<PAGE>
As filed with the Securities and Exchange Commission on July 18, 2000
Registration No. 333-36494
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
RSL COMMUNICATIONS, LTD.
(Exact name of Registrant as specified in its charter)
RSL COMMUNICATIONS PLC
(Exact name of Registrant as specified in its charter)
RSL COM U.S.A., INC.
(Exact name of Registrant as specified in its Certificate of Incorporation)
<TABLE>
<S> <C> <C>
Bermuda 4813 N/A
United Kingdom 4813 N/A
Delaware 4813 11-3044583
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
--------------------------
RSL Communications PLC RSL Communications, Ltd. RSL COM U.S.A., Inc.
Victoria House, London Square Clarendon House 430 Park Avenue
Cross Lanes Church Street New York, NY 10022
Guilford, Surrey GU1 7UN Hamilton HM CX Bermuda (212) 588-3600
United Kingdom (441) 295-2832
(44-148) 345-7300
(Address and telephone number of registrants' principal executive offices)
</TABLE>
--------------------------
Itzhak Fisher
President and Chief Executive Officer
RSL Communications, N. America, Inc.
810 Seventh Avenue, 39th Floor
New York, NY 10019
Telephone: (212) 445-7400
Fax: (212) 445-7531
(Name, address and telephone number of agent for service)
--------------------------
Copy to:
George E.B. Maguire, Esq.
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Telephone: (212) 909-6072
Fax: (212) 909-6836
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
--------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================== =================== =================== ===================== =============
Proposed Maximum Proposed Maximum Amount of
Amount to be Offering Price Aggregate Offering Registration
Title of Each Class of Securities to be Registered Registered Per Unit Price(1) Fee
-------------------------------------------------------- ------------------- ------------------- --------------------- -------------
<S> <C> <C> <C> <C>
12-7/8% Senior Dollar Exchange Notes due 2010 $100,000,000 100% $100,000,000 26,400 (2)
principal amount
Guarantees of 12-7/8% Senior Dollar Exchange Notes due (3)
2010..................................................
Guarantees of 12-7/8% Senior Dollar Exchange Notes due
2010.................................................. (3)
12-7/8% Senior Euro Exchange Notes due 2010.......... (Euro)100,000,000 100% (Euro)100,000,000 $24,198.24 (2)
principal amount ($91,660)
Guarantees of 12-7/8% Senior Euro Exchange Notes due (3)
2010..................................................
Guarantees of 12-7/8% Senior Euro Exchange Notes due
2010.................................................. (3)
Total................................................. $50,598.24(4)
======================================================== =================== =================== ===================== =============
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933. The translation of
euros into U.S. dollars has been made at the noon buying rate on May 1, 2000 of
(Euro)1=$0.9166.
(2) Based on the principal amount of new notes offered pursuant to Rule
457(f)(2) under the Securities Act of 1933.
(3) Pursuant to Rule 457(n) under the Securities Act of 1933, no registration
fee is payable with respect to the guarantees.
(4) The Registration fee has been previously paid.
The registrants hereby amend this registration statement on such date or dates
as may be necessary to delay its effective date until the registrants shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933, or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
================================================================================
<PAGE>
PROSPECTUS
Offer to Exchange for
all $100,000,000 Outstanding 12 7/8% Senior Dollar Notes due 2010
and all (Euro)100,000,000 Outstanding 12 7/8% Senior Euro Notes due 2010
LOGO
RSL Communications PLC
Guaranteed as to payment of Principal and Interest by
RSL Communications, Ltd.
and
RSL COM U.S.A., Inc.
We are offering to exchange:
o $100,000,000 new 12 7/8% senior dollar exchange notes due 2010
for our outstanding $100,000,000 12 7/8% senior dollar notes
due 2010, and
o (Euro)100,000,000 new 12 7/8% senior euro exchange notes due
2010 for our outstanding (Euro)100,000,000 12 7/8% senior euro
notes due 2010.
Investing in the new notes involves risks. You should read the "Risk
Factors" section beginning on page 12 and the risk factors set forth in our
Annual Report on Form 10-K/A incorporated in this prospectus by reference.
The new notes:
The terms of the new notes we will issue in the exchange offers are
identical to the terms of the old notes except that:
o The new notes will be free of transfer restrictions for most
investors.
o The new notes will not contain provisions relating to
additional interest.
The new notes guarantees:
o Like the old notes, the new notes will be guaranteed as to
payments of principal, interest and other amounts by RSL
Communications, Ltd., the parent company of the issuer, and by
RSL COM U.S.A., Inc., or RSL USA, a subsidiary of the issuer.
o The new notes guarantees of RSL USA may be released without
your consent if we sell all of the capital stock or
substantially all the assets of RSL USA or if Standard &
Poor's Corporation advises us that the release of RSL USA's
guarantee would not result in a downgrade of the rating of the
new notes or the placement of the new notes on creditwatch
with negative implications.
The exchange offers:
o Each exchange offer will expire at 5:00 p.m., New York City
time, on August 18, 2000, unless extended.
o We will exchange new notes for all old notes validly tendered
to us and not withdrawn.
o If you tender old notes, you may withdraw your tender at any
time prior to the expiration of the exchange offer for those
notes.
o If you fail to tender your old notes, you will continue to
hold unregistered securities and your ability to transfer them
will be adversely affected.
o We will not receive any proceeds from the exchange offers.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------
The date of this prospectus is July 18, 2000.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the Commission. This permits us to disclose important information to you by
referencing these filed documents. We incorporate by reference in this
prospectus the following documents which have been filed with the Commission:
o our annual report on Form 10-K/A for our fiscal year ended
December 31, 1999;
o our quarterly report on Form 10-Q for the three month period
ended March 31, 2000; and
o our current reports on Form 8-K dated January 25, 2000,
February 10, 2000, March 2, 2000, March 16, 2000, April 6,
2000, May 2, 2000, May 24, 2000 and July 17, 2000.
We incorporate by reference all documents filed pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
and prior to the termination of the exchange offers.
We will provide promptly without charge to you, upon written or oral
request, a copy of any or all of the documents incorporated by reference in this
prospectus, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. Requests should be
directed to RSL Communications, Ltd., Clarendon House, Church Street, Hamilton
HM CX Bermuda, telephone number (441) 295-2832. You should request any such
information at least five business days in advance of the date on which you
expect to make your decision with respect to this offer. In any event, you must
request such information prior to August 10, 2000.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and, accordingly, files reports, proxy statements and other
information with the SEC. You may read and copy the reports, proxy statements
and other information we file with the SEC at its Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Copies of these materials can be obtained at prescribed rates. Our filings with
the SEC are also available on the SEC's home page on the Internet at
http://www.sec.gov.
We have filed with the SEC a Registration Statement on Form S-4. This
prospectus, which is a part of the registration statement, omits certain
information contained in the registration statement. Statements made in this
prospectus as to the contents of any contract, agreement or other document are
not necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the registration statement, we refer you to such
exhibit for a more complete description of the matter involved, and each such
statement is deemed qualified in its entirety to such reference.
CERTAIN UK RELATED REGULATORY ISSUES
Persons in the United Kingdom will be eligible to receive the new notes
issued in the exchange offers only if the ordinary activities of such persons
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which do not constitute an offer to the public in the UK for
purposes of the Public Offers of Securities Regulations of 1995.
This prospectus is being distributed on the basis that each person in
the UK to whom this prospectus is issued is reasonably believed to be a person
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the
document may otherwise lawfully be issued or passed on and, accordingly, by
accepting delivery of this prospectus the recipient warrants and acknowledges
that it is a person falling within any such exemption.
The exchange offers are not being made, nor will we accept surrenders
for exchange from holders of old notes, in any jurisdiction in which the
exchange offer or the acceptance thereof would not be in compliance with the
securities or "Blue Sky" laws of such jurisdiction.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus and the consolidated
financial statements and related notes and other information incorporated in
this prospectus by reference. See the Section in this prospectus entitled
"Incorporation of Certain Documents by Reference." Industry data used in this
prospectus were obtained from industry publications and we have not
independently verified it. The information contained in this prospectus,
including information with respect to our plans and strategy for our business
and related financing, contain forward-looking statements. For a discussion of
important factors that could cause actual results to differ materially from the
forward-looking statements, see the section in this prospectus entitled "Risk
Factors" and the section of our annual report for the year ended December 31,
1999 on Form 10-K/A entitled "Risk Factors".
The Exchange Offers
On February 22, 2000, we issued the old 12 7/8% dollar notes in an
aggregate principal amount of $100,000,000 and the old 12 7/8% euro notes in an
aggregate principal amount of (Euro)100,000,000. The offering of old notes was
exempt from registration under the Securities Act of 1933.
We have agreed to use our best efforts to complete the exchange offers
for the old notes by September 19, 2000. The terms of the exchange offers, which
are specified in greater detail in the main body of this prospectus and the
accompanying letter of transmittal, include the following:
<TABLE>
<S> <C>
Exchange Offers
New Dollar Notes..................... We are offering up to $100,000,000 principal amount of 12 7/8% senior
dollar exchange notes due 2010 in exchange for a like principal amount
of old 12 7/8% dollar notes.
New Euro Notes....................... We are offering up to (Euro)100,000,000 principal amount of 12 7/8% senior
euro exchange notes due 2010 in exchange for a like principal amount of
old 12 7/8% euro notes.
Exchange Procedures.................. The procedures that you must follow to tender old notes in the exchange
offers are specified in the section of thisprospectus titled "The
Exchange Offers."
Consequence of Failure to Exchange
Old Notes............................ You will continue to hold old notes which will remain subject to their
existing transfer restrictions if you do not tender your old notes or
you tender your old notes and they are not accepted for exchange. We
will have no obligation to register the old notes after we consummate
the exchange offers. See "The Exchange Offers -- Consequences of
Failure to Exchange."
Expiration Date...................... Each exchange offer will expire at 5:00 p.m. New York City time, on
August 18, 2000 unless we extend it to a later date and time.
Withdrawal........................... You may withdraw your tender of old notes at any time prior to the
expiration of the exchange offer for those notes. If for any reason we
do not accept any old note that you tender for exchange we will return
that old note to you at our expense as promptly as practicable after the
expiration or termination of the related exchange offer.
Conditions to the Exchange Offer..... We can terminate or amend the exchange offers if at any time prior to
5:00 p.m., New York City time on the expiration date, we determine that
either exchange offer violates any applicable law or governmental
order. In addition, we will not accept for exchange any old notes or
issue any new notes if any stop order is threatened or in effect on the
qualification
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
of the indenture under the Trust Indenture Act of 1939 or on the
registration statement of which this prospectus is a part. We are
required to use reasonable efforts to obtain the withdrawal of any stop
order.
United States Federal
Income Tax Consequences.............. The exchange of old notes for corresponding new notes will not
constitute a taxable exchange for U.S. federal income tax purposes. See
"Certain United States Federal Income Tax Considerations."
Exchange Agent....................... The Chase Manhattan Bank is serving as exchange agent for the exchange
offer.
Use of Proceeds........................ We will not receive any proceeds from the exchange offers.
</TABLE>
4
<PAGE>
Summary Description of the New Notes
The terms of the new notes and the terms of the old notes for which
they are offered in exchange are identical in all material respects, except that
(1) the new notes will be free of transfer restrictions for most investors, as
described below opposite the caption "Resales," and (2) the new notes will not
contain provisions related to additional interest. The terms of the new notes,
which are specified in greater detail in the main body of this prospectus,
include the following:
<TABLE>
<S> <C>
Issuer................................. RSL Communications PLC, or RSL PLC.
Guarantors............................. RSL Communications, Ltd, or RSL COM, and RSL COM U.S.A., Inc., or RSL
USA.
Principal Amount
New Dollar Notes..................... Up to $100,000,000 principal amount of dollar denominated 12 7/8% senior
exchange notes due 2010, or the new dollar notes.
New Euro Notes....................... Up to (Euro)100,000,000 principal amount of euro denominated 12 7/8% notes
due 2010, or the new euro notes.
Maturity .............................. March 1, 2010.
Interest............................... Annual rate: 12 7/8% on the principal amount. Payment frequency: Every six months on
each March 1 and September 1, beginning on September 1, 2000.
Accrual of Interest.................... Interest on each new note will accrue from the last interest payment
date on which interest is paid on the old note surrendered in exchange
therefor or, if no interest has been paid on such old note, from the
date of the original issue of such old note. You will not receive
interest on any old note we accept for exchange that would otherwise be
payable on any interest payment date, the record date for which occurs
on or after consummation of the exchange offer for the old notes.
