. CONSIDERATION SHARES
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15.1 The Vendors are acquiring the Consideration Shares issued hereunder for
their own account as principal, not as a nominee or agent, for investment
purposes only, and not with a view to, or for, resale, distribution or
fractionalisation thereof in whole or in part and no other person or
entity has a direct or indirect beneficial interest in such Consideration
Shares. The Vendors do not have any contract, undertaking, agreement or
arrangement with any person or entity to sell, transfer or grant
participations to such person or entity or to any third person or entity
with respect to any of such Consideration Shares.
15.2 The Vendors acknowledge that the issuances of the Consideration Shares to
them are intended to be exempt from registration under the Securities Act
1933, as amended (the "Securities Act"), by virtue of Section 4(2) of the
Securities Act and the provisions of Regulation D promulgated thereunder
("Regulation D"). In furtherance thereof, the Vendors further represent
and warrant to the Purchaser as follows:
(i) the Vendors have the financial ability to bear the economic risk of
their investment, have adequate means for providing for their
current needs and personal contingencies and have no need for
liquidity with respect to their investment in the Purchaser; and
(ii) the Vendors have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks
of an investment in the Consideration Shares.
15.3 The Vendors are each Accredited Investors, as that term is defined in Rule
501 of Regulation D under the Securities Act.
15.4 The Vendors are not relying in any statements or representations made by
the Purchaser or any Affiliate (as such term is defined in Rule 405
promulgated under the Securities Act) thereof with respect to economic
considerations involved in an investment in the Consideration Shares,
except to the extent that such statements or representations are made in
the filings of Purchaser with the Securities and Exchange Commission..
15.5 The Vendors will not sell or otherwise transfer the Consideration Shares
except in accordance with the terms of this Agreement. In addition, the
Vendors will not sell or otherwise transfer the Consideration Shares
without registration under the Securities Act or an exemption therefrom
and the Vendors fully understand and agree that they must bear the
economic risk of the acquisition thereof because, among other reasons, the
Consideration Shares have not been registered under the Securities Act or
under the securities laws of any state and, therefore, cannot be resold,
pledged, assigned or otherwise disposed of unless they are subsequently
registered under the Securities Act and under the applicable securities
laws of such states, or unless exemptions from such registration
requirements are available. In particular, the Vendors are aware that the
Consideration Shares are "restricted securities", as such term is defined
in Rule 144 promulgated under the Securities Act ("Rule 144"), and they
may not be sold pursuant to Rule 144 unless all of the conditions of Rule
144 are met. The Vendors also understand that as a material inducement to
the Vendors to sell the Shares to the Purchaser, the Purchaser is under no
obligation to register the Consideration Shares on their behalf or to
assist the Vendors in complying with any exemption from the registration
requirements of the Securities Act or applicable securities laws other
than as provided in this Agreement. The Vendors further understand that
sales or transfers of the Consideration Shares are further restricted by
the provisions of this Agreement.
15.6 The Vendors understand and acknowledge that the certificates for the
Consideration Shares shall bear:
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(1) a legend substantially as follows until (i) such securities shall
have been registered under the Securities Act and effectively have
been disposed of in accordance with an effective registration
statement thereunder; or (ii) in the opinion of counsel for the
Purchaser, such securities may be sold without registration under
the Securities Act as well as any applicable "Blue Sky" or state
securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT
(i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF
FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE
CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL
APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY
APPLICABLE "BLUE SKY" OR OTHER STATE SECURITIES LAW."
(2) an additional legend substantially as follows until the restrictions
on transfer under Clause 6.4, have expired:
"THE SHARES EVIDENCED HEREBY ARE ALSO SUBJECT TO CERTAIN TRANSFER
RESTRICTIONS AS SET FORTH IN THAT CERTAIN SHARE PUT AND CALL OPTION
AGREEMENT DATED MARCH 28th, 2000 BY AND AMONG RSL COMMUNICATIONS,
LTD. JONATHAN SHAW, CHRISTOPHER WINDLEY, NIGEL WILLIAMS AND WALBROOK
TRUSTEES (IOM) LIMITED."
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SCHEDULE 4
Provisions for the Protection of the Vendors
1. REMEDIES
1.1 A breach by the Vendors of or any claim under any of the terms of this
Agreement shall give rise only to an action by the Purchaser for damages
and shall not entitle the Purchaser to rescind or repudiate this
Agreement.
1.2 Where the matter or default giving rise to a breach of any Warranty is
capable of remedy, the breach shall not entitle the Purchaser to damages
or other compensation unless written notice of the breach is given to the
Vendors and the matter or default is not remedied to the reasonable
satisfaction of the Purchaser at the cost of the Vendors within 30 days
after the date on which such notice is served.
2. PARTIES TO CLAIMS
2.1 Subject to Clause 28.1 the warranties, representations, undertakings,
covenants and indemnities given by the Vendors under this Agreement shall
be actionable only by the Purchaser its successors or permitted assigns
and no party other than the Purchaser its successors or permitted assigns
shall be entitled to make any claim or take any action whatsoever against
the Vendors under this Agreement.
3. EXCLUSION OF CERTAIN CLAIMS
3.1 No claim shall be made by the Purchaser against the Vendors and the
Vendors shall have no liability to the Purchaser under the Warranties or
the Taxation Covenant or otherwise:
3.1.1 in respect of any warranty, representation, indemnity, covenant,
undertaking or otherwise arising out of or in connection with the
sale of the Shares except where the warranty, representation,
indemnity, covenant, undertaking or other source of claim is
expressly contained in this Agreement; or
3.1.2 in respect of any matter or thing disclosed in this Agreement; or
3.1.3 in respect of any matter which is fairly disclosed in or by its
terms deemed to be disclosed in the Disclosure Letter provided that
nothing in this clause 3.1.3 shall prevent the Purchaser from
bringing a claim under the Taxation Covenant; or
3.1.4 save in the case of a breach of Warranty 5.6.1 and 5.6.2 in schedule
3, for:
(i) any opinion which may have been expressed or any forecast or
prediction which may have been made by any person in respect
of the Company whether in writing or orally including without
limitation in the E & Y Information Memorandum; or
(ii) any factual inaccuracy or for any statement of opinion or
forecast contained in the E & Y Report;
3.1.5 in respect of any liability or other matter or thing if that
liability, matter or thing would not have arisen or occurred but for
an act, omission or transaction which is done or omitted to be done
after Completion by the Company or the Purchaser save where such act
omission or transaction is as a result of a legally binding
obligation entered into by the Company before Completion or which is
done or omitted to be done with the prior written approval of the
Shareholders or where the Purchaser could not reasonably have
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been expected to know that that act, omission or transaction would
give rise to that liability.
3.1.6 to the extent that it arises as a result of any increase or change
in rates, or incidence of Taxation (as defined in schedule 2) after
the date of this Agreement;
3.1.7 to the extent that it arises or is incurred as a result of any
legislation, or the making of any subordinate legislation or any
interpretation of the law after the date of this Agreement;
3.1.8 to the extent that it arises or is incurred as a result of any
change in the accounting policies or practice of the Company or the
Purchaser introduced or having effect after Completion save where
any accounting practice or policy of the Company is not in
accordance with United Kingdom generally accepted accounting
practice or any SSAP or FRS or any applicable legislation in force
at the date of Completion and such change is made in order to comply
with the same;
3.1.9 in respect of any matter which was revealed by the statutory
registers, books and minute books of the Company 14 days before the
date of this Agreement; or
3.1.10 to the extent that any third party claim which gives rise to a
claim under the Warranties or the Tax Covenant is taken into account
in calculating the EBITDA;
and the Warranties and the Taxation Covenant shall be deemed to be
qualified accordingly.