Resales................................ We believe that you may offer the new notes for resale, resell the new
notes and otherwise transfer the new notes without complying with the
registration and prospectus delivery provisions of the Securities Act,
so long as:
o you acquire the new notes in the exchange offer in the ordinary
course of your business;
o you are not participating in any distribution of the new notes
that you obtain in the exchange offer and you do not intend to
participate and have no arrangement or understanding
with any person to participate in any such distribution; and
o you are not affiliated with us.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
New Notes Guarantees................... Each of RSL COM and RSL USA has unconditionally guaranteed the payment
of principal, interest and any other amounts owed with respect to the
new notes. If RSL PLC cannot make payments on the new notes when they
are due then RSL COM and RSL USA will be required to make those
payments. RSL USA's guarantee of the new notes is subject to release
without note holder consent if we sell 100% of RSL USA's capital stock
or substantially all of its assets, or if Standard & Poor's Corporation
advises us that the release of RSL USA's guarantee would not result in a
downgrade of the rating of the new notes or a placement of the new notes
on creditwatch with negative implications
Ranking................................ The new notes and the new notes guarantees will rank equally with our
other unsecured senior indebtedness.
Our principal operations are conducted through subsidiaries.
Accordingly, the new notes and the new notes guarantees will effectively
rank behind all indebtedness of RSL COM's subsidiaries other than RSL
PLC and RSL USA. In addition, holders of our secured obligations will
have claims that rank ahead of the claims of the holders of the new
notes and the new notes guarantees with respect to the assets securing
those other obligations. As of March 31, 2000:
o the total amount of our outstanding liabilities (excluding those
of our subsidiaries), including trade payables, was approximately
$1.55 billion; and
o the total amount of outstanding liabilities of RSL COM's
subsidiaries (other than RSL PLC and RSL USA), including trade
payables, was approximately $418.6 million.
Additional Amounts; Tax Redemption..... Payments we make pursuant to the new notes or the new notes guarantees
will be made without withholding or deduction for taxes unless required
by law. If withholding is required as a result of (1) a change to
current law or the interpretation or administration thereof, or (2) a
listing failure (as defined in the section "Description of the New Notes
and the New Notes Guarantees" under the heading "Additional Amounts"),
we will pay, subject to certain exceptions, additional amounts as may be
necessary so that net payments will be no less than the amounts provided
for in the new notes. In the event that (A) we have become or will
become obligated to pay any additional amounts as a result of such
change (or, in certain cases, such listing failure) and (B) we are
unable to avoid such obligation to pay additional amounts by taking
reasonable measures available to us, then we may redeem all, but not
less than all, either or both series of new notes at any time at 100% of
their principal amount plus accrued interest.
Change of Control...................... If we sell certain assets or if we experience specific kinds of changes
of control, we must offer to repurchase the new notes at a purchase
price equal to 101% of their principal amount plus accrued interest, if
any, to the date of purchase.
Basic Covenants........................ Each of the new dollar notes and the new euro notes is governed by
indentures that we have established with an indenture trustee. Each
indenture restricts our ability to:
o borrow money
o pay dividends or make distributions on our capital stock,
o make investments or certain other restricted payments,
o use assets as security in other transactions,
o sell assets,
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
o issue or sell capital stock of restricted subsidiaries (as
defined), or effect a consolidation or merger
</TABLE>
For more details, see the section "Description of the New Notes and the
New Notes Guarantees" under the heading "Covenants."
7
<PAGE>
About Our Company
We are a rapidly growing facilities-based communications company that
provides a broad range of voice, data/Internet and value-added product 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
in each of the countries in which we currently operate, establishing strong
local management, a direct sales force and other marketing and distribution
channels that have enabled us to grow our customer base rapidly to over
1,000,000 customers as of December 31, 1999. We are continuing to build our
broadband global network (RSL-NET) designed to provide high quality voice, data
and Internet services while reducing our operating costs. As of December 31,
1999 our network included over 108,000 fiber-kilometers of terrestrial and
under-sea fiber optic cable that we own or lease on a long-term basis, and 51
national and international switches. We expect to have approximately 180,000
fiber-kilometers in operation by year-end 2000, based on existing commitments
and transactions currently under negotiation. Through our subsidiary,
deltathree.com, we also own and operate a privately-managed Internet Protocol
(IP) telephony network with 70 points of presence in 36 countries around the
world.
Over our network, we currently offer, or are in the process of
launching, in selected markets, a variety of voice, data/Internet and
value-added services, including:
<TABLE>
<CAPTION>
Voice Data/Internet Value-added
<S> <C> <C>
o international long distance o Internet services o conference calling
o national long distance o voice-over Internet Protocol o unified messaging
o wireless o Integrated Services Digital Network o voice-mail
o private line (ISDN) o video conferencing
o pre-paid/post-paid calling card o Digital Subscriber Line (DSL)
o toll-free dialing o X.25 (packet data) services
o frame-relay
o Asynchronous Transfer Mode (ATM)
o remote access data services
</TABLE>
Headquarters
Our headquarters are located at Clarendon House, Church Street,
Hamilton HM CX Bermuda (telephone number: 441-295-2832). We also maintain
executive offices for some of our operations at 810 Seventh Avenue, 39th Floor,
New York, New York 10019 (telephone number: (212) 445-7400). RSL PLC maintains
an office at Victoria House, London Square, Cross Lanes, Guildford, Surrey, GU1
1UN, United Kingdom (telephone number (44-148) 345-7300). RSL USA maintains an
office at 430 Park Avenue, New York, New York 10022 (telephone number (212)
588-3600).
8
<PAGE>
Selected Consolidated Financial Data
The following tables present selected consolidated financial data
derived from our consolidated financial statements and related notes. The
selected consolidated statements of operations data presented below with respect
to the years ended December 31, 1999, 1998 and 1997 and the balance sheet data
as of December 31, 1999 and 1998 have been derived from the Consolidated
Financial Statements audited by Deloitte & Touche LLP, incorporated by reference
in this prospectus. The selected consolidated statement of operations data for
the year ended December 31, 1996 and 1995 and balance sheet data as of December
31, 1997, 1996 and 1995 are derived from audited financial statements not
included in this document.
In our opinion, the unaudited condensed consolidated financial
statements as of March 31, 2000 and 1999 and for the three month periods ended
March 31, 2000 and 1999 were prepared on the same basis as the audited
consolidated financial statements and include all adjustments, which consist
only of normal recurring adjustments, necessary for a fair presentation of the
financial position and the results of operation for these periods. Operating
results for the three months ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the full year.
You should read this table in conjunction with the Consolidated
Financial Statements and notes thereto and the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
annual report for the year ended December 31, 1999 on Form 10-K/A, as well as
our quarterly report for the three-month period ended March 31, 1999 on Form
10-Q, each incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
----------------------------------------------------------- -----------------------
1995 (1) 1996 1997 1998 (10) 1999 1999 2000
-------- -------- --------- --------- --------- -------- --------
($ and shares in thousands, except loss per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations:
Revenues............. $ 18,617 $113,257 $300,796 $885,938 $1,469,849 $340,281 $375,883
Operating costs and
expenses:
Costs of services
(exclusive of
depreciation and
amortization shown
separately below). (17,510) (98,461) (265,321) (702,602) (1,034,334) (250,391) (261,366)
Selling, general and
administrative
expense........... (9,639) (38,893) (94,712) (238,141) (447,883) (97,842) (119,661)
Non-cash compensation
expense........... -- -- -- -- (23,562) -- (3,055)
Special charge (2). -- -- -- -- (30,143) -- --
Depreciation and
amortization...... (849) (6,655) (21,819) (75,445) (177,865) (37,079) (49,252)
-------- -------- --------- --------- --------- -------- --------
Total operating costs
and expenses......... (27,998) (144,009) (381,852) (1,016,188) (1,713,787) (385,312) (433,334)
-------- -------- --------- --------- --------- -------- --------
Loss from operations. (9,381) (30,752) (81,056) (130,250) (243,938) (45,031) (57,451)
Interest income...... 173 3,976 13,826 16,104 20,593 6,055 4,874
Interest expense..... (194) (11,359) (39,373) (75,431) (133,244) (28,998) (38,559)
Other income (expense)
--net................. -- 470 6,595(3) 739 764 115 (392)
Foreign exchange
transaction (loss) gain-net -- -- -- (11,055) 17,022 9,688 5,049
Minority Interest.... -- (180) 210 6,079 (11,365) 1,431 3,332
Loss in equity interest
of unconsolidated
subsidiaries -net.... -- -- -- (3,276) (4,718) (224) (1,927)
Income tax expense... -- (395) (401) (1,334) (3,341) -- (169)
-------- -------- --------- --------- --------- -------- --------
Loss before
extraordinary item... (9,402) (38,240) (100,199) (198,424) (358,227) (56,964) (85,243)
Extraordinary item (4) -- -- -- (20,800) -- -- --
-------- -------- --------- --------- --------- -------- --------
Net loss............. $ (9,402) $(38,240 $(100,199) $(219,224) $(358,227) $(56,964) $(85,243)
======== ======== ========= ========= ========= ======== ========
Loss per common share
before extraordinary
item (5)............. $ (1.67) $ (5.13) $ (5.27) $ (4.52) $ (6.63) $ (1.08) $ (1.54)
Extraordinary item per
common share (4) (5). -- -- -- (0.47) -- -- --
-------- -------- --------- --------- --------- -------- --------
Net loss per common
share (5)............ $ (1.67) $ (5.13) $ (5.27) $ (4.99) $ (6.63) $ (1.08) $ (1.54)
======== ======== ========= ========= ========= ======== ========
Weighted average number
of common shares
outstanding (5)...... 5,641 7,448 19,008 43,913 54,022 52,930 55,374
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Other Financial Data:
EBITDA (as defined) (6) $ (8,532) $(24,097) $(59,237) $(54,805) $(10,411) $ (7,952) $ (5,144)
Ratio of Fixed Charges
to Earnings (7)...... -- -- -- -- -- -- --
Capital expenditures (8) 6,074 23,880 49,417 247,665 256,000 54,189 53,363
Cash (used in) provided
by operating activities 3,554 (10,475) (91,812) (82,752) (158,885) (52,182) (115,295)
Cash used in investing
activities........... (16,537) (225,000) (18,821) (509,438) (226,502) (136,888) (62,912)
Cash provided by (used
in) financing activities 18,143 335,031 152,035 815,476 263,602 (2,694) 305,692
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of March 31,
----------------------------------------------------------------------- ---------------
1995 1996 1997 1998 (10) 1999 2000
---------- ---------- ---------- ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents.......... $ 5,163 $ 104,068 $ 144,894 $ 367,823 $ 238,724 $ 361,722
---------- ---------- ---------- ---------- ---------- ---------
Securities available
for sale............. -- 67,828 13,858 111,548 84,154 94,944
Restricted marketable
securities (9)....... -- 104,370 68,836 20,159 -- --
Total assets......... 53,072 427,969 605,664 1,714,593 1,803,308 1,990,226
Short-term debt,
current portion of
long-term debt, and
current portion of
capital lease
obligations (11)..... 5,506 6,974 8,033 36,130 23,348 21,430
Long-term debt and
capital lease
obligations (11)..... 6,648 314,425 316,608 1,089,375 1,273,961 1,481,466
Shareholders' equity
(deficit)............ 5,705 20,843 126,699 133,484 (83,612) (36,345)
</TABLE>
--------------------------------------------------------------------------------
(1) Effective with the acquisition of a majority equity interest in RSL
North America, in September 1995, we began to consolidate RSL North
America's operations. From March 1995, the date of our initial
investment, to September 1995, we accounted for our investment in RSL
North America using the equity method of accounting.
(2) In the third quarter of 1999, we recorded a special charge of $32.1
million for consolidating locations, streamlining operations and
exiting certain product lines and distribution channels, including
telemarketing and certain prepaid calling card plans. The charge is
composed of approximately $13.1 million for terminating various
operating leases, $12.4 million for the severance of 189 employees and
$6.6 million for the cost of exiting certain product lines and other
items, of which $2.0 million was associated with the write-off of
inventory which was recorded as part of cost of services. 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
(3) Other income-net includes the reversal of certain liabilities accrued
in connection with our obligations under an agreement that required us
to meet a carrier vendor's minimum usage requirements, which agreement
was entered into by one of our subsidiaries prior to our acquisition of
that subsidiary. During May 1997, we renegotiated the contract with
this carrier vendor resulting in the elimination of approximately $7.0
million of previously accrued charges.
(4) Extraordinary item represents primarily the premium paid to retire
approximately $127.5 million of the original $300.0 million of the
notes we issued in 1996.
(5) Loss per share is calculated by dividing the loss attributable to our
common shares (Class A common shares and Class B common shares) by the
weighted average number of common shares outstanding, and has been
retroactively restated to reflect a 2.19-for-one stock split in 1997.
Shares issuable pursuant to (a) outstanding stock options, (b)
unexercised warrants, (c) warrants to purchase 459,900 Class B common
shares at an exercise price of $.00457 per share, subject to
adjustment, issued to Ronald S. Lauder as consideration for his
previous guarantee of a revolving credit facility, (d) options granted
to a number of minority shareholders of our subsidiaries, exercisable
on the occurrence of certain events, to exchange their shares in the
respective subsidiaries for, in certain circumstances, Class A common
shares or, in specific circumstances, cash or (e) incentive units,
which are options granted to some of the employees of our subsidiaries
to acquire shares of those subsidiaries or similar rights, some of
which are exercisable currently and the right to exchange these
incentive units for Class A common shares or, in other circumstances,
at our option, cash, are not included in the loss per share calculation
as their effect is anti-dilutive.