4. ALLOWANCES AGAINST CLAIMS
4.1 The Vendors shall not be liable under the Warranties (other than under the
Tax Warranties or the Taxation Covenant, to which the provisions of
schedule 2 apply) in respect of any claim if and to the extent that:
4.1.1 allowance, provision or reserve is made in the Accounts or the
Completion Accounts in respect of the matter or thing giving rise to
the claim; or
4.1.2 the loss in respect of which the claim is made, is recovered under a
policy of insurance in force on the date of such loss; or
4.1.3 would have been recovered under such a policy but for any change in
the terms of the insurance after Completion which was not required
to be made or not made in the reasonable judgment of the Company.
4.2 Where the Company or the Purchaser is or becomes entitled (whether under
any insurance or by way of payment, discount, credit, set off,
counterclaim or otherwise) to recover from any third party (including any
fiscal or taxation authority or body) any sum in respect of Taxation or
any other loss, damage or liability which is or may be the subject of a
claim against the Vendors under this Agreement (other than under the Tax
Warranties or the Taxation Covenant, to which the provisions of schedule 2
apply) the Purchaser shall, if so required by the Vendors and subject to
paragraph 4.3, take or procure the Company to take all such steps or
proceedings as the Vendors may reasonably require to enforce such recovery
provided that such steps and proceedings are not likely to be materially
prejudicial to the goodwill of the business of the Company .
4.3 All such steps or proceedings shall be taken at the Vendors' cost and
expense and the Purchaser shall not be under any obligation to take them
or procure them to be taken unless the Vendors shall have provided
indemnities to the reasonable satisfaction of the Purchaser in respect of
all costs and expenses likely to be thereby incurred.
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4.4 The Purchaser shall procure that the Vendors are provided with all such
information and reports concerning any such steps or proceedings taken by
the Purchaser or the Company as the Vendors may from time to time
reasonably request.
4.5 If any such sum as is referred to in paragraph 4.2 shall be recovered by
the Purchaser or the Company from the third party, any claim by the
Purchaser or the Company in respect of any Taxation or other loss, damage
or liability to which the sum relates shall be limited (without prejudice
to any other limitations on the liability of the Vendors referred to in
this schedule) to the amount (if any) by which the amount of such Taxation
or other loss, damage or liability exceeds the aggregate of:
4.5.1 the sum recovered less all costs, charges and expenses incurred or
suffered by the Purchaser or the Company (as the case may be) in
recovering that sum from the third party; and
4.5.2 any sum or sums previously paid by the Vendors to the Purchaser or
the Company in respect of such Taxation or other loss, damage or
liability.
4.6 If any claim under or in respect of the Warranties or the Tax Covenant is
based upon a liability which is contingent only then, without prejudice to
the operation of any other provision of this Agreement the Purchaser shall
not commence, nor shall it be entitled to commence proceedings in respect
of such liability unless and until such contingent liability becomes an
actual liability and is due and payable provided that in relation to any
such liability the period referred to in paragraph 6.2 shall run from the
date on which the contingent liability becomes an actual liability.
5. THIRD PARTY CLAIMS
5.1 The Vendors shall be entitled to require the Purchaser (in the name of the
Company if the Vendors so request) or the Company at the expense of the
Vendors to take all such reasonable steps or proceedings as the Vendors
may consider necessary in order to avoid, dispute, resist, compromise,
defend or appeal against any relevant third party claim (that is to say
any claim by a third party against the Company which will or may give rise
to a claim under the Warranties) (other than the Tax Warranties and the
Tax Covenant, to which the provisions of schedule 2 apply).
5.2 The Purchaser shall act or shall procure that the Company shall act in
accordance with any such requirements subject to the Purchaser and/or the
Company being properly indemnified by the Vendors to the reasonable
satisfaction of the Purchaser against all costs and expenses incurred in
connection with the taking of such steps or proceedings.
5.3 For the purpose of enabling the Vendors to avoid, dispute, resist,
mitigate, compromise, defend or appeal against any relevant third party
claim or to decide what steps or proceedings should be taken in order to
do so, the Purchaser shall:
5.3.1 promptly give notice to the Vendors of any relevant third party
claim;
5.3.2 give the Vendors or their duly authorised representatives reasonable
access to the personnel of the Purchaser and/or the Company (as the
case may be) and to any premises, chattels, accounts, documents and
records which are relevant to such claim and are within the power,
possession or control of the Purchaser and/or the Company ("relevant
assets") to enable the Vendors and their duly authorised
representatives to investigate the claim and to examine and take
copies or photographs of the relevant assets at its own expense; and
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5.3.3 if the Vendors so request, delegate entirely to them the conduct of
any proceedings of whatsoever nature arising in connection with the
third party claim, and in that event, give or cause to be given to
the Vendors all such assistance as they may reasonably require in
disputing the claim and instruct such solicitors or other
professional advisers as the Vendors may nominate to act in
accordance with the Vendors' instructions on their behalf or on
behalf of the Company.
Provided that nothing in this Clause shall require the Purchaser or the
Company to act in any manner which is likely to be materially prejudicial
to the goodwill of the business of the Company.
5.4 The Vendors shall reimburse to the Purchaser or the Company (as the case
may be) all costs, charges and expenses incurred by it in complying with
its obligations under paragraphs 5.1 to 5.3 inclusive and the Purchaser
shall not (and shall procure that the Company shall not) accept or pay or
compromise any relevant third party claim or make any submission in
respect of it without the prior written consent of the Vendors which shall
not be unreasonably withheld or delayed provided that nothing in this
clause 5.4 shall require the Purchaser or the Company to act in any manner
which is likely to be materially prejudicial to the goodwill of the
business of the Company.
6. TIME LIMITS
6.1 Save in respect of any claim arising as a result of fraud or willful
concealment on the part of any Vendor, no claim shall be brought by the
Purchaser or the Company for breach of any Warranty or the Taxation
Covenant, unless notice in writing of such claim (specifying in reasonable
detail the event, matter or default which gives rise to the claim and an
estimate of the amount claimed) has been given to the appropriate parties:
6.1.1 in the case of a claim under or in respect of the Taxation Covenant
or under or in respect of any of the Tax Warranties, before 30 June
2007;
6.1.2 in the case of any other claim, by the date which is 2 years after
the Completion Date.
6.2 Subject to paragraph 4.6 any such claim that may have been made shall (if
it has not been previously satisfied, settled or withdrawn) be deemed to
have been waived or withdrawn on the expiration of 9 months after the date
it was made unless court proceedings in respect of it shall then have been
commenced against the appropriate parties.
6.3 For the purposes of paragraph 6.2, court proceedings shall not be deemed
to have been commenced unless they have been both issued and served on the
appropriate parties.
6.4 For the purpose of this paragraph 6, the appropriate parties means the
Vendors.
7. THRESHOLDS
7.1 For the purposes of paragraph 7.2;
7.1.1 a claim shall be regarded as material if the amount of the claim
exceeds (pound)15,000;
7.1.2 the amount of a claim shall be taken to be the liability which the
Vendors would have in respect of it in the absence of any exclusions
or restrictions under this paragraph but taking account of all
exclusions and restrictions of liability and allowances and set offs
provided for and all repayments made under the preceding provisions
of this schedule 4; and
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7.1.3 "the individual threshold" means(pound)25,000 and "the cumulative
threshold" means (pound)250,000;
7.1.4 claims in respect of the same subject matter shall be regarded as a
single claim for the purposes of the definition of the individual
threshold.
7.2 The Vendors shall have no liability in respect of any claim made under or
in respect of any of the terms of this Agreement unless:
7.2.1 that claim is material; and
7.2.2 the aggregate amount of all claims under this Agreement greater than
the individual threshold exceeds the cumulative threshold.
7.3 References to "(pound)" in this paragraph 7 shall, in relation to any
relevant claim made in a currency other than pounds sterling, be construed
as reference to the equivalent in pounds sterling of such other currency
at the date the claim is made.
7.4 In the event of there being aggregate claims in excess of the cumulative
threshold then the Purchaser shall be entitled to claim the whole amount
for which the Vendors are liable pursuant to clause 7.2 and not just the
excess over the cumulative threshold from the Vendors.
8. AGGREGATE MAXIMUM
8.1 Subject to paragraph 8.2 below the total aggregate liability of all the
Vendors in respect of all claims under or in respect of this Agreement
shall not exceed the lower of:
8.1.1 (pound)50,000,000; and
8.1.2 an amount equal to the aggregate of the principal amount of the Loan
Notes issued to the Vendors from time to time and the realised value
or net realisable value of the Consideration Shares issued to the
Vendors from time to time under this Agreement valued where such
shares have not already been realised at the opening price for class
"A" common shares of the Purchaser on the Nasdaq National Market on
the fifth business day after the first date following the settlement
or the agreement of the relevant claim or claims upon which the
Vendors are able to sell such Consideration Shares on such market
(such method of calculating the same being referred to herein as the
"Claims Valuation Basis").
8.2 The total maximum liability of each of the Shareholders in respect of all
claims under or in respect of this Agreement shall subject to 8.1 not
exceed his Relevant Proportion (as set out in column 4 of part 3A of
schedule 1) of the VNL Consideration calculated on the Claims Valuation
Basis together with an amount equal to any sum which after making all
reasonable efforts the Purchaser has been unable to recover (where it is
entitled to do so under this Agreement) from the Trustees of his
Settlement which latter sum will not exceed (subject to 8.1) such
Trustee's Relevant Proportion of the VNL Consideration and the VIL
Consideration calculated on the Claims Valuation Basis. For the purpose of
this paragraph 8.2 the Trustees of a Shareholder's Settlement shall be
deemed to include any person who has or should have signed a deed of
adherence pursuant to schedule 5.
8.3 The maximum total liability of the Trustees under or in respect of any
claim under this Agreement shall, be limited as provided in schedule 5.
9. NO DUPLICATION OF LIABILITY
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9.1 The Purchaser hereby agrees with the Vendors that, in respect of any
matter which may give rise to a liability under this Agreement, including,
for the avoidance of doubt under, the Warranties or under the Taxation
Covenant:
9.1.1 such liability shall not be satisfied more than once;
9.1.2 any liability with respect to such matter to either of the Purchaser
or the Company shall be deemed to be satisfied by the satisfaction
of such liability to either of them, and the Purchaser hereby
undertakes to the Vendors to procure the observance by the Company
of the terms of this paragraph 9.
10. SUCCESSFUL CLAIMS DEEMED TO CONSTITUTE A REDUCTION IN PURCHASE PRICE
10.1 The satisfaction by the Vendors of any claim under this Agreement shall be
deemed to constitute a reduction in the consideration payable by the
Purchaser for the sale of the Shares.
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SCHEDULE 5
Trustee Protections
1. TRUSTEE LIMITATIONS
1.1 For the purposes of this schedule 5, the following definitions shall have
the following meanings:-
"Trust Fund" means in relation to each Settlement or New
Settlement the net realisable value of the
money, investments and property
representing the capital assets held on the
trusts of the relevant Settlement from time
to time less:-
(a) the estimated amount of any expenses
(including tax) which are properly incurred
in connection with the realisation of the
relevant trust fund and of any liabilities
that arise in realisation of the trust
fund; and
(b) the amount of all liabilities
(actual, future or contingent), in
each case which are properly
chargeable to capital;
"Settlements" means the Shaw Settlement and the Windley
Settlement of and the Williams Settlement
and the expression "Settlement" shall be
construed accordingly;
"End Date" means:-
(a) in respect of any claim for breach of
any of the Tax Warranties or any
claim under the Tax Covenant one
month after the seventh anniversary
of the Accounts Date or, if notice of
claim is received before the
expiration of such period one month
after, the date of the settlement or
determination of the relevant claim;
or
(b) in respect of any claim under the
Warranties (other than the Tax
Warranties), one month after the date
falling 2 years after the date hereof
or, if notice of claim is received
before the expiration of such period
one month after, the date of the
settlement or determination of the
relevant claim;
"relevant claim" means any claim made by the Purchaser in respect
of any breach of any of the Warranties or under
the Tax Covenant or otherwise under this
Agreement.
1.2 Subject to paragraphs 1.3 to 1.17 inclusive, the maximum aggregate
liability of the Trustees of each Settlement in respect of all relevant
claims shall be limited to an amount calculated in
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accordance with paragraph 8.1.2 of schedule 4 as if the references therein
to "Vendors" were to the relevant Trustees which amount is referred to
below as "the Specified Sum".
1.3 The liability of the Trustees in relation to all relevant claims in their
capacity as trustees of any of the Settlements shall be several and shall
be distinct from the liability of any such Trustees in their capacity as
trustees of any other settlements and accordingly they shall for the
purposes of this Agreement be regarded as a separate and distinct
warrantor in relation to each Settlement of which they are trustees.
1.4 Subject to paragraphs 1.2 and 1.3 the liability of the Trustees in
relation to any relevant claims shall be limited to the lesser of the
following:-
1.4.1 the relevant Specified Sum; or
1.4.2 the amount of the Trust Fund of the relevant Settlement immediately
prior to satisfaction (rather than determination) of the relevant
claim; or
1.4.3 the amount determined by applying the Trustees Relevant Proportion
to the amount of the relevant claims as finally determined or
settled.
1.5 Subject to the provisions of paragraphs 1.6 to 1.16 inclusive, the
Trustees in respect of each Settlement shall not, prior to the End Date,
dispose of any assets of such Settlement without complying with the
provisions of clauses 1.6 to 1.16 inclusive and provided further that
nothing herein shall prevent the proper exercise by the Trustees of the
powers of investment conferred on them by law and/or the instruments
constituting the Settlements.