(6) EBITDA, as used herein, consists of loss from operations before
depreciation and amortization and also excludes a special charge and
non-cash compensation. In 1999, EBITDA excludes a $2.0 million charge
for inventory write-off recorded in cost of services and a special
charge of $30.1 million to reorganize and streamline operations and
$23.6 million of non-cash compensation expense primarily
10
<PAGE>
attributable to deltathree.com. In addition, if the EBITDA loss of
deltathree.com were also excluded from our results, we would have
reported positive EBITDA for the first quarter of 2000 of $1.3 million.
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.
(7) For the years ended December 31, 1995 through 1999, our earnings were
insufficient to cover our fixed charges. The deficiency was
approximately $9.4 million, $37.7 million, $100.0 million, $199.9
million and $338.8 million for the years ended December 31, 1995
through December 31, 1999, respectively, and $58.2 million and $86.5
million for the three month periods ended March 31, 1999 and March 31,
2000, respectively.
(8) Capital expenditures include assets acquired through capital lease
financing and other debt.
(9) Restricted marketable securities held to maturity consist of U.S.
government securities which were pledged for a three year period to
secure the payment of interest on the principal amount of the notes we
issued in 1996.
(10) During 1998, we acquired various companies. See footnote 2 to our
consolidated financial statements for information regarding these
acquisitions.
(11) As of March 31, 2000, we had approximately $40 million of available
(undrawn) borrowing capacity under our current bank and vendor
facilities. The availability of these amounts is dependent upon our
compliance with various financial ratios at the time of borrowing.
11
<PAGE>
RISK FACTORS
An investment in the new notes involves risks, some of which could be
substantial and, if they occurred, could adversely affect our business,
financial condition or results of operations. You should carefully consider the
following information about these risks, together with the other information in
this prospectus, annual report for the year ended December 31, 1999 on Form
10-K/A, including the risk factors applicable to our business in general and
other documents we file with the SEC and incorporate in this prospectus by
reference before exchanging your notes for the new notes.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
PREVENT US FROM SATISFYING OUR OBLIGATIONS, INCLUDING THE NEW NOTES.
At March 31, 2000, we had total consolidated indebtedness of
approximately $1.4 billion and shareholders' deficit of approximately $36.3
million. Subject to our compliance with the limitations contained in our
outstanding indebtedness, we may incur substantial amounts of additional
indebtedness.
For the years ended December 31, 1995, 1996, 1997, 1998 and 1999, and
the quarter ended March 31, 2000 our earnings were insufficient to cover our
fixed charges. The deficiency was approximately $9.4 million for the year ended
December 31, 1995, $37.7 million for the year ended December 31, 1996, $100.0
million for the year ended December 31, 1997, $199.9 million for the year ended
December 31, 1998, $338.8 million for the year ended December 31, 1999, and
$86.5 million for the quarter ended March 31, 2000.
If our operations do not generate enough revenues or we cannot obtain
sufficient funds at acceptable rates to make our debt payments when they are due
or we fail to comply with the material terms of the legal documents governing
our indebtedness, the value of our securities, including the notes, could be
adversely affected.
THE LEGAL DOCUMENTS GOVERNING OUR INDEBTEDNESS RESTRICT OUR ABILITY TO TAKE
CERTAIN ACTIONS.
The legal documents governing our outstanding indebtedness contain
restrictive covenants which impose limitations on our ability and the ability of
most of our subsidiaries to:
o incur additional indebtedness
o pay dividends or make other distributions
o issue capital stock of some of our subsidiaries
o guarantee debt
o enter into transactions with shareholders and affiliates
o create liens
o enter into sale-leaseback transactions
o sell assets
o make some types of investments
As described above, these restrictions could inhibit us from raising
additional capital to fund our operations and planned expansions, which could
adversely affect our ability to generate cash to service our outstanding
indebtedness, including the notes offered hereby.
OUR ABILITY TO PAY OUR OBLIGATIONS, INCLUDING THE NOTES, DEPENDS UPON OUR
ABILITY TO RECEIVE CASH FROM OUR SUBSIDIARIES.
Each of RSL COM and RSL PLC is a holding company and their only
material assets consist of shares of their subsidiaries and fluctuating cash
balances. RSL COM and RSL PLC have contributed or loaned to their subsidiaries a
substantial majority of the net proceeds from their prior sales of common shares
and notes. Our ability to pay our obligations, including the new notes and the
new notes guarantees, depends upon our ability to receive cash from our
subsidiaries. However, these subsidiaries may face difficulties distributing
cash to us because:
o they are separate and distinct legal entities and may have no
obligation to make funds available to us;
12
<PAGE>
o their ability to make distributions to us is subject to the
availability of funds and the terms of their indebtedness;
o their repayment of loans and advances made to them by us may be
subject to statutory or contractual restrictions or taxation;
o their repayment of loans and advances is contingent upon their
earnings;
o their payment of dividends to us may have adverse tax
consequences; and
o their ability to declare and pay dividends to us may be subject to
legal restrictions or restrictions contained in organizational
documents or loan agreements.
If a subsidiary is liquidated or reorganized, there may not be
sufficient assets for us to recover our investment in that subsidiary. Any right
we have to receive assets from a subsidiary upon its liquidation or
reorganization (and the consequent right of the holders of the notes and the
notes guarantee to those assets) is secondary to the claims of the subsidiary's
creditors, unless we are independently recognized as a creditor. Even if we are
recognized as a creditor, our claims could be junior to claims held by other
creditors.
THE NOTES AND THE NOTES GUARANTEES ARE STRUCTURALLY SUBORDINATED TO THE
OBLIGATIONS OF OUR SUBSIDIARIES.
Because each of RSL COM and RSL PLC is a holding company and their
assets consist primarily of equity interests in their subsidiaries, the notes
and the notes guarantees will be structurally subordinated to all indebtedness
and other liabilities of their subsidiaries other than RSL USA. As of March 31,
2000:
o the total of outstanding liabilities of RSL COM, RSL PLC and RSL
USA (excluding liabilities of their subsidiaries), including trade
payables, was approximately $1.55 billion; and
o the total amount of outstanding liabilities of the subsidiaries of
RSL COM (other than RSL PLC and RSL USA), including trade
payables, was approximately $418.6 million.
IN CERTAIN CIRCUMSTANCES, RSL USA'S NEW NOTES GUARANTEES COULD BE UNENFORCEABLE
OR CLAIMS THEREUNDER COULD BE SUBORDINATED TO CLAIMS OF OTHER CREDITORS OF RSL
USA.
If, under relevant federal and state fraudulent transfer and conveyance
statutes, in a bankruptcy or reorganization case or a lawsuit by or on behalf of
unpaid creditors of RSL USA, a court were to find that, at the time RSL USA
entered into the old notes guarantees, RSL USA (a) did so with the intent of
hindering, delaying or defrauding current or future creditors or (b) (i)
received less than reasonably equivalent value or fair consideration, as
applicable, in exchange for entering into the old notes guarantees, and (ii) (A)
was insolvent or was rendered insolvent by reason of entering into the old notes
guarantees, (B) was engaged, or about to engage, in a business or transaction
for which its assets constituted unreasonably small capital, (C) intended to
incur, or believed that it would incur, debts beyond its ability to pay as such
debts matured (as all of the foregoing terms are defined in or interpreted under
the relevant fraudulent transfer or conveyance statutes) or (D) was a defendant
in an action for money damages docketed against it (if, in either case, after
final judgment the judgment is unsatisfied), such court could avoid or
subordinate RSL USA's new notes guarantees to presently existing and future
indebtedness of RSL USA and take other action detrimental to the holders of the
new notes, including, under certain circumstances, invalidating RSL USA's new
notes guarantees. The measure of insolvency for purposes of the foregoing
considerations will vary depending upon the law of the jurisdiction that is
being applied in any such proceeding. There can be no assurance as to what
standards a court would use to determine whether RSL USA was solvent at the
relevant time, or whether, whatever standard was used, RSL USA's new notes
guarantees would not be avoided on another of the grounds set forth above.
EFFECTS OF INCORPORATION UNDER UNITED KINGDOM CORPORATE LAW.
RSL PLC, as a United Kingdom corporation, is governed by the Companies
Act 1985 of the United Kingdom. This act differs from laws generally applicable
to United States corporations and their shareholders, including regulations
relating to interested directors, mergers and indemnifications of directors.
13
<PAGE>
NO PUBLIC MARKET EXISTS FOR THE NOTES.
The new notes offered hereby are new issuances of securities for which
there is currently no active trading market. If the new notes are traded after
their initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities and other factors, including general economic conditions and our
financial condition, performance and prospects. Even though we are obligated to
complete exchange offers or shelf registrations for the old notes by September
19, 2000, there can be no assurance that exchanges or shelf registrations will
occur in the required time period or whether, even after exchanges or
registrations are effected, an active trading market will develop for any of the
notes. The SEC has broad discretion to determine whether any registration
statement will be declared effective and may delay or deny the effectiveness of
any registration statement for a variety of reasons. Failure to have old
registration statements declared effective could adversely affect the liquidity
and prices of the notes. If we do not comply with our registration obligations
in a timely manner, we will be obligated to pay additional interest in cash on
the old notes.
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OLD NOTES; THE OLD NOTES ARE SUBJECT TO TRANSFER RESTRICTIONS, AND
YOUR ABILITY TO TRANSFER OLD NOTES WILL BE ADVERSELY AFFECTED.
As old notes are tendered and accepted in the exchange offer, the
trading market for the remaining untendered or tendered but not accepted old
notes will be adversely affected. We anticipate that most holders of the old
notes will elect to exchange the old notes for new notes due to the absence of
restrictions on the resale of new notes under the Securities Act. Therefore, we
anticipate that the liquidity of the market for any old notes remaining after
the consummation of the exchange offer will be substantially limited.
We will only issue new notes in exchange for old notes that you timely
and properly tender. Therefore, you should allow sufficient time to ensure
timely delivery of the old notes and you should carefully follow the
instructions on how to tender your old notes. Neither we nor the exchange agent
are required to tell you of any defects or irregularities with respect to your
tender of the old notes. If you do not tender your old notes for new notes in
the exchange offers, the old notes you hold will continue to be subject to the
existing transfer restrictions. In general, you may not offer or sell the old
notes unless they are registered under the Securities Act, or are exempt from
registration under the Securities Act and applicable state securities laws. If
you do not tender your old notes or they are not accepted for exchange, you will
have no further rights under the registration rights agreement. See the section
"The Exchange Offers" under the heading "Consequences of Failure to Exchange."
We do not anticipate that we will register old notes under the Securities Act.
14
<PAGE>
Special Note Regarding Forward-Looking Statements
Any statements in this prospectus about our expectations, beliefs,
plans, objectives, assumptions or future events or performance are not
historical facts and are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. These statements are often, but not always, made through
the use of words or phrases such as "will likely result," "expect," "will
continue," "anticipate," "estimate," "intend," "plan," "projection," "would" and
"outlook." Accordingly, these statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially from those
expressed in them. Any forward-looking statements are qualified in their
entirety by reference to the factors discussed throughout this document. The
following cautionary statements identify important factors that could cause our
actual results to differ materially from those projected in the forward-looking
statements made in this document. Among the key factors that have a direct
bearing on our results of operation are:
o general economic and business conditions;
o changes in, or failure to comply with, government regulations;
o changes in marketing and technology in the telecommunications
industry;
o changes in political, social and economic conditions;
o competition in the telecommunications industry;
o general risks of the telecommunications industry;
o success of acquisition and operating initiatives;
o management of growth;
o availability, terms and deployment of capital; and
o deregulation of the telecommunications market.
These factors and the risk factors referred to above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements we make. You should not place undue reliance on any
such forward-looking statements. Further, any forward-looking statement speaks
only as of the date on which it is made and we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for us to
predict them. In addition, we cannot assess the impact of each factor on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements.
For a discussion of important risks of an investment in our securities,
including factors that could cause actual results to differ materially from
results referred to in the forward-looking statements, see the section in this
prospectus entitled "Risk Factors" as well as the section entitled "Risk
Factors" in our annual report for the year ended December 31, 1999 filed on Form
10-K/A and incorporated in this prospectus by reference. You should carefully
consider the information discussed in those sections. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in or
incorporated by reference in this offering circular might not occur.
Throughout this prospectus we have used industry data obtained from
internal surveys, market research, publicly available information and industry
publications. Industry publications generally state that the information they
contain has been obtained from sources believed to be reliable but that the
accuracy and completeness of that information is not guaranteed. Although these
data have been correctly reproduced in this prospectus from the internal
surveys, market research, publicly available information and industry
publications, we have not independently verified the data.
15
<PAGE>
THE EXCHANGE OFFERS
Registration Rights Agreement for Old Notes
We entered into a registration rights agreement in connection with our
issuance of the old notes. This summary of provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the registration rights
agreement, a copy of which is incorporated by reference into the registration
statement of which this prospectus is a part.