1.6 Notwithstanding the restriction in paragraph 1.5, the Trustees may
distribute or pay out of the assets of the Trust Fund of any Settlement at
any time without the requirement of a deed of adherence:-
1.6.1 the amount of any liability of the Trustees concerned to the
Purchaser in respect of relevant claims;
1.6.2 any liability to Taxation;
1.6.3 any amount representing costs incurred by the Trustees in connection
with the preparation and negotiation of this Agreement and the
arrangements contemplated by it (including for the avoidance of
doubt any costs of enforcing the rights of the Trustees or defending
any claims against the Trustees in connection with this Agreement);
1.6.4 except where a relevant claim has been made against the Trustees
income or accumulated income as required or empowered by law and/or
the instruments constituting the Settlement;
1.6.5 capital to meet all proper professional and administrative expenses
of the Settlement properly chargeable to capital.
1.7 The Trustees shall be entitled to transfer the whole or any part of the
Trust Fund of any Settlement to any trust company or corporation anywhere
in the world and/or to any individual trustee or trustees as new or
additional trustees of the Settlement ("the Successor Trustees") prior to
the End Date subject to the obligations of the relevant Trustees under
this Agreement (including the liability of the Trustees in respect of any
relevant claim) being assumed by the Successor Trustees as if they had
entered into this Agreement as trustees of the Settlement by them
executing and delivering a Deed of Adherence between the Trustees of the
relevant Settlement and the Successor Trustees in the form set out in part
1 of schedule 6 to this Agreement. On execution and delivery of such Deed
of Adherence any retiring Trustee or Trustees and the personal
representatives of any deceased Trustees shall immediately and
automatically be released from all liability in respect of any relevant
claim.
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1.8 The Trustees shall be entitled at any time to transfer the whole or any
part of the Trust Fund of any Settlement to any bank account in the United
Kingdom for any adult beneficiary and/or adult beneficiaries of the
relevant Settlement being resident in the United Kingdom ("the
Beneficiary") subject to the obligations of the relevant Trustees of the
Settlement under this Agreement (including the liability of the Trustees
in respect of any relevant claim) being assumed by the Beneficiary as if
the Beneficiary had entered into this Agreement as trustee of the relevant
Settlement and thereby accepted the obligations of the relevant Settlement
in accordance with paragraphs 1.9 and 1.15 by him executing and delivering
a Deed of Adherence between the Trustees of the relevant Settlement and
the Beneficiary in the form set out in part II of schedule 6 to this
Agreement. On execution and delivery of such Deed of Adherence the
retiring Trustee or Trustees (if any) and the personal representatives of
any deceased Trustee (if any) shall immediately and automatically be
released from all liability in respect of any relevant claim.
1.9 The liability to be assumed by the Beneficiary under paragraph 1.8 (but
without prejudice to any other liability the Beneficiary may otherwise
have hereunder) shall be limited to the Sterling value of the assets
received by him as a result of the relevant transfer ("the Transfer
Value") such value to be determined as at the time of the relevant
transfer and on the assumption of such liability by the Beneficiary the
liability of the Trustees in respect of relevant claims shall be adjusted
by reducing the Specified Sum and (for the avoidance of doubt) the Trust
Fund for the relevant Settlement by the amount of the Transfer Value.
Appropriate adjustments shall be made to the Relevant Proportion in
accordance with paragraph 1.13.
1.10 For the purposes of paragraph 1.9 the Sterling value of the appointed
assets other than cash or securities quoted on a Recognised Investment
Exchange shall be the value notified to the Purchaser by the Trustees at
the same time as the delivery of a duplicate of the Deed of Adherence
pursuant to paragraph 1.14 or if the Purchaser does not agree such value,
the value determined in accordance with paragraph 1.16.
1.11 The Trustees shall be entitled to transfer the whole of the Trust Fund of
any Settlement to a trust company or corporation and/or to an individual
trustee or trustees ("the Recipient Trustee") as trustees of a separate
settlement ("the New Settlement") subject to the obligations of a relevant
Trustees under this Agreement (including the liability of the Trustees in
respect of any relevant claim) being assumed by the Recipient Trustee as
if they had entered into this Agreement as trustees of the relevant
Settlement and thereby accepted the obligations of the relevant Settlement
in accordance with the provisions of paragraphs 1.12 and 1.15 by them
executing and delivering a Deed of Adherence between the Trustees of the
relevant Settlement and the Recipient Trustees in the form set out in part
III of schedule 5 to this Agreement. On execution and delivery of such
Deed of Adherence the retiring Trustee or Trustees and the personal
representatives of any deceased Trustee shall, subject to the provisions
of paragraphs 1.12 and 1.15 immediately and automatically be released from
all liability in respect of any relevant claim.
1.12 The liability to be assumed by the Recipient Trustees pursuant to clause
1.11 shall in each case be limited to the lesser of the following:-
1.12.1 the Specified Sum for the relevant Settlement;
1.12.2 the net realisable value of the assets (less any expenses
(including tax) arising and any liabilities assumed by the Recipient
Trustees in respect of the transfer) received by the Recipient
Trustees as a result of the relevant transfer ("the Trustee Transfer
Value") such value to be determined at the time of the relevant
transfer;
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<PAGE>
and on the assumption of such liability the Trustees making the transfer
and the personal representatives of any deceased Trustees ("the Transferor
Trustees") shall immediately and automatically be released from all
liability in respect of any relevant claims.
1.13 Subject to paragraph 1.16, in the event of the transfer of part of the
Trust Fund of a Settlement pursuant to paragraphs 1.7 to 1.10 inclusive,
the Trustees of the relevant Settlement shall confirm to the Purchaser the
apportionment (if appropriate) of the Relevant Proportion and the
Specified Sum for the Settlement and the Beneficiary for the purpose of
subsequent relevant claims based on the respective values of the parts of
the Trust Fund retained by the Trustees and transferred to the recipient
concerned.
1.14 In the event of any transfer pursuant to paragraphs 1.7 to 1.11 inclusive,
the Trustees shall ensure a duplicate of the relevant Deed of Adherence is
delivered to the Purchaser within seven days of the completion of such
Deed together with written statements showing the Transfer Value, the
basis of valuation of the assets concerned, the apportionment of the
Relevant Proportion and Specified Sum for the relevant Settlement.
1.15 In the event of any transfer of the whole or any part of the Trust Fund of
any Settlement pursuant to paragraph 1.8 above and the whole of the Trust
Fund pursuant to paragraph 1.11, the liability of the Trustees, the
Recipient Trustees or the Beneficiary in respect of each relevant claim
shall not exceed the following:-
1.15.1 in the case of the Trustees the proportion of any relevant claim
for which they would have been liable if the transfer had not been
made multiplied by a fraction the numerator of which shall be the
Trust Fund of the relevant Settlement immediately prior to the
relevant transfer less the Transfer Value/Trustee Transfer Value and
the denominator of which shall be the Trust Fund of the relevant
Settlement immediately prior to the relevant transfer; and
1.15.2 in the case of the Recipient Trustees or the Beneficiary the
proportion of any claim for which the Trustees would have been
liable if the transfer had not been made multiplied by a fraction
the numerator of which shall be the Transfer Value/Trustee Transfer
Value and the denominator of which shall be the Trust Fund of the
relevant Settlement immediately prior to the relevant transfer.