Registration Rights
We have agreed in the registration rights agreement:
o to file this registration statement with the SEC and use our
reasonable best efforts to complete the exchange offers as soon as
practicable, but no later than September 19, 2000;
o to hold each exchange offer open for at least 30 days and exchange
new notes for all old notes validly tendered and not withdrawn
before its expiration; and
o if the new notes will not be freely transferable in general upon
exchange in the exchange offer because of a change in the SEC's
interpretation of its rules, in lieu of effecting registration of
new notes, to use our reasonable best efforts to effect a shelf
registration of the old notes for resale by holders, and keep the
registration effective for a period of up to two years ending
February 22, 2002.
Shelf Registration
In the event we effect a shelf registration we will provide holders of
the old notes copies of the prospectus that is a part of the registration
statement, notify holders when the resale registration for the old notes has
become effective and take other actions as are required to permit unrestricted
resales of the old notes. A holder that sells old notes pursuant to the resale
registration generally will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
registration rights agreement that are applicable to such a holder (including
certain indemnification obligations).
Liquidated Damages
In the event that:
o the exchange offers are not completed by September 19, 2000 (or,
if applicable, the resale registration is not effective within the
required period) or
o any resale registration required by the registration rights
agreement is filed and declared effective but thereafter ceases to
be effective (except as specifically permitted in the registration
rights agreement) without being succeeded promptly by an
additional registration statement filed and declared effective,
then interest will accrue (in addition to any stated interest on the old notes)
at the rate of 0.5% per annum, determined daily, on the principal amount at
maturity of the old notes that remain unexchanged or unregistered as required
until such notes are exchanged or become registered or their registration is no
longer required.
Resales of New Notes Issued in the Exchange Offers
Based on SEC interpretations we believe that the new notes issued in
the exchange offers may be offered for resale, resold and otherwise transferred
by any holder (other than any holder that is a broker-dealer or our "affiliate"
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that:
16
<PAGE>
o the new notes sold are acquired in the ordinary course of
business;
o at the time of the commencement of the exchange offers the selling
holder had no arrangement or understanding with any person to
participate in a distribution of the new notes; and
o the selling holder is not engaged in, and does not intend to
engage in, a distribution of the new notes.
We have not sought, and do not intend to seek, a no-action letter from
the Commission with respect to the effects of the exchange offers, and there can
be no assurance that the staff would make a similar determination with respect
to the new notes as it has previously in other similar offerings.
Representations Holders Will Make When They Tender
By tendering old notes in exchange for new notes and by executing the
letter of transmittal, each holder will represent to us that:
o any new notes to be received by it will be acquired in the
ordinary course of business;
o it has no arrangements or understandings with any person to
participate in the distribution of the old notes or new notes
within the meaning of the Securities Act; and
o it is not our "affiliate," as defined in Rule 405 under the
Securities Act.
Each broker-dealer that receives new notes for its own account in
exchange for old notes, where such old notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such new notes.
Each holder, whether or not it is a broker-dealer, shall also represent that it
is not acting on behalf of any person that could not truthfully make any of the
foregoing representations contained in this paragraph. Any holder of old notes
who is unable to make the foregoing representations and any broker-dealer who
acquired the old notes directly from us may not rely on the applicable
interpretations of the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act,
including being named as selling security holders, in order to resell the notes.
Terms of the Exchange Offers; Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying Letter of Transmittal, we will accept for
exchange old notes which are properly tendered on or prior to the expiration
date and not withdrawn as permitted below. As used herein, the term "expiration
date" means 5:00 p.m., New York time, on August 18, 2000; provided, however,
that if we, in our sole discretion, have extended the period of time for which
the exchange offer is open, the term "expiration date" means the latest time and
date to which the exchange offer is extended.
As of the date of this prospectus, $100,000,000 aggregate principal
amount of old dollar notes and (Euro)100,000,000 aggregate principal amount of
old euro notes are outstanding. We are sending this prospectus, together with
the letter of transmittal, on or about July 18, 2000 to all holders of old notes
known to us. Our obligation to accept old notes for exchange pursuant to the
exchange offers is subject to certain conditions as set forth below under the
subsection "--Conditions."
We expressly reserve the right, at any time or from time to time, to
extend the period of time during which an exchange offer is open, and thereby
delay acceptance for exchange of any old notes pursuant to that exchange offer,
by giving oral or written notice of any extension, amendment, non-acceptance or
termination to you as promptly as practicable, such notice in the case of any
extension to be issued by means of a press release or other public announcement
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
17
<PAGE>
Effect of Tender
If you tender to us old notes as set forth below, our acceptance of
your tender will constitute a binding agreement between you and us upon the
terms and conditions set forth in this prospectus and in the accompanying letter
of transmittal.
Procedures for Tendering
To tender in an exchange offer, a holder must complete, sign and date
the letter of transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the letter of transmittal, and mail or otherwise
deliver the letter of transmittal or such facsimile, together with any other
required documents, to the exchange agent prior to 5:00 p.m., New York City
time, on the expiration date. A holder may tender old notes only in integral
multiples of $1,000, in the case of the old dollar notes and (Euro)1,000, in the
case of the old euro notes, in exchange for an equal principal amount,
respectively, of new notes. In addition, either:
o certificates of such old notes must be received by the exchange
agent along with the letter of transmittal; or
o a timely confirmation of a book-entry transfer of such old notes,
if such procedure is available, into the exchange agent's account
at The Depository Trust Company, in the case of the old dollar
notes, or EuroClear or Clearstream, in the case of the old euro
notes, under the procedures for book-entry transfer described
below, must be received by the exchange agent prior to the
expiration date with the letter of transmittal; or
o the holder must comply with the guaranteed delivery procedures
described below.
The method of delivery of old notes, letter of transmittal and all
other required documents is at the election and risk of the holders. If such
delivery is by mail, it is recommended that registered mail, properly insured,
with return receipt requested, be used. In all cases, sufficient time should be
allowed to assure timely delivery. No old notes, letters of transmittal or other
required documents should be sent to us. Delivery of all old notes, if
applicable, letters of transmittal and other documents must be made to the
exchange agent at its address set forth below. Holders may also request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender for such holders.
The tender by a holder of old notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal. Any beneficial
owner whose old notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to tender should contact
such registered holder promptly and instruct such registered holder to tender on
his behalf.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act unless the old notes tendered are tendered:
o by a registered holder of old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal; or
o for the account of an eligible guarantor institution.
If the letter of transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
with signing, and unless waived by us, evidence satisfactory to us of their
authority to so act must be submitted with the letter of transmittal.
All questions as to the validity, form, eligibility, time of receipt
and withdrawal of the tendered old notes will be determined by us in our sole
discretion, which determination will be final and binding. We reserve the
18
<PAGE>
absolute right to reject any and all old notes not properly tendered or any old
notes which, if accepted, would, in the opinion of our counsel, be unlawful. We
also reserve the absolute right to waive any irregularities or conditions of
tender as to particular old notes. Our interpretation of the terms and
conditions of the exchange offers, including the instructions in the letter of
transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within such time as we shall determine. Neither we, the exchange agent nor any
other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of old notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of old notes will
not be deemed to have been made until such irregularities have been cured or
waived.
In addition, we reserve the right in our sole discretion, subject to
the provisions of the indentures for the old notes:
o to purchase or make offers for any old notes that remain
outstanding subsequent to the expiration date or, as set forth
under "--Conditions;"
o to terminate the exchange offers;
o to redeem old notes as a whole or in part at any time and from
time to time, as set forth under "Description of the New Notes and
the New Notes Guarantee--Optional Redemption;" and
o to the extent permitted under applicable law, to purchase old
notes in the open market, in privately negotiated transactions or
otherwise.
The terms of any such purchases or offers could differ from the terms
of the exchange offers.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to an exchange
offer, all old notes validly tendered pursuant to the exchange offer and not
withdrawn prior to 5:00 pm, New York City time, on the expiration date will be
accepted promptly after the expiration date, and the new notes will be issued
promptly after acceptance of the old notes. For purposes of the exchange offers,
old notes shall be deemed to have been accepted as validly tendered for exchange
when, as and if we have given oral or written notice thereof to the exchange
agent. For each old note accepted for exchange, the holder of such old note will
receive a new note having a principal amount equal to that of the surrendered
old note. In all cases, issuance of new notes for old notes that are accepted
for exchange in an exchange offer will be made only after timely receipt by the
exchange agent of the required documents.
If any tendered old notes are not accepted for any reason, such
unaccepted or such nonexchanged old notes will be returned without expense to
the tendering holder (if in certificated form) or credited to an account
maintained with The Depositary Trust Company or Euroclear or Clearstream, as the
case may be, as promptly as practicable after nonacceptance, withdrawal of
tender or the expiration or termination of the relevant exchange offers.
Book-Entry Transfer
The exchange agent will make a request to establish an account with
respect to the old notes at The Depositary Trust Company, in the case of the old
dollar notes, or Euroclear and Clearstream, in the case of the old euro notes,
for purposes of the exchange offer within two business days after the date of
this prospectus. With respect to the old dollar notes, the exchange agent and
The Depositary Trust Company have confirmed that any financial institution that
is a participant in The Depositary Trust Company may utilize The Depositary
Trust Company Automated Tender Offer Program procedures to tender old notes.
With respect to the old dollar notes, any participant in The Depositary
Trust Company may make book-entry delivery of old dollar notes by causing The
Depositary Trust Company to transfer the old dollar notes into the exchange
agent's account in accordance with The Depositary Trust Company's Automated
Tender Offer Program procedures for transfer. With respect to the old euro
Notes, any participant in Euroclear and Clearstream may make book-entry delivery
of old euro Notes by causing Euroclear and Clearstream to transfer the old euro
Notes into the exchange agent's account in accordance with established Euroclear
and Clearstream procedures for transfer. However, the exchange for the old
dollar notes and the old euro Notes so tendered will only be made after a
book-entry confirmation of such book-entry transfer of old dollar notes or the
old euro Notes, as the case may be, into the
19
<PAGE>
exchange agent's account, and timely receipt by the exchange agent of an agent's
message and any other documents required by the Letter of Transmittal. The term
"agent's message" means a message, transmitted by The Depositary Trust Company
or Euroclear and Clearstream, as the case may be, and received by the exchange
agent and forming part of a book-entry confirmation, which states that The
Depositary Trust Company or Euroclear and Clearstream, as the case may be, has
received an express acknowledgment from a participant tendering old notes that
are the subject of the book-entry confirmation that the participant has received
and agrees to be bound by the terms of the letter of transmittal, and that we
may enforce that agreement against the participant.
Guaranteed Delivery Procedures
If the procedures for book-entry transfer cannot be completed on a
timely basis, a tender may be effected if:
o the tender is made through an eligible institution;
o prior to the expiration date, the exchange agent receives by
facsimile transmission, mail or hand delivery from such eligible
institution a properly completed and duly executed Letter of
Transmittal and notice of guaranteed delivery, substantially in
the form provided by us that:
1. sets forth the name and address of the holder of old notes and the amount
of old notes tendered;
2. states that the tender is being made thereby; and
3. guarantees that within three New York Stock Exchange trading days after the
date of execution of the notice of guaranteed delivery, the certificates
for all physically tendered old notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
4. the certificates for all physically tendered old notes, in proper form for
transfer, or a book-entry confirmation, as the case may be, and all other
documents required by the Letter of Transmittal are received by the
exchange agent within three New York Stock Exchange trading days after the
date of execution of the notice of guaranteed delivery.
Withdrawal of Tenders
Tenders of old notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the expiration date of the exchange offer for those old
notes.
For a withdrawal to be effective, a written notice of withdrawal must
be received by the exchange agent prior to 5:00 p.m., New York City time on the
expiration date at one of the addresses set forth below under "--Exchange
Agent." Any such notice of withdrawal must:
o specify the name of the person having tendered the old notes to be
withdrawn;
o identify the old notes to be withdrawn, including the principal
amount of such old notes;
o in the case of old notes tendered by book-entry transfer, specify
the number of the account at The Depositary Trust Company or
Euroclear or Clearstream, as the case may be, from which the old
notes were tendered and specify the name and number of the account
at The Depositary Trust Company or Euroclear or Clearstream, as
the case may be, to be credited with the withdrawn old notes and
otherwise comply with the procedures of such facility;
o contain a statement that the holder is withdrawing its election to
have the old notes exchanged;
o be signed by the holder in the same manner as the original
signature on the letter of transmittal by which the old notes were
tendered, including any required signature guarantees, or be
accompanied by documents of transfer to have the trustee with
respect to the old notes register the transfer of the old notes in
the name of the person withdrawing the tender; and
o specify the name in which the old notes are registered, if
different from the person who tendered the old notes.
20
<PAGE>
All questions as to the validity, form, eligibility and time of receipt
of such notice will be determined by us and our determination shall be final and
binding on all parties. Any old notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the exchange offer. Properly
withdrawn old notes may be retendered by following one of the procedures
described under "--Procedures for Tendering" and "--Book-Entry Transfer" above
at any time on or prior to 5:00 p.m., New York City time, on the expiration date
of the exchange offer for those old notes.
Conditions
The exchange offers are not conditioned upon any minimum principal
amount of old notes being tendered for exchange. Notwithstanding any other
provision of the exchange offers, we shall not be required to accept for
exchange, or to issue new notes in exchange for, any old notes and may terminate
or amend the exchange offer if at any time prior to 5:00 p.m., New York City
time, on the relevant expiration date, we determine that the exchange offer
violates applicable law, any applicable interpretation of the staff of the SEC
or any order of any governmental agency or court of competent jurisdiction.
In addition, we will not accept for exchange any old notes tendered,
and no new notes will be issued in exchange for any such old notes, if at such
time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939. We are
required to use every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible moment.
Exchange Agent
The Chase Manhattan Bank has been appointed as the exchange agent for
the exchange offers. All executed Letters of Transmittal should be directed to
the exchange agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this prospectus or of
the Letter of Transmittal and requests for Notices of Guaranteed Delivery should
be directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
Delivery To The Chase Manhattan Bank, Exchange Agent
For the Dollar Notes:
By Mail: Facsimile Transmission Number: By Hand:
<S> <C> <C>
The Chase Manhattan Bank (212) 638-7380/81 The Chase Manhattan Bank
55 Water Street 55 Water Street
Room 234, North Building Room 234, North Building
New York, NY 10041 New York, NY 10041
Attn: Carlos Esteves Attn: Carlos Esteves
Confirm by Telephone: By Overnight Courier:
(212) 638-0828 The Chase Manhattan Bank
55 Water Street
Room 234, North Building
New York, NY 10041
Attn: Carlos Esteves
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C>
For the Euro Notes:
By Mail: Facsimile Transmission Number: By Hand:
The Chase Manhattan Bank 44-171-777-5410 The Chase Manhattan Bank
9 Thomas Moore Street, 5th Floor 9 Thomas Moore Street, 5th Floor
London E1W 1YT London E1W 1YT
U.K. U.K.
Attn: Philip Wilson Attn: Philip Wilson
Confirm by Telephone: By Overnight Courier:
44-171-777-5417 The Chase Manhattan Bank
9 Thomas Moore Street, 5th Floor
London E1W 1YT
U.K.
Attn: Philip Wilson
</TABLE>
Delivery of the Letter of Transmittal to an address other than as set
forth above or transmission of instructions via facsimile other than as set
forth above does not constitute a valid delivery of such Letter of Transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer.
We will pay the estimated cash expenses to be incurred in connection
with the exchange offers, which are estimated in the aggregate to be
approximately $100,000.
Transfer Taxes
Holders who tender their old notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct RSL PLC to register new notes in the name of, or request that old notes
not tendered or not accepted in the exchange offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
Consequences of Failure to Exchange
We will have no obligation to register old notes after we complete the
exchange offers. Holders of old notes who do not exchange their old notes for
new notes in the exchange offers will continue to be subject to the restrictions
on transfer of those old notes as set forth in the legend on the old notes as a
consequence of the issuance of the old notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the old notes may not be
offered or sold, unless registered under the Securities Act, except in an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. We do not anticipate that we will register the
old notes under the Securities Act. To the extent that old notes are tendered
and accepted in the exchange offers, the trading market for untendered and
tendered but unaccepted old notes will be adversely affected.
22
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
Credit Facilities
Through Telegate, we have $40 million of revolving credit facilities
with various banks, all of which was available at March 31, 2000.
1996 Notes
General
On October 3, 1996, RSL PLC issued $300.0 million of 12 1/4% Senior
Notes pursuant to an indenture, dated October 3, 1996, or the 1996 Indenture,
among RSL PLC, RSL COM and The Chase Manhattan Bank, as trustee, which were
exchanged on May 22, 1997 for $300.0 million of substantially identical notes
that had been registered under the Securities Act, or the 1996 Notes, of which
$172.5 million in aggregate principal amount remain outstanding as of the date
of this prospectus. RSL COM, a guarantor of the notes offered hereby, has
unconditionally guaranteed the 1996 Notes.
Principal, Maturity and Interest
The 1996 Notes are limited in aggregate principal amount to $300.0
million and will mature on October 3, 2006. Interest on the 1996 Notes accrues
at 12 1/4% per annum and is payable semiannually in arrears on May 15 and
November 15 of each year. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months. RSL PLC used $102.8 million of the net
proceeds of the 1996 Notes to purchase a portfolio of securities, initially
consisting of U.S. government securities, to pledge as security for payment of
interest on the principal of the 1996 Notes. Proceeds from the pledged
securities have been used by RSL PLC to make interest payments on the 1996 Notes
through November 15, 1999.
Ranking
The 1996 Notes are unsecured senior obligations of RSL PLC, rank equal
in right of payment with all existing and future senior obligations of RSL PLC,
and rank senior in right of payment to all of the future subordinated
obligations of RSL PLC and RSL COM.
Redemption
The 1996 Notes are not redeemable prior to November 15, 2001.
Thereafter, the 1996 Notes are subject to redemption at the option of RSL PLC,
in whole or in part, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the 12-month period beginning
on November 15 of the years indicated below:
Year Percentage
2001......................... 106.125%
2002......................... 103.0625%
2003 and thereafter.......... 100.000%
Covenants
The 1996 Indentures restricts, among other things, the ability of RSL
PLC and RSL COM to incur additional indebtedness, pay dividends or make certain
other restricted payments, incur certain liens to secure equal or subordinated
indebtedness, engage in any sale and leaseback transaction, sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of the assets
of RSL PLC and RSL COM, enter into certain transactions with affiliates, or
incur indebtedness that is subordinated in right of payment to any senior
indebtedness and senior in
23
<PAGE>
right of payment to the 1996 Notes. The 1996 Indentures permits, under certain
circumstances, RSL COM's subsidiaries to be deemed unrestricted subsidiaries and
thus not subject to the restrictions of the 1996 Indenture.
Events of Default
The 1996 Indenture contains standard events of default, including:
o defaults in the payment of principal, premium or interest,
o defaults in the compliance with covenants contained in the
indenture,
o cross defaults on more than $10 million of other indebtedness,
o failure to pay more than $10 million of judgments that have not
been stayed by appeal or otherwise and
o the bankruptcy of either RSL PLC or RSL COM or certain of their
subsidiaries.
U.S. Dollar Notes
General
On February 27, 1998, RSL PLC issued (1) $200 million of Senior Notes,
or the 1998 Senior Notes, pursuant to an indenture, dated as of February 27,
1998, or the 1998 Senior Notes Indenture, between RSL PLC, RSL COM and The Chase
Manhattan Bank, as trustee, and (2) $328.1 million principal amount at maturity
of Senior Discount Notes, or the 1998 Discount Notes, pursuant to an indenture,
dated as of February 27, 1998 or the 1998 Senior Discount Notes Indenture and,
together with the 1998 Senior Notes Indenture, the U.S. Dollar Notes Indenture,
among RSL PLC, RSL COM and The Chase Manhattan Bank, as trustee. On June 19,
1998, the 1998 Senior Notes were exchanged for $200 million of substantially
identical notes that had been registered under the Securities Act, or the Senior
Notes, and on June 29, 1998, the 1998 Discount Notes were exchanged for $328.1
million principal amount at maturity of substantially identical notes that had
been registered under the Securities Act, or the Senior Discount Notes and,
together with the Senior Notes, the U.S. Dollar Notes. RSL COM has
unconditionally guaranteed the U.S. Dollar Notes.
Principal, Maturity and Interest
The U.S. Dollar Notes are initially limited in aggregate principal
amount at maturity to $528.1 million and will mature on March 1, 2008. Interest
on the Senior Notes accrues at 9 1/8% per annum and is payable semiannually on
March 1 and September 1 of each year, commencing September 1, 1998. No interest
will be payable on the Senior Discount Notes prior to September 1, 2003. From
and after March 1, 2003, interest on the Senior Discount Notes will accrue at 10
1/8% on the principal amount at maturity of such notes and is payable
semiannually on March 1 and September 1 of each year, commencing September 1,
2003. Interest on the U.S. Dollar Notes is computed on the basis of a 360-day
year comprised of twelve 30-day months.
Ranking
The U.S. Dollar Notes are the unsecured senior obligations of RSL PLC
and RSL COM, rank equal in right of payment with the 1996 Notes, and all of the
existing and future senior obligations of RSL PLC and RSL COM, and rank senior
in right of payment to all of the future subordinated obligations of RSL PLC and
RSL COM.
Redemption
The U.S. Dollar Notes are not redeemable prior to March 1, 2003.
Thereafter, the U.S. Dollar Notes are subject to redemption at the option of RSL
PLC, in whole or in part, at the redemption prices (expressed as percentages of
stated principal amount) set forth below plus accrued and unpaid interest
thereon to (but excluding) the applicable redemption date, if redeemed during
the 12-month period beginning on March 1 of the years indicated below:
24
<PAGE>
Senior Notes
Year Redemption Price
2003.................................... 104.562%
2004.................................... 103.042%
2005.................................... 101.521%
2006 and thereafter..................... 100.000%
Senior Discount Notes
Year Redemption Price
2003..................................... 105.06%
2004..................................... 103.37%
2005..................................... 101.68%
2006 and thereafter...................... 100.00%
In addition, at any time prior to March 1, 2001, in the event RSL COM
receives net cash proceeds from the public or private sale of its common stock,
RSL PLC may (to the extent it receives such proceeds and has not used them,
directly or indirectly, to redeem or repurchase other securities pursuant to
optional redemption provisions), at its option, apply an amount equal to any
such net cash proceeds or any portion thereof to redeem up to one-third of the
aggregate principal amount at maturity of the U.S. Dollar Notes at a redemption
price equal to 109.125% of the principal amount thereof, in the case of the
Senior Notes, and 110.125% of the accreted value, in the case of the Senior
Discount Notes, plus accrued and unpaid interest thereon, if any, to the date of
redemption, provided that at least two-thirds of aggregate principal amount at
maturity of the Senior Notes or Senior Discount Notes, as applicable, remains
outstanding immediately after such redemption.
Covenants
The U.S. Dollar Notes Indentures restrict, among other things, the
ability to incur additional indebtedness, pay dividends or make distributions in
respect of the capital stock of RSL PLC and RSL COM, make investments or certain
other restricted payments, create liens, sell assets, issue or sell capital
stock of certain subsidiaries, enter into transactions with stockholders or
affiliates or effect a consolidation or merger.
Events of Default
The U.S. Dollar Notes Indentures contain standard events of default,
including
o failure to pay principal of (or premium, if any, on) any U.S.
Dollar Note when due,
o failure to pay any interest on any U.S. Dollar Note when due,
continued for 30 days,
o failure to perform covenants or agreements under the U.S. Dollar
Notes Indentures or the U.S. Dollar Notes,
o cross-defaults against certain other indebtedness,
o failure to pay more than $10 million of judgments that have not
been stayed by appeal and
o certain events of bankruptcy, insolvency or reorganization
affecting RSL COM, RSL PLC and some of their subsidiaries.
DM Notes
General
On March 15, 1998, RSL PLC issued DM 296.0 million principal amount at
maturity of 10% Senior Discount Notes, or the old DM Notes, pursuant to an
indenture, dated as of March 16, 1998, or the DM Notes Indenture, among RSL PLC,
RSL COM, and The Chase Manhattan Bank, as trustee. On June 29, 1998, the old DM
Notes were exchanged for DM 296.0 million principal amount at maturity of
substantially identical notes that had
25
<PAGE>
been registered under the Securities Act, or the DM Notes. RSL COM has
unconditionally guaranteed the DM Notes.
Principal, Maturity and Interest
The DM Notes are initially limited in aggregate principal amount at
maturity to DM 296.0 million (approximately $99.1 million initial accreted
value) and will mature on March 15, 2008. No interest is payable on the DM Notes
prior to September 15, 2003. From and after March 15, 2003, interest on the DM
Notes will accrue on the principal amount at maturity of such notes at the rate
of 10% per annum and is payable semiannually on March 15 and September 15 of
each year, commencing September 15, 2003. Interest is computed on the basis of a
360-day year comprised of twelve 30-day months.
Ranking
The DM Notes are the unsecured senior obligations of RSL PLC and RSL
COM, rank equal in right of payment with the 1996 Notes, the U.S. Dollar Notes
and all of the other existing and future senior obligations of RSL PLC and RSL
COM, and rank senior in right of payment to all of the future subordinated
obligations of RSL PLC and RSL COM.