1.16 If within 30 days of receipt of the duplicate Deed of Adherence pursuant
to paragraph 1.14 and the written statements referred to therein together
with any other written information and working papers that the Purchaser
may reasonably require, the Purchaser gives notice to the parties to the
Deed of Adherence that it objects to any of the following, namely:-
1.16.1 the Transfer Value; and /or
1.16.2 the basis of valuation adopted; and/or
1.16.2 the apportionment of the Relevant Proportion and the Specified Sum
in cases where paragraph 1.13 applies
then the parties shall endeavour to reach agreement within 30 days of such
objection failing which the matter shall be referred (jointly if possible)
to the President for the time being of the Institute of Chartered
Accountants in England and Wales who shall be requested to appoint an
appropriate person or persons to value the assets concerned, such person
to act as expert and not as an arbitrator. The determination of the
Transfer Value concerned, the Relevant Proportion and the Specified Sum by
such person shall, in the absence of manifest error, be final and binding
on the parties. The fees of such person shall be borne as to 50 per cent
by the Purchaser and as to 50 per cent by the parties to the Deed of
Adherence.
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SCHEDULE 6
Parts I, II and III
Form of Deed of Adherence
PART 1
DATED [ ]
[TRUSTEES]
-and-
[NEW TRUSTEES]
---------------------------------------------
DEED OF ADHERENCE
(transfer to trustees of the same settlement)
---------------------------------------------
85
<PAGE>
DATED AND DELIVERED [ ]
PARTIES:-
(1) ("the Trustees"); and
(2) [ ] ("the New Trustees").
1. RECITALS AND DEFINITIONS
1.1 The Trustees are the present Trustees of a settlement dated [ ] made
between [Settlor] (1) and [Others] (2) ("the Settlement").
1.2 Pursuant to an agreement dated [ ] ("the Agreement") the Trustees gave
certain warranties and indemnities in favour of the Purchaser and the
Company in connection with the acquisition by [ ] ("the Purchaser")
of the whole of the issued share capital of Voyager Networks Limited and
Voyager Internet Limited.
1.3 The Trustees intend to retire as Trustees of the Settlement and it is
intended that the New Trustees should be appointed as Trustees of the
Settlement in their place and the trustees wish to transfer the whole of
the Trust Fund of the Settlement to the New Trustees.
1.4 By virtue of paragraph 1.7 of schedule 5 to the Agreement the Trustees are
permitted to transfer the whole or any part of the Trust Fund of the
Settlement on the terms set out in paragraphs 1.7 to 1.16 inclusive of
that schedule to new or additional trustees of the Settlement subject to
the obligations of the Trustees under the Agreement (including the
liability of the Trustees in respect of any relevant claim) being assumed
by the New Trustees as if they had entered into the Agreement as Trustees
of the Settlement and thereby accepted the obligations of the Trustees
under the Agreement.
1.5 Words and expressions defined in the Agreement shall bear the same meaning
in this Deed.
2. NEW TRUSTEES
The New Trustees in their capacity as Trustees of the Settlement hereby
covenant with the Purchaser that with effect from the date hereof they
shall observe and perform all the obligations on the part of the Trustees
as trustees of the Settlement contained in the Agreement and (without
prejudice thereto) shall adhere to and be bound by the warranties and
indemnities contained in the Agreement and all the provisions thereof
shall apply to them as if they had been original signatories in place of
the Trustees.
3. LAW AND JURISDICTION
This Agreement shall be governed by and construed in accordance with
English law. The parties submit to the non-exclusive jurisdiction of the
English Courts. The New Trustees hereby and unconditionally and
irrevocably appoint Read Hind Stewart of 29 Park Place, Leeds, LS1 2SP
(ref: GCJ) to act as their agent for the service of all process upon the
New Trustees at the address shown in the Agreement or such other address
in England and Wales as shall be notified by him to the Purchaser in
writing from time to time.
4. THIRD PARTY RIGHTS
The obligations and liabilities of the New Trustees under this Deed are
for the benefit of, and may be enforced by RSL Communications, Ltd and any
person to whom it may have assigned the benefit of its rights under a Put
and Call Option Agreement dated [ ] March 2000 between Mr J B Shaw (1), Mr
C L Windley (2), Mr N P Williams (3), Walbrook Trustees
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(IOM) Limited (4) and RSL Communications , Ltd in accordance with clause
17 of that Agreement.
EXECUTED AND DELIVERED AS A DEED on the date which first appears in this Deed by
the Trustees and the New Trustees.
[ Attestation Clause ]
87
<PAGE>
PART II
DATED [ ]
[TRUSTEES]
-and-
[BENEFICIARY]
--------------------------------------
DEED OF ADHERENCE
(transfer of beneficiary)
--------------------------------------
<PAGE>
DATED AND DELIVERED [ ]
PARTIES:-
(1) ("the Trustees"); and
(2) [ ] ("the Beneficiary").
1. RECITALS AND DEFINITIONS
1.1 The Trustees are the present Trustees of a settlement dated [ ] made
between [Settlor] (1) and [Others] (2) ("the Settlement").
1.2 The Beneficiary is a beneficiary of the Settlement.
1.3 Pursuant to an agreement dated [ ] ("the Agreement") the Trustees gave
certain warranties and indemnities in favour of the Purchaser and the
Company in connection with the acquisition by [ ] (No. [ ]) ("the
Purchaser") of the whole of the issued share capital of Voyager Networks
Limited and Voyager Internet Limited.
1.4 By virtue of paragraph 1.8 of schedule 5 to the Agreement the Trustees are
required on transferring the whole or any part of the Trust Fund of the
Settlement to any adult beneficiary of the Settlement before the End Date
to procure that the obligations of the Trustees under the Agreement are
assumed by the Beneficiary as if he had entered into the Agreement and
thereby accepted the obligations of the Trustees under the Agreement.
1.5 The Trustees wish to make a distribution from the Trust Fund of the
Settlement to the Beneficiary details of which are set out in the Schedule
to this Deed ("the Distribution").
1.6 In accordance with paragraph 1.8 of schedule 5 to the Agreement the
Trustees and the Beneficiary wish to enter into this Deed to comply with
the requirements of that paragraph with regard to the Distribution.
1.7 Words and expressions defined in the Agreement shall bear the same meaning
in this Deed.
2. DISTRIBUTION
2.1 The Beneficiary hereby covenants with the Purchaser that with effect from
the date hereof he shall observe and perform all the obligations on the
part of the Trustees contained in the Agreement and (without prejudice
thereto) shall adhere to and be bound by the warranties and indemnities
contained in the Agreement and that all the provisions thereof shall apply
to him as if he had been an original signatory to such documents as the
individual Vendor [in addition to the Trustees]1 [in place of the
Trustees]2 but for the avoidance of doubt the provisions of paragraph 1.5,
1.8 1.11 to 1.16 of schedule 5 to the Agreement shall not apply to the
Beneficiary.
2.2 [Distribution of part of the Trust Fund]
The Trustees and Beneficiary hereby confirm in accordance with paragraph
1.13 of schedule 5 to the Agreement that with effect from the date of this
Deed the Specified Sum and Relevant Proportion relating to the Trustees
shall be sub-divided as follows between the Trustees and the Beneficiary.
- ----------
(1) In case of transfer of part
(2) In case of transfer of whole
88
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Trustees Specified Sum(pound) [ ] Beneficiary's Specified
Sum(pound)[ ]
Trustees Relevant Proportion Beneficiary's Relevant
[ ]% Proportion [ ]%
3. GOVERNING LAW AND JURISDICTION
This Deed shall be governed by and construed in accordance with English
law. The parties submit to the non-exclusive jurisdiction of the English
Courts. The Beneficiary hereby and unconditionally and irrevocably
appoints Read Hind Stewart of 29 Park Place, Leeds, LS1 2SP (ref: GCJ) to
act as its agent for the service of all process upon the Beneficiary at
the address shown in the Agreement or such other address in England and
Wales as shall be notified by him to the Purchaser in writing from time to
time.
4. THIRD PARTY RIGHTS
The obligations and liabilities of the Beneficiary under this Deed are for
the benefit of, and may be enforced by RSL Communications, Ltd and any
person to whom it may have assigned the benefit of its rights under a Put
and Call Option Agreement dated [ ] March 2000 between Mr J B Shaw (1), Mr
C L Windley (2), Mr N P Williams (3), Walbrook Trustees (IOM) Limited (4)
and RSL Communications , Ltd in accordance with clause 17 of that
Agreement.
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<PAGE>
THE SCHEDULE
The Distribution
Amount/Property Recipient
EXECUTED AND DELIVERED AS A DEED on the date which first appears in this Deed by
the Trustees and the Beneficiary.
[ Attestation Clause ]
90
<PAGE>
PART III
DATED [ ]
[TRUSTEES]
-and-
[RECIPIENT TRUSTEES]
--------------------------------------------
DEED OF ADHERENCE
(transfer to trustees of another settlement)
--------------------------------------------
91
<PAGE>
DATED AND DELIVERED [ ]
PARTIES:-
(1) ("the Trustees"); and
(2) [ ] ("the Recipient Trustees").
1. RECITALS AND DEFINITIONS
1.1 The Trustees are the present Trustees of a settlement dated [ ] made
between [Settlor] (1) and [Others] (2) ("the Settlement").
1.2 The Recipient Trustees are trustees of a Settlement dated [ ] made
between [Settlor] (1) and [Others] (2) ("the New Settlement"). The
beneficiaries of the New Settlement include persons who are also
beneficiaries of the Settlement.
1.3 Pursuant to an agreement dated [ ] ("the Agreement") the Trustees
gave certain warranties and indemnities in favour of [ ] (No.
[ ]) ("the Purchaser") in connection with the acquisition by the
Purchaser of the whole of the issued share capital of Voyager Networks
Limited and Voyager Internet Limited.
1.4 By virtue of paragraph 1.11 of schedule 5 to the Agreement the Trustees
are required on transferring the whole of the Trust Fund before the End
Date of the Settlement to trustees of any other settlement to procure that
the obligations of the Trustees under the Agreement are assumed by the
Recipient Trustees as if they had entered into the Agreement and thereby
accepted the obligations of the Trustees under the Agreement.
1.5 The Trustees wish to make a distribution from the Trust Fund of the
Settlement to the Recipient Trustees details of which are set out in the
Schedule to this Deed ("the Distribution").
1.6 In accordance with paragraph 1.11 of schedule 3 to the Agreement the
Trustees and the Recipient Trustees wish to enter into this Deed to comply
with the requirements of that clause with regard to the Distribution.
1.7 Words and expressions defined in the Agreement shall bear the same meaning
in this Deed.
2. DISTRIBUTIONS
The Recipient Trustees hereby covenant with the Purchaser that with effect
from the date hereof they shall observe and perform all the obligations on
the part of the Trustees contained in the Agreement and (without prejudice
thereto) shall adhere to and be bound by the warranties and indemnities
contained in the Agreement and that all the provisions thereof shall apply
to them as if they had been an original signatory to such documents in
place of the Trustees.
3. LAW AND JURISDICTION
This Deed shall be governed by and construed in accordance with English
law. The parties submit to the non-exclusive jurisdiction of the English
Courts. The Recipient Trustees hereby and unconditionally and irrevocably
appoints Read Hind Stewart of 29 Park Place, Leeds, LS1 2SP (ref: GCJ) to
act as their agent for the service of all process upon the Recipient
Trustees at the address shown in the Agreement or such other address in
England and Wales as shall be notified by him to the Purchaser in writing
from time to time.
4. THIRD PARTY RIGHTS
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<PAGE>
The obligations and liabilities of the Recipient Trustees under this Deed
are for the benefit of, and may be enforced by RSL Communications, Ltd and
any person to whom it may have assigned the benefit of its rights under a
Put and Call Option Agreement dated [ ] March 2000 between Mr J B Shaw
(1), Mr C L Windley (2), Mr N P Williams (3), Walbrook Trustees (IOM)
Limited (4) and RSL Communications , Ltd in accordance with clause 17 of
that Agreement.
EXECUTED AND DELIVERED AS A DEED on the date which first appears in this Deed by
the Trustees and the Beneficiary.
[ Attestation Clause ]
93
<PAGE>
SCHEDULE 7
Matters to be dealt with on Completion
1. DOCUMENTS ETC TO BE DELIVERED BY THE VENDORS TO THE PURCHASER AT
COMPLETION Save where specified to the contrary, the following documents
etc. in relation to each Company shall be delivered by the Vendors to the
Purchaser at Completion.
The Shares
1.1 Transfers in respect of the Shares ("the Share Transfers") duly executed
and completed in favour of the Purchaser or as it may direct.
1.2 Duly executed powers of attorney or other authorities under which any of
the Share Transfers have been executed.
1.3 Share certificates for the Shares.
1.4 Any waivers or consents or other documents necessary to vest in the
Purchaser the full beneficial ownership of the Shares and to enable the
Purchaser or its nominees to be registered as holders of the Shares.
Statutory records, minute books and Auditors
1.5 As agent for the Company:
(a) all its statutory and minute books written up to the Completion
Date;
(b) its Common Seal (if any);
(c) its Certificate of Incorporation and Certificates of Incorporation
on Change of Name; and
(d) certified copies of its Memorandum and Articles of Association.
1.6 If the Purchaser so requests a letter to the Company from its auditors
resigning their office as such, with effect from Completion and containing
the statement referred to in Section 394 of the Companies Act.
Property
1.7 An assignment, in the agreed form, of the Lease of Units 14 and 15
Wellesbourne House, Wellesbourne, Warwickshire.
Resignation of employees and other persons
1.8 A Letter in a form reasonably required by the Purchaser duly executed by
Mr J Shawresigning as secretary of the Companies.
Banking and other documents
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<PAGE>
1.9 Copies of all bank mandates of the Company together with copies of
statements of all bank accounts of the Company as at a date not more than
two business days prior to the Completion Date.
1.10 The Service Agreements duly executed by the Shareholders;
1.11 The cash book balances of the Company as at the Completion Date with
reconciliation statements reconciling such cash book balances and such
statements referred to in paragraph 1.9.
1.12 If the Purchaser so requests, Deeds of Release and letters of
non-crystallisation from the holders of such of the Charges as the
Purchaser shall notify the Vendors not less than 5 business days prior to
Completion in such form as the Purchaser may reasonably approve.