Redemption
The DM Notes are not redeemable prior to March 15, 2003. Thereafter,
the DM Notes are subject to redemption, at the option of RSL PLC, in whole or in
part, at the redemption prices (expressed as percentages of the principal amount
thereof) set forth below plus accrued interest to but excluding the redemption
date, if redeemed during the 12-month period beginning March 15 of the years
indicated:
Year Redemption Price
2003....................................... 105.000%
2004....................................... 103.333%
2005....................................... 101.667%
2006 and thereafter........................ 100.000%
In addition, at any time prior to March 15, 2001, in the event RSL COM
receives net cash proceeds from the public or private sale of its common stock,
RSL PLC may (to the extent it receives such proceeds and has not used them,
directly or indirectly, to redeem or repurchase other securities pursuant to
optional redemption provisions), at its option, apply an amount equal to any
such net cash proceeds or any portion thereof to redeem, from time to time, DM
Notes in a principal amount at maturity of up to an aggregate amount equal to
one-third of the aggregate principal amount at maturity of the DM Notes,
provided, however, that DM Notes in an amount equal to at least two-thirds of
the aggregate principal amount at maturity of the DM Notes remain outstanding
immediately after such redemption.
Covenants; Events of Default
The DM Notes Indenture contains covenants and provides for events of
default which are identical in all material respects to the covenants and events
of default contained in the U.S. Dollar Notes Indentures.
12% Notes
General
On November 9, 1998, RSL PLC issued the 12% Notes, or the old 12%
Notes, pursuant to an indenture, dated as of November 9, 1998, or the 12% Notes
Indenture, among RSL PLC, RSL COM and The Chase Manhattan Bank, as trustee. On
March 5, 1999, the old 12% Notes were exchanged for $100 million principal
amount at maturity of substantially identical notes that had been registered
under the Securities Act, or the 12% Notes. RSL COM has unconditionally
guaranteed the 12% Notes.
26
<PAGE>
Principal, Maturity and Interest
The 12% Notes are initially limited in aggregate principal amount at
maturity to $100 million (approximately $94.5 million initial accreted value)
and will mature on November 1, 2008. Interest on the 12% Notes will accrue on
the principal amount at maturity of such notes at the rate of 12% per annum and
is payable semiannually on November 1 and May 1 of each year, commencing May 1,
1999. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months.
Ranking
The 12% Notes are our unsecured senior obligations of RSL PLC and RSL
COM, rank equal in right of payment with the 1996 Notes, the U.S. Dollar Notes,
the DM Notes and all of the other existing and future senior obligations of RSL
PLC and RSL COM, and rank senior in right of payment to all of the future
subordinated obligations of RSL PLC and RSL COM.
Redemption
The 12% Notes are not redeemable prior to November 1, 2003. Thereafter,
the 12% Notes are subject to redemption, at the option of RSL PLC, in whole or
in part, at the redemption prices (expressed as percentage of the accreted value
thereof) set forth below plus accrued interest to but excluding the redemption
date, if redeemed during the 12-month period beginning November 1 of the years
indicated:
Year Redemption Price
2003..................................... 106%
2004..................................... 104%
2005..................................... 102%
2006 and thereafter...................... 100%
In addition, at any time prior to November 1, 2001, and in the event
RSL COM receives net cash proceeds from the public or private sale of its common
stock, RSL PLC may (to the extent it receives such proceeds and has not used
them, directly or indirectly, to redeem or repurchase other securities pursuant
to optional redemption provided), at its option, apply an amount equal to any
such net cash proceeds or any portion thereof to redeem, from time to time, 12%
Notes in a principal amount at maturity of up to an aggregate amount equal to
one-third of the aggregate principal amount at maturity of the 12% Notes,
provided, however, that 12% Notes in an amount equal to at least two-thirds of
the aggregate principal amount at maturity of the 12% Notes remain outstanding
immediately after such redemption.
Covenants; Events of Default
The 12% Notes Indenture contains covenants and provides for events of
default which are identical in all material respects to the covenants and of
default contained in the U.S. Dollar Notes Indentures and the DM Notes
Indenture.
10 1/2% Notes
General
On December 8, 1998, RSL PLC issued the 10 1/2% Notes, or the old 10
1/2% Notes pursuant to an indenture, dated as of December 8, 1998, or the 10
1/2% Notes Indenture, among RSL PLC, RSL COM and The Chase Manhattan Bank, as
Trustee. On February 25, 1999, the old 10 1/2% Notes were exchanged for $200
million principal amount at maturity of substantially identical notes that had
been registered under the Securities Act, or the 10 1/2% Notes. RSL COM has
unconditionally guaranteed the 10 1/2% Notes.
27
<PAGE>
Principal, Maturity and Interest
The 10 1/2% Notes are limited in aggregate principal amount at maturity
to $200 million and will mature on November 15, 2008. Interest on the 10 1/2%
Notes will accrue on the principal amount at maturity of such notes at the rate
of 10 1/2% per annum and is payable semiannually on May 15 and November 15 of
each year. Interest is computed on the basis of a 360-day year comprised of
twelve 30-day months.
Ranking
The 10 1/2% Notes are the unsecured senior obligations of RSL PLC and
RSL COM, rank equal in right of payment with the 1996 Notes, the U.S. Dollar
Notes, the DM Notes, the 12% Notes and all of the other existing and future
senior obligations of RSL PLC and RSL COM, and rank senior in right of payment
to all of the future subordinated obligations of RSL PLC and RSL COM.
Redemption
The 10 1/2% Notes are not redeemable prior to November 15, 2003.
Thereafter, the 10 1/2% Notes are subject to redemption, at the option of RSL
PLC, in whole or in part, at the redemption prices (expressed as percentage of
the accreted value thereof) set forth below plus accrued interest to but
excluding the redemption date, if redeemed during the 12-month period beginning
November 15 of the years indicated:
Year Redemption Price
2003....................................... 105.25%
2004....................................... 103.50%
2005....................................... 101.75%
2006 and thereafter........................ 100.00%
In addition, at any time prior to November 15, 2001, and in the event
RSL COM receives net cash proceeds from the public or private sale of its common
stock, RSL PLC may (to the extent it receives such proceeds and has not used
them, directly or indirectly, to redeem or repurchase other securities pursuant
to optional redemption provided), at its option, apply an amount equal to any
such net cash proceeds or any portion thereof to redeem, from time to time, 10
1/2% Notes in a principal amount at maturity of up to an aggregate amount equal
to one-third of the aggregate principal amount at maturity of the 10 1/2% Notes,
provided, however, that 10 1/2% Notes in an amount equal to at least two-thirds
of the aggregate principal amount at maturity of the 10 1/2% Notes remain
outstanding immediately after such redemption.
Covenants; Events of Default
The 10 1/2% Notes Indenture contains covenants and provides for events
of default which are identical in all material respects to the covenants and of
default contained in the U.S. Dollar Notes Indentures and the DM Notes
Indenture.
9 7/8% Notes
General
On May 13, 1999, RSL PLC issued the 9 7/8% Notes, or the old 9 7/8%
Notes pursuant to an indenture, dated as of May 13, 1999, or the 9 7/8% Notes
Indenture, among RSL PLC, RSL COM and The Chase Manhattan Bank, as Trustee. On
December 10, 1999, the old 9 7/8% Notes were exchanged for $175 million
principal amount at maturity of substantially identical notes that had been
registered under the Securities Act, or the 9 7/8% Notes. RSL COM has
unconditionally guaranteed the 9 7/8% Notes.
28
<PAGE>
Principal, Maturity and Interest
The 9 7/8% Notes are limited in aggregate principal amount at maturity
to $175 million and will mature on November 15, 2009. Interest on the 9 7/8%
Notes will accrue on the principal amount at maturity of such notes at the rate
of 9 7/8% per annum and is payable semiannually on May 15 and November 15 of
each year. Interest is computed on the basis of a 360-day year comprised of
twelve 30-day months.
Ranking
The 9 7/8% Notes are the unsecured senior obligations of RSL PLC and
RSL COM, rank equal in right of payment with the 1996 Notes, the U.S. Dollar
Notes, the DM Notes, the 12% Notes, the 10 1/2% Notes and all of the other
existing and future senior obligations of RSL PLC and RSL COM, and rank senior
in right of payment to all of the future subordinated obligations of RSL PLC and
RSL COM.
Redemption
The 9 7/8% Notes are not redeemable prior to November 15, 2004.
Thereafter, the 9 7/8% Notes are subject to redemption, at the option of RSL
PLC, in whole or in part, at the redemption prices (expressed as percentage of
the accreted value thereof) set forth below plus accrued interest to but
excluding the redemption date, if redeemed during the 12-month period beginning
November 15 of the years indicated:
Year Redemption Price
2004....................................... 104.938%
2005....................................... 103.292%
2006....................................... 101.646%
2007 and thereafter........................ 100.000%
In addition, at any time prior to November 15, 2002, and in the event
RSL COM receives net cash proceeds from the public or private sale of its common
stock, RSL PLC may (to the extent it has not used such proceeds, directly or
indirectly, to redeem or repurchase other securities pursuant to optional
redemption provided), at its option, apply an amount equal to any such net cash
proceeds or any portion thereof to redeem, from time to time, 9 7/8% Notes in a
principal amount at maturity of up to an aggregate amount equal to one-third of
the aggregate principal amount at maturity of the 9 7/8% Notes, provided,
however, that 9 7/8% Notes in an amount equal to at least two-thirds of the
aggregate principal amount at maturity of the 9 7/8% Notes remain outstanding
immediately after such redemption.
Covenants; Events of Default
The 9 7/8% Notes Indenture contains covenants and provides for events
of default which are identical in all material respects to the covenants and of
default contained in the U.S. Dollar Notes Indentures, the DM Notes Indenture
and the 10 1/2% Indenture.
Amendments to Indentures
In September 1999, we amended the 1996 Indenture, the U.S. Dollar Notes
Indentures, the DM Notes Indenture, the 12% Notes Indenture, the 10 1/2% Notes
Indenture and the 9 7/8% Indenture to modify exceptions to the limitations on
issuances and sales of capital stock of certain subsidiaries to limitations on
asset dispositions contained in the Indentures to permit the issuance and sale
of capital stock of deltathree.com and our Australian subsidiary in public or
private transactions without restricting use of proceeds solely to investments
in telecommunications assets and to employees, directors and consultants
pursuant to customary equity compensation and incentive plans.
In connection with our Dollar and Euro Notes offerings, RSL USA entered
into supplemental indentures with respect to the 1996 Indenture, U.S. Dollar
Notes Indentures, the DM Notes Indenture, the 12% Notes Indenture, the 10 1/2%
Notes Indenture and the 9 7/8% Indenture, pursuant to which RSL USA guaranteed
the obligations of
29
<PAGE>
RSL PLC under those indentures and the related notes. RSL USA's guarantees will
be released in the event of the release of RSL USA's guarantee of the new notes
as described in the section "Description of the New Notes and the New Notes
Guarantees" under the heading "Description of the New Notes Guarantees."
30
<PAGE>
DESCRIPTION OF THE NEW NOTES AND THE NEW NOTES GUARANTEES
The new dollar notes and the new euro notes will be issued under
Indentures, each dated as of February 22, 2000, or the Indentures, between RSL
PLC, RSL COM and RSL USA, as guarantors, or the Guarantors, and The Chase
Manhattan Bank, as trustee. The new dollar notes and the new euro notes are
referred to collectively in this prospectus as "the new notes." The statements
under this caption relating to the new notes and the Indentures are summaries
and do not purport to be complete, and are subject to, and are qualified in
their entirety by reference to, all the provisions of the Indenture, including
the definitions of certain terms therein. The Indentures are by their terms
subject to and governed by the Trust Indenture Act of 1939, as amended. Unless
otherwise indicated, references under this caption to sections, "ss." or
articles are references to the Indentures. Where reference is made to particular
provisions of the Indentures or to defined terms not otherwise defined herein,
such provisions or defined terms are incorporated herein by reference. The
definitions of certain capitalized terms used in the following summary are set
forth below under the heading "Certain Definitions."
General
The new notes will be senior unsecured obligations of RSL PLC and will
mature on March 1, 2010. Interest on each new note will accrue at the rate of 12
7/8% on the principal amount thereof from the last Interest Payment Date on
which interest has been paid on the old note in exchange therefore, or, if no
interest has been paid on such old note, from February 22, 2000. Interest will
be payable semiannually in cash on March 1 and September 1 of each year,
commencing September 1, 2000, to the Book-Entry Depositary (in the case of
Global Notes) or to the Person in whose name the note (or any predecessor note)
is registered (in the case of Definitive Registered Notes) at the close of
business on the preceding February 15 and August 15, as the case may be.
Interest on the notes will be computed on the basis of a 360-day year of twelve
30-day months. (ss.ss. 301, 307 & 310). You will not receive interest on any old
notes we accept for exchange that could otherwise be payable on any Interest
Payment Date, the record date for which occurs on or after consummation of the
exchange offer for the old notes.
The guarantee by the Guarantors of payments in respect of each of the
new dollar notes and the new euro notes or, collectively the "notes guarantees,"
will rank equal in right of payment with the Guarantors' unsecured
unsubordinated obligations.