2. DOCUMENTS ETC TO BE MADE AVAILABLE BY THE VENDORS FOR COLLECTION BY THE
PURCHASER OR ITS AUTHORISED REPRESENTATIVES AT COMPLETION
2.1 All insurance policies, cheque books and unused cheques, paying in books
and credit or charge cards in the name of the Company to be delivered at
the Company's Registered Office.
2.2 All assets of the Company to be delivered at the Company's Registered
Office.
3. OTHER OBLIGATIONS OF THE VENDORS AT COMPLETION 3.1 At Completion, the
Vendors shall procure that:
Transfer of the Shares
(a) the transfers mentioned in paragraph 1.1 are resolved to be
registered by the Directors of the Company (subject only to their
being duly stamped) notwithstanding any provision to the contrary in
the Articles of Association of the Company;
Directors and Secretary
(b) the following persons to be validly appointed as additional
Directors of the Company:
Barry Mowbray, Helen Castle
Matt Crabtree, Jacqueline Hills
(c) John Gray be validly appointed as Secretary of the Company in place
of Mr J Shaw ("the Retiring Secretary");
(d) the Retiring Secretary deliver to the Purchaser his written
resignation in the agreed form;
4. JOINT OBLIGATIONS OF THE PURCHASER AND THE VENDOR 4.1 The Vendors and the
Purchaser shall join in procuring that:
(a) all existing bank mandates in force for the Company shall be altered
(in such manner as the Purchaser may direct;
(b) the current accounting reference period of the Company shall be
altered in such manner as the Purchaser shall direct;
(c) the registered office of the Company shall be changed to 9 Old Queen
Street, Westminster, London SW1H 9JA;
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<PAGE>
5. OBLIGATIONS OF THE PURCHASER
5.1 The Purchaser shall against the Vendor complying with its obligations
referred to above:-
(a) on Completion issue Loan Notes to the Vendors as provided in clause
5.2.1 and 5.6.1; and
(b) issue and allot the Initial Consideration Shares to the Vendors in
accordance with clauses 5.6 and 5.7.
96
<PAGE>
SCHEDULE 8
Preparation of The Completion Accounts
1. INTERPRETATION
In this schedule, where the context admits:
"Completion Accounts" means the accounts prepared in accordance
with paragraph 2.1 and agreed or determined
in accordance with sub-paragraph 3;
2. COMPLETION ACCOUNTS
2.1 Preparation
The Purchaser shall as soon as practicable, and in any event within 30
days after Completion, procure that accounts for the Companies shall be
prepared by the Purchaser's Accountants in accordance with this schedule
and the parties shall in any event, use their best endeavours to secure
compliance with this schedule by their respective accountants. The Vendors
shall promptly supply all such information and provide access to all such
records and information as the Purchaser or the Purchaser's Accountants
shall reasonably require for such purpose.
2.2 Description
The Completion Accounts shall consist of a balance sheet of the Company as
at the close of business on the date of Completion and a profit and loss
account of the Company in respect of the period from the Accounts Date to
the date of Completion (both dates inclusive).
2.3 General Requirements
The Completion Accounts shall be drawn up in accordance with the bases
that appear, and in the order shown, below:
2.3.1 to the extent not not inconsistent with 2.3.2 the accounting
policies, principles, practices, evaluation rules and procedures,
methods and bases adopted by the Company in preparation of the
Accounts including, without limitation, those set out in schedule
11;
2.3.2 in accordance with GAAP as at the date of the Completion Accounts.
3. PROCEDURE
3.1 Submission of Draft
3.1.1 As soon as the draft Completion Accounts shall have been prepared,
the Purchaser shall send a copy to the Vendors' Accountants together
with such working papers used in connection with the preparation of
the same as is reasonably necessary or appropriate to understand and
agree the draft Completion Accounts and shall in addition, at the
same time, send to the Vendors calculation of the Net Liabilities
("Calculation").
3.1.2 Unless the Vendors shall within 30 days of receipt of the draft
Completion Accounts (and associated papers and Calculation as
provided in sub-paragraph 3.1.1) serve a notice in writing on the
Purchaser that it objects to the draft Completion Accounts
(identifying the reason for any objection and the amount(s) or
item(s) in the draft
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<PAGE>
Completion Accounts and/or Calculation which is/are in dispute)
(such notification being, for the purposes of this paragraph 3, an
`Objection Notice') the Vendors shall be deemed to have agreed the
draft Completion Accounts and the Calculation which thereupon shall
become the Completion Accounts and the Net Liabilities for all
purposes of this Agreement.
3.2 Agreement of Draft
If, within the period referred to in sub-paragraph 3.1.2, the Vendors
shall give the Purchaser an Objection Notice then the Purchaser and the
Vendors shall use their best endeavours to reach agreement upon
adjustments to the draft Completion Accounts and the Calculation of the
Net Liabilities.
3.3 Independent Accountant
In the event that the Vendors and the Purchaser are unable to reach
agreement within 28 days following service of the Objection Notice, either
the Vendors or the Purchaser shall be entitled to refer the matter or
matters in dispute to an independent chartered accountant of at least 10
years standing agreed upon between them or (failing agreement) to be
selected (at the instance of either party) by the President for the time
being of the Institute of Chartered Accountants in England and Wales ("the
Expert"). Each of the Vendors and the Purchaser shall be entitled to make
written representations to the Expert on no more than 2 occasions. Such
Expert shall act as an expert not as an arbitrator and shall determine the
matter or matters in dispute and whose decision shall, save in the event
of fraud or manifest error, be binding. The costs of the Expert shall be
borne by the Vendors (as a class) and the Purchaser equally or, if
different, in such other proportions as the Expert shall direct.
3.4 Report
If the Vendors accept, or are deemed to accept, that the said draft
Completion Accounts comply with paragraph 2 the Purchaser's Accountants
shall sign a report to the effect that the Completion Accounts comply with
paragraph 2 and any Completion Accounts so reported on, or (if
sub-paragraph 3.3 shall apply) the final draft of the Completion Accounts
as determined by the independent accountant, shall be the Completion
Accounts for the purposes of this Agreement and shall be final and binding
on the parties.
3.5 Information and Explanations
The Purchaser and the Purchaser's Accountants shall provide such
information and explanations relating to the draft Completion Accounts and
their preparation as the Vendors and/or the Vendors' Accountants, or any
Expert appointed pursuant to sub-paragraph 3.3, shall reasonably require.