Principal of and premium, if any, and interest on the new notes may be
presented for registration of transfer and exchange, at the office or agency of
RSL PLC maintained for that purpose in the Borough of Manhattan, The City of New
York, provided that at the option of RSL PLC, payment of interest on the notes
may be made by check mailed to the address of the Person entitled thereto as it
appears in the related Note Register. Until otherwise designated by RSL PLC,
such office or agency will be the corporate trust office of the Trustee, as
Paying Agent and Registrar. (ss.ss. 301, 305 & 1002)
The new notes will be issued without coupons, in denominations of
$1,000 in the case of the new dollar notes and (Euro)1,000 in the case of the
new euro notes, and any integral multiples of $1,000 or (Euro)1,000 in excess
thereof. (ss. 302) No service charge will be made for any registration of
transfer or exchange of notes, but RSL PLC may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (ss. 305)
The new dollar notes are initially limited to $100,000,000 in aggregate
principal amount and the new euro notes are initially limited to
(Euro)100,000,000 in aggregate principal amount. We may issue additional dollar
notes or euro notes (in either case "additional notes") from time to time after
the date of the Indentures, subject to the provisions of the Indentures, as well
as the provisions of our outstanding indebtedness, including the provisions
restricting additional indebtedness under the Indentures and those other
obligations.
Ranking
The new notes and the new notes guarantees will be unsecured
obligations of RSL PLC and the Guarantors, respectively, rank equal in right of
payment with all existing and future unsecured obligations of RSL PLC and the
Guarantors, respectively, and rank senior in right of payment to all future
subordinated obligations of RSL PLC and
31
<PAGE>
the Guarantors, respectively. Holders of secured obligations of RSL PLC or the
Guarantors, however, will have claims that are prior to the claims of the
holders of the new notes or the new notes guarantees with respect to the assets
securing such other obligations.
RSL PLC is a direct wholly-owned subsidiary of RSL COM. RSL COM's
principal operations are conducted through subsidiaries of RSL PLC and,
therefore, RSL COM and RSL PLC are dependent upon the cash flow of such
subsidiaries to meet their respective obligations. RSL COM's subsidiaries (other
than RSL PLC and RSL USA) have no obligation to guarantee or otherwise pay
amounts due under the notes. Therefore, the new notes are effectively
subordinated to all indebtedness and other liabilities and commitments
(including trade payables) of RSL COM's subsidiaries (other than RSL PLC and RSL
USA). Any right of RSL PLC to receive assets of any of the subsidiaries other
than RSL USA upon any liquidation or reorganization of such subsidiary (and the
consequent right of holders of the notes to participate in those assets) is
effectively subordinated to the claims of the subsidiary's creditors, except to
the extent that RSL PLC is itself recognized as a creditor of the subsidiary.
Any recognized claims of RSL PLC as a creditor of the subsidiary would be
subordinate to any prior security interest held by any other creditor of the
subsidiary and obligations of the subsidiary that are senior to those owing to
RSL PLC.
As of March 31, 2000:
o the total amount of outstanding liabilities of the Guarantors and
RSL PLC (excluding their subsidiaries), including trade payables,
was approximately $1.55 billion; and
o the total amount of outstanding liabilities of the subsidiaries of
RSL COM (other than RSL PLC and RSL USA), including trade
payables, was approximately $418.6 million.
Book-Entry; Delivery and Form
General
Each of the new dollar notes and the new euro notes will initially be
represented by one or more global securities in bearer form without interest
coupons, which will be issued in denominations equal to the outstanding
principal amount of the notes represented thereby. Each Restricted Global Note
will be deposited with the Book-Entry Depositary pursuant to the terms of a Note
Deposit Agreement, dated as of February 22, 2000 (the "Deposit Agreement"),
between RSL PLC, for the limited purposes set forth therein, and The Chase
Manhattan Bank, as book-entry depositary (the "Book-Entry Depositary").
In the case of new dollar notes, the Book-Entry Depositary will issue a
certificateless interest for each Global Note, representing a 100% interest in
the respective underlying Global Note in the name of Cede & Co., as a nominee of
The Depository Trust Company ("DTC"). Beneficial interests in the Global Notes
representing new dollar notes will be shown on, and transfers thereof will be
effected only through, records maintained in book-entry form by DTC (with
respect to its participants) and its participants.
In the case of euro notes, the Book-Entry Depositary will issue a
certificated depositary interest for each Global Note, representing a 100%
interest in the respective underlying Global Note, in the name of Euroclear and
Clearstream Banking, societe anonyme ("Clearstream"). Beneficial interests in
the Global Notes representing euro notes will be shown on, and transfers thereof
will be effected only through, records maintained in book-entry form by
Euroclear and Clearstream (with respect to their participants) and their
participants.
All interests in the Global Notes representing new euro notes will be
subject to the procedures and requirements of Euroclear or Clearstream, as the
case may be.
Beneficial interests in each Global Note are referred to herein as
"Book-Entry Interests."
Definitive Registered New Notes
Under the terms of the Deposit Agreement and the Indentures, owners of
Book-Entry Interests in the Global Notes will receive definitive notes in
registered form ("Definitive Registered Notes"):
32
<PAGE>
(1) if DTC, in the case of the dollar notes, or Euroclear and
Clearstream, in the case of the euro notes, notifies RSL PLC or the
Book-Entry Depositary in writing that it (or its nominee) is unwilling or
unable to continue to act as depositary or ceases to be a clearing agency
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in either case, a successor depositary registered as a
clearing agency under the Exchange Act is not appointed by RSL PLC within 90
days,
(2) at any time if RSL PLC determines that the Global Notes (in whole
but not in part) should be exchanged for Definitive Registered Notes,
provided that (x) such exchange is required by (A) any applicable law or (B)
any event beyond RSL PLC's control or (y) payments of interest on any Global
Note, Depositary Interest or Book-Entry Interest are, or would become,
subject to any deduction or withholding for taxes,
(3) at any time after the consummation of the Exchange Offer, if the
owner of a Book-Entry Interest requests such exchange in writing delivered
to DTC, or Euroclear and Clearstream, as applicable and through DTC, or
Euroclear and Clearstream, as applicable to the Book-Entry Depositary and
the Trustee or
(4) if the Book-Entry Depositary is at any time unwilling or unable to
continue as Book-Entry Depositary and a successor Book-Entry Depositary is
not appointed by RSL PLC within 90 days.
In no event will definitive securities in bearer form be issued. Any
Definitive Registered Notes will be issued in fully registered form in
denominations of $1,000 principal amount or (Euro)1,000 principal amount, as
applicable, and integral multiples thereof. Any Definitive Registered Notes will
be registered in such name or names as DTC, or Euroclear and Clearstream, as
applicable, shall instruct the Trustee, through the Book-Entry Depositary. It is
expected that the instructions will be based upon directions received by DTC, or
Euroclear and Clearstream, as applicable, from the participants reflecting the
beneficial ownership of Book-Entry Interests. To the extent permitted by law,
RSL PLC, the Trustee and any paying agent shall be entitled to treat the person
in whose name any Definitive Registered Note is registered as the absolute owner
thereof. While any Global Note is outstanding, holders of Definitive Registered
Notes may exchange their Definitive Registered Notes for a corresponding
Book-Entry Interest in such Global Note by surrendering their Definitive
Registered Notes to the Book-Entry Depositary and providing the certificates and
opinions required by the Indentures. The Book-Entry Depositary will make the
appropriate adjustments to the Global Note underlying such Book-Entry Interest
to reflect any issue or surrender of Definitive Registered Notes. The Indentures
contain provisions relating to the maintenance by a registrar of a register
reflecting ownership of Definitive Registered Notes, if any, and other
provisions customary for a registered debt security. Payment of principal and
interest on each Definitive Registered Note will be made to the holder appearing
on the register at the close of business on the record date at his address shown
on the register on the record date.
U.S. holders should be aware that, under current U.K. Law, upon the
issuance to a holder of Definitive Registered Notes, such holder will become
subject to U.K. income tax (currently 20%) to be withheld on any payments of
interest on the Definitive Registered Notes as set forth under the section
"Certain United Kingdom Tax Considerations for U.S. Holders of Notes." See below
under the heading "Additional Amounts." A U.S. holder of Definitive Registered
Notes will not, unless there has been a change in law or a "Listing Failure" (as
defined herein) and certain other conditions are met, be entitled to receive
Additional Amounts with respect to such Definitive Registered Notes. However, a
U.S. holder of Definitive Registered Notes may be entitled to receive a refund
of withheld amounts from the inland revenue in certain circumstances.
Description of Book-Entry Systems
Upon receipt of the Global Notes, the Book-Entry Depositary will issue
a certificateless interest (in the case of the new dollar notes) or a
certificated depositary interest (in the case of the new euro notes) for each
such Global Note, representing a 100% interest in the respective underlying
Global Note, in the name of DTC's nominee (in the case of the new dollar notes)
or in the name of the common depositary for Euroclear and Clearstream (in the
case of new euro notes). Ownership of Book-Entry Interests will be limited to
persons who have accounts with DTC, including Euroclear and Clearstream
("participants"), or persons who have accounts through participants ("indirect
participants"). Upon such issuance of interests in such Global Notes, DTC,
Euroclear or Clearstream, as applicable, will credit, on its internal book-entry
registration and transfer system, its participants' accounts with the respective
33
<PAGE>
interests owned by such participants. Such accounts initially will be designated
by or on behalf of the initial purchasers. Ownership of Book-Entry Interests
will be shown on, and the transfer of such ownership will be effected only
through, records maintained by DTC, Euroclear or Clearstream, as applicable, or
its nominee (with respect to interests of participants) and the records of
participants (with respect to interests of indirect participants).
The laws of some countries and some states in the United States may
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the ability
to own, transfer or pledge the Book-Entry Interests in the Global Notes.
So long as the Book-Entry Depositary, or its nominee, is the holder of
the Global Notes, the Book-Entry Depositary or such nominee, as the case may be,
will be considered the sole holder of such Global Notes for all purchases under
the Indentures and the notes. Except as set forth above, participants or
indirect participants will not be entitled to have notes or Book-Entry Interests
registered in their names, will not receive or be entitled to receive physical
delivery of notes or Book-Entry Interests in definitive bearer or registered
form and will not be considered the owners or holders thereof under the
Indentures. Accordingly, each person owning a Book-Entry Interest must rely on
the procedures of the Book-Entry Depositary and DTC, Euroclear and Clearstream
and, if such person is an indirect participant in DTC, the procedures of the
participants through which such person owns its interest, to exercise any rights
and remedies of a holder under the Indentures. If any definitive notes are
issued to participants or indirect participants, they will be issued in
registered form, as described above. Unless and until Book-Entry Interests are
exchanged for Definitive Registered Notes, the certificateless interest held by
DTC and the certificated depositary interest held by the common depositary may
not be transferred except as a whole between DTC (in the case of the dollar
notes) or Euroclear and Clearstream (in the case of the euro notes) and a
nominee between nominees of each of them or any such nominee to a successor of
DTC or Euroclear and Clearstream, as applicable, or a successor of such nominee.
Payments on the Global Notes
Payments of any amounts owing in respect of the Global Notes will be
made through one or more paying agents appointed under the Indentures (which
initially will include The Chase Manhattan Bank in New York and The Chase
Manhattan Bank in London, as paying agent for the notes) to the Book-Entry
Depositary as the holder of the Global Notes. All such amounts will be payable
in U.S. dollars in the case of the new dollar notes, and in euros in the case of
the new euro notes. Upon receipt of any such amounts in respect of the Global
Notes, the Book-Entry Depositary will pay such amounts to DTC, Euroclear or
Clearstream in proportion to its respective interests, as shown on the
Book-Entry Depositary's records.
RSL PLC expects that DTC or Euroclear or Clearstream, as applicable or
a nominee, upon receipt of any payment made in respect of the Global Notes, will
credit its participants' accounts with such payments in amounts proportionate to
their respective interest in the principal amount of such Global Note as shown
on the records of DTC or Euroclear or Clearstream, as applicable, or its
nominee. RSL PLC expects that payments by participants to owners of Book-Entry
Interests held through such participants will be governed by standing customer
instructions and customary practices, as is now the case with the securities
held for the account of customers in bearer form or registered in "street name,"
and will be the responsibility of such participants. Distribution with respect
to ownership of Book-Entry Interests held through Euroclear or Clearstream will
be credited to the cash accounts of Euroclear participants or Clearstream
participants in accordance with the relevant system's rules and procedures, to
the extent received by its depositary.
None of RSL PLC, the Book-Entry Depositary or any paying agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of Book-Entry Interests or for maintaining,
supervising or reviewing all records relating to such Book-Entry Interests or
beneficial ownership interests.
Redemption of Global Notes
In the event any Global Note (or any portion thereof) is redeemed, the
Book-Entry Depositary will, through DTC, Euroclear or Clearstream, as
applicable, redeem, from the amount received by it in respect of the redemption
of such Global Note, an equal amount of the Book-Entry Interests in such Global
Note. The redemption price payable in connection with the redemption of such
Book-Entry Interest will be equal to the amount received by the
34
<PAGE>
Book-Entry Depositary in connection with the redemption of such Global Note (or
any portion thereof). RSL PLC understands that under existing DTC, Euroclear and
Clearstream practices, if fewer than all of the notes are to be redeemed at any
time, DTC, Euroclear or Cedelbank, as applicable, will credit participants'
accounts on a proportionate basis (with adjustments to prevent fractions) or by
lot or on such other basis as DTC, Euroclear or Clearstream, as applicable,
deems fair and appropriate; provided that no beneficial interests of less than
$1,000 principal amount (in the case of the new dollar notes) or (Euro)1,000 (in
the case of the new euro notes) may be redeemed in part.