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SCHEDULE 9
The Properties
1. 9 Sir William Lyons Road, University of Warwick Science Park, Coventry;
2. Suite 83, Spencer House, Birchwood Centre, Warrington;
3. Park House, Unit 2, Downmill Road, Bracknell;
4. Units 15 and 34, Wellesbourne House, Wellesbourne, Warwick;
5. Unit 5, Newyearfield Farm, Ladywell West, Livingstone, West Lothian;
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<PAGE>
SCHEDULE 10
Voyager Earn Out
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
A
1. 1st 6 Months
Total Earn-Out Value(pound)10m
Revenue Earn-Out Value(pound)3.0m
30%
Based on forecast 'Total' Revenue
of(pound)6,682,000
Sales Earn-Out
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-79.99% -5,345,599 nil -79.99%
80.00% -84.99% 5,345,600 -5,679,699 2,100,000 -2,249,999 80.00% -84.99%
85.00% -89.99% 5,679,700 -6,013,799 2,250,000 -2,399,999 85.00% -89.99%
90.00% -94.99% 6,013,800 -6,347,899 2,400,000 -2,699,999 90.00% -94.99%
95.00% -99.99% 6,347,900 -6,681,999 2,700,000 -2,999,999 95.00% -99.99%
100.00% + 6,682,000 3,000,000 100.00% +
- ------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------
B
1. 12 Month Cumulative
Total Earn-Out Value(pound)20m
Revenue Earn-Out Value(pound)6.0m
30%
Based on forecast 'Total' Revenue
of(pound)15,218,000
Sales Earn-Out
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
-12,174,399 nil
12,174,400 -12,935,299 4,200,000 -4,499,999
12,935,300 -13,696,199 4,500,000 -4,799,999
13,696,200 -14,457,099 4,800,000 -5,399,999
14,457,100 -15,217,999 5,400,000 -5,999,999
15,218,000 6,000,000
- ------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
A B
2.
New Earn-Out Value (pound)4.5m Earn-Out Value (pound)9.0m
Revenue Based on 'New' Revenue Based on 'New' Revenue
(45%) of(pound)1,500,000 of(pound)5,000,000
New Sales Earn-Out New Sales Earn-Out
(pound) (pound) (pound) (pound) (pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-79.99% -1,199,999 Nil -79.99% -3,999,999 nil
80.00% -84.99% 1,200,000 -1,274,999 3,150,000 -3,374,999 80.00% -84.99% 4,000,000 -4,249,999 6,300,000 -6,749,999
85.00% -89.99% 1,275,000 -1,349,999 3,375,000 -3,599,999 85.00% -89.99% 4,250,000 -4,499,999 6,750,000 -7,199,999
90.00% -94.99% 1,350,000 -1,424,999 3,600,000 -4,049,999 90.00% -94.99% 4,500,000 -4,749,999 7,200,000 -8,099,999
95.00% -99.99% 1,425,000 -1,499,999 4,050,000 -4,499,999 95.00% -99.99% 4,750,000 -4,999,999 8,100,000 -8,999,999
100.00% + 1,500,000 4,500,000 100.00% + 5,000,000 9,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
3. A B
EBITDA Earn-Out Value (pound)2.5m Earn-Out Value (pound)5.0m
(25%)
Based on forecast EBITDA of(pound)445,000 Based on forecast EBITDA of(pound)1,149,000
(Calculated after notional(pound)100,000 (Calculated after notional(pound)100,000
per quarter add back for per quarter add back for
directors remuneration) directors remuneration)
EBITDA Earn-Out EBITDA Earn-Out
(pound) (pound) (pound) (pound) (pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-79.99% -355,999 Nil -79.99% - 919,199 nil
80.00% -84.99% 356,000 -378,249 1,750,000 -1,874,999 80.00% -84.99% 919,200 - 976,649 3,500,000 -3,749,999
85.00% -89.99% 378,250 -400,499 1,875,000 -1,999,999 85.00% -89.99% 976,650 -1,034,099 3,750,000 -3,999,999
90.00% -94.99% 400,500 -422,749 2,000,000 -2,249,999 90.00% -94.99% 1,034,100 -1,091,549 4,000,000 -4,499,999
95.00% -99.99% 422,750 -444,999 2,250,000 -2,499,999 95.00% -99.99% 1,091,550 -1,148,999 4,500,000 -4,999,999
100.00% + 445,000 2,500,000 100.00% + 1,149,000 5,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
102
<PAGE>
SCHEDULE 11
Accounting Principles
Specific Policies
1. Depreciation will be charged as follows:
Leasehold land and buildings straight line over fifty years Motor vehicles
straight line over four years Fixtures, fittings, tools and equipment
straight line over four years Internet equipment straight line over three
years
2. Fixed assets shall not include any amounts included in the fixed asset
register as at Completion which relate to assets which are no longer in
use in the business.
3. There shall be no revaluations of any fixed assets during the period from
1 July 1999 to Completion.
Stock
4. Cost includes materials, direct labour and production overheads
appropriate to the relevant stage of production.
Net realisable value is based on the estimated selling price less all
further costs completion and disposal.
No provisions shall be recorded for slow moving or obsolete stock. Any
stock which is identified as being obsolete in the business at the time of
the physical count, and agreed by the Purchaser and the Vendor as such,
shall be excluded from the physical quantities used to value the stock as
at Completion. For these purposes stock shall be regarded as obsolete if
it is no longer used to support a customer maintenance contract.
5. A provision shall be included for all trade debtors greater than six
months old. No general reverse shall be made for bad or doubtful debts.
6. Accruals in respect of wages and salaries (including overtime) and other
remuneration (including bonuses) due to the employees and associated
national insurance contributions and PAYE, as at completion will be
included in the Completion Balance Sheet.
103
<PAGE>
EXECUTED (but not delivered until the )
date hereof AS A DEED by JONATHAN )
BRIAN SHAW in the presence of: )
WITNESS: /s/...................................
SIGNATURE: /s/.................................
ADDRESS:.......................................
...............................................
OCCUPATION:....................................
EXECUTED (but not delivered until the )
date hereof AS A DEED by CHRISTOPHER )
LESLIE WINDLEY in the presence of: )
WITNESS: /s/...................................
SIGNATURE: /s/.................................
ADDRESS:.......................................
...............................................
OCCUPATION:....................................
104
<PAGE>
EXECUTED (but not delivered until the )
date hereof AS A DEED by NIGEL PHILIP )
WILLIAMS in the presence of: )
WITNESS: /s/...................................
SIGNATURE: /s/.................................
ADDRESS:.......................................
...............................................
OCCUPATION:....................................
EXECUTED (but not delivered until the )
date hereof AS A DEED by WALBROOK )
TRUSTEES (IOM) LIMITED acting by: )
Director: /s/..................................
Director/Secretary: /s/........................
EXECUTED (but not delivered until the )
date hereof AS A DEED by RSL COMMUNICATIONS, LTD )
acting by: )
Director: /s/..................................
Director/Secretary: /s/........................
105
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 361,722
<SECURITIES> 94,944
<RECEIVABLES> 326,510
<ALLOWANCES> 39,449
<INVENTORY> 0
<CURRENT-ASSETS> 864,093
<PP&E> 639,643
<DEPRECIATION> 157,752
<TOTAL-ASSETS> 1,990,226
<CURRENT-LIABILITIES> 456,586
<BONDS> 1,385,138
115,000
0
<COMMON> 254
<OTHER-SE> (78,909)
<TOTAL-LIABILITY-AND-EQUITY> 1,990,226
<SALES> 0
<TOTAL-REVENUES> 375,883
<CGS> 261,366
<TOTAL-COSTS> 433,334
<OTHER-EXPENSES> 392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,559
<INCOME-PRETAX> (85,074)
<INCOME-TAX> 169
<INCOME-CONTINUING> (85,243)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (85,243)
<EPS-BASIC> (1.54)
<EPS-DILUTED> (1.54)
</TABLE>