Transfers
Pursuant to the Deposit Agreement, the Global Notes may be transferred
only to the successor to the Book-Entry Depositary.
All transfers of Book-Entry Interests between participants in DTC,
Euroclear or Clearstream, as applicable, will be effected by DTC, Euroclear or
Clearstream, as applicable, pursuant to customary procedures established by such
entity and its participants.
Action by Owners of Book-Entry Interests
As soon as practicable after receipt by the Book-Entry Depositary of
notice of any solicitation of consents or request for a waiver of other action
by the holders of notes, or of any offer to purchase the notes with Excess
Proceeds or upon a Change of Control (as defined under the headings "Change of
Control" and "Certain Definitions," respectively), the Book-Entry Depositary
will mail to DTC, Euroclear and Clearstream a notice containing (a) such
information as is contained in the notice received by the Book-Entry Depositary,
(b) a statement that at the close of business on a specified record date DTC,
Euroclear and Clearstream will be entitled to instruct the Book-Entry Depositary
as to the consent, waiver or other action, if any, pertaining to such notes and
(c) a statement as to the manner in which such instructions may be given. In
addition, the Book-Entry Depositary will forward to DTC, Euroclear or
Clearstream, as applicable, all materials pertaining to any such solicitation,
request, offer or other action. Upon the written request of DTC, Euroclear or
Clearstream, as applicable, the Book-Entry Depositary shall endeavor insofar as
practicable to take such action regarding the requested consent, waiver, offer
or other action in respect of such notes in accordance with any instructions set
forth in such request. DTC, Euroclear and Clearstream may grant proxies or
otherwise authorize their respective participants or indirect participants to
provide such instructions to the Book-Entry Depositary so that they may exercise
any rights of a holder or take any other actions which a holder is entitled to
take under the Indentures. Under its usual procedures, DTC would mail an omnibus
proxy to RSL PLC and the Book-Entry Depositary assigning Euroclear's and
Clearstream's consenting or voting rights to those DTC participants to whose
accounts such Book-Entry Interests are credited on a record date as soon as
possible after such record date. Euroclear or Clearstream, as the case may be,
will take any action permitted to be taken by a holder under the Indentures on
behalf of a Euroclear participant or Clearstream participant only in accordance
with its relevant rules and procedures and subject to its depositary's ability
to effect such actions on its behalf. The Book-Entry Depositary will not
exercise any discretion in the granting of consents or waivers or the taking of
any other action relating to the Indentures.
DTC has advised RSL PLC that it will take any action permitted to be
taken by a holder of notes (including the presentation of notes for exchange as
described above) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of notes, as to which such
participant or participants has or have given such direction.
Reports
The Book-Entry Depositary will immediately send to DTC, Euroclear or
Clearstream, as applicable, a copy of any notices, reports and other
communications received relating to RSL PLC, the notes or the Book-Entry
Interests.
35
<PAGE>
Action by Book-Entry Depositary
Upon the occurrence of a Default with respect to the new notes, or in
connection with any other right of the holder of a Global Note under the
Indentures, if requested in writing by DTC, Euroclear or Clearstream, as
applicable, the Book-Entry Depositary will take any such action as shall be
requested in such notice; provided that the Book-Entry Depositary has been
offered reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request by the
owners of Book-Entry Interests.
Resignation of Book-Entry Depositary
The Book-Entry Depositary may at any time resign as Book-Entry
Depositary by written notice to RSL PLC and DTC, Euroclear or Clearstream, as
applicable, such resignation to become effective upon the appointment of a
successor book entry depositary, in which case the Global Notes shall be
delivered to that successor. If no such successor has been so appointed by RSL
PLC within 90 days, the Book-Entry Depositary may request RSL PLC to issue
Definitive Registered Notes as described above.
If at any time DTC is unwilling or unable to continue as a depositary
for the Book-Entry Interests for the dollar notes and a successor depositary is
not appointed by RSL PLC within 90 days, DTC may request that RSL PLC issue
Definitive Registered Notes in exchange therefor.
Expenses of Book-Entry Depositary
RSL PLC has agreed to indemnify the Book-Entry Depositary against
certain liabilities incurred by it and pay the charges of the Book-Entry
Depositary as agreed between RSL PLC and the Book-Entry Depositary.
Amendment and Termination of the Deposit Agreement
The Deposit Agreement may be amended by RSL PLC and the Book-Entry
Depositary without notice to or consent of DTC, Euroclear or Clearstream or any
owner of a Book-Entry Interest: (a) to cure any ambiguity, defect or
inconsistency, provided that such amendment or supplement does not adversely
affect the rights of DTC or Euroclear or Clearstream, as applicable, or any
holder of Book-Entry Interests, (b) to evidence the succession of another person
to RSL PLC (when a similar amendment with respect to the Indentures is being
executed) and the assumption by any such successor of the covenants of RSL PLC
therein, (c) to evidence or provide for a successor Book-Entry Depositary, (d)
to make any amendment, change or supplement that does not adversely affect DTC
or Euroclear or Clearstream, as applicable, or any owner of Book-Entry
Interests, (e) to add to the covenants of RSL PLC or the Book-Entry Depositary,
(f) to add a guarantor when a guarantor is made a party to the Indentures
pursuant to the Indentures or (g) to comply with the United States federal and
U.K. securities laws. Except as provided in the Deposit Agreement, no amendment
that adversely affects DTC or Euroclear or Clearstream, as applicable, may be
made to the Deposit Agreement without the consent of DTC or Euroclear or
Clearstream, as applicable, and no amendment that adversely affects the holders
of Book-Entry Interests may be made without the consent of a majority of the
aggregate principal amount of Book-Entry Interests outstanding. Upon the
issuance of Definitive Registered Notes in exchange for Book-Entry Interests
constituting the entire principal amount of notes, the Deposit Agreement will
terminate. The Deposit Agreement may be terminated upon the resignation of the
Book-Entry Depositary if no successor has been appointed within 90 days as set
forth above.
Information Concerning DTC, Euroclear and Clearstream
RSL PLC understands as follows with respect to DTC, Euroclear and
Clearstream:
DTC is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC was created to hold securities of its participants
and to facilitate the clearance and settlement of transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby
36
<PAGE>
eliminating the need for physical movement of securities certificates. DTC
participants include securities brokers and dealers (including the initial
purchasers), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
the DTC book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of an owner of a
Book-Entry Interest to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
Book-Entry Interests to such persons may be limited. In addition, beneficial
owners of Book-Entry Interests through the DTC system will receive distributions
attributable to the Global Notes only through DTC participants.
Euroclear and Clearstream hold securities for participating
organizations and facilitate the clearance and settlement of securities
transactions between their respective participants through electronic book-entry
changes in accounts of such participants. Euroclear and Clearstream provide to
their participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Euroclear and Clearstream interface with
some domestic securities markets. Euroclear and Clearstream participants are
mainly financial institutions such as underwriters, securities brokers and
dealers, banks, trust companies and certain other organizations. Indirect access
to Euroclear or Clearstream is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodian
relationship with a Euroclear or Clearstream participant, either directly or
indirectly.
Global Clearance and Settlement Under Book-Entry System
Initial Settlement. Investors that own their Book-Entry Interest
through DTC (other than through accounts at Euroclear or Clearstream) will
follow the settlement practices applicable to U.S. corporate debt obligations.
The securities custody accounts of investors will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors that own their Book-Entry Interests through Euroclear or
Clearstream accounts will follow the settlement procedures applicable to
conventional eurobonds in registered form. Book-Entry Interests will be credited
to the securities custody accounts of Euroclear and Clearstream holders on the
business day following the settlement date against payment for value on the
settlement date.
Secondary Market Trading. Secondary market trading activity in such
Book-Entry Interests will settle in same-day funds.
Since the purchasers determine the place of delivery, it is important
to establish at the time of trading of any initial Book-Entry Interests where
both the purchaser's and seller's accounts are located to ensure that settlement
can be made on the desired value date.
Optional Redemption
The new notes are subject to redemption, at the option of RSL PLC, in
whole or in part, at any time on or after March 1, 2005 and prior to maturity,
upon not less than 30 nor more than 60 days' notice mailed to each holder of
notes to be redeemed at such holder's address appearing in the note register, in
principal amounts of $1,000 or (Euro)1,000, as the case may be, or an integral
multiple of $1,000 or (Euro)1,000, at the following redemption prices (expressed
as percentages of the principal amount thereof) plus accrued interest to but
excluding the redemption date (subject to the right of holders to receive
interest due on an interest payment date that is on or prior to the redemption
date), if redeemed during the 12-month period beginning March 1, of the years
indicated:
37
<PAGE>
Redemption
<TABLE>
<CAPTION>
Year Dollar Note Redemption Price Euro Note Redemption Price
------------------------------------- ---------------------------- --------------------------
<S> <C> <C>
2005................................. 106.438% 106.438%
2006................................. 104.292% 104.292%
2007................................. 102.146% 102.146%
2008 and thereafter.................. 100.000% 100.000%
</TABLE>
(ss.ss.203, 1101, 1105 & 1107)
In addition, at any time prior to March 1, 2003, in the event that RSL
COM receives net cash proceeds from the public or private sale of its Common
Stock, RSL PLC (to the extent it receives such proceeds) may, at its option,
apply an amount equal to any such net cash proceeds or any portion thereof to
redeem, from time to time, new dollar notes or new euro notes in a principal
amount of up to an aggregate amount equal to 33 1/3% of the original aggregate
principal amount of each of the new dollar notes and the new euro notes, as
applicable (including any additional notes issued after the closing date)
provided, however, that at least 66 2/3% of the aggregate original principal
amount at maturity of each of the new dollar notes and the new euro notes, as
applicable (including any additional notes issued after the closing date) remain
outstanding after each redemption. Each redemption must occur on a Redemption
Date within 180 days of the related sale and upon not less than 30 nor more than
60 days' notice mailed to each holder of notes to be redeemed at such holder's
address appearing in the Note Register, in amounts of $1,000 or (Euro)1,000, as
the case may be, or an integral multiple of $1,000 or (Euro)1,000 at redemption
prices equal to 112.875% and 112.875% of the principal amount of the dollar and
the euro notes redeemed, respectively, plus accrued interest to but excluding
the Redemption Date.
If less than all the notes are to be redeemed, the Trustee shall
select, in such manner as it shall deem fair and appropriate, the particular
notes to be redeemed or any portion thereof that is an integral multiple of
$1,000 or (Euro)1,000, as the case may be. (ss.1104)
In the event that (1) the Guarantors or RSL PLC has become or would
become obligated to pay any Additional Amounts (as defined herein) as a result
of (x) certain changes in or affecting withholding tax laws or (y) a Listing
Failure (as defined herein) provided that RSL PLC has used reasonable best
efforts to list and maintain a listing of the notes on a "recognized stock
exchange" (within the meaning of Section 841 of the U.K. Income and Corporation
Taxes Act 1988), and (2) the Guarantors and RSL PLC are unable to avoid the
requirement to pay such Additional Amounts by taking reasonable measures
available to them (including, without limitation, the Guarantors making payments
directly to holders under the notes guarantees, unless such payment is likely to
result in adverse consequences to RSL PLC or the Guarantors), then RSL PLC may
redeem all, but not less than all, of the dollar notes or the euro notes or
both, as applicable at any time, at 100% of the principal amount thereof on the
redemption date, together with accrued interest thereon, if any, to but
excluding the redemption date.
Prior to the publication of the notice of redemption in accordance with
the foregoing, RSL PLC shall deliver to the Trustee an officer's certificate
stating that RSL PLC is entitled to effect such redemption based on a written
opinion of independent tax counsel or accounting firm reasonably satisfactory to
the Trustee. See the heading "Additional Amounts."
The new notes do not have the benefit of any sinking fund.
Covenants
Each Indenture contains, among others, the following covenants:
38
<PAGE>
Limitation on Consolidated Debt
RSL COM may not, and may not permit any Restricted Subsidiary to, incur
any Debt unless the ratio of (a) the aggregate consolidated principal amount of
Debt (which is defined in the Indentures to include the accreted value of any
Debt issued at a discount) of RSL COM outstanding as of the most recent
available quarterly or annual balance sheet, after giving pro forma effect to
the Incurrence of such Debt and any other Debt Incurred since such balance sheet
date and the receipt and application of the proceeds thereof, to (b) four (4)
times the Consolidated Cash Flow Available for Fixed Charges for the most recent
fiscal quarter next preceding the Incurrence of such Debt for which consolidated
financial statements are available, determined on a pro forma basis as if any
such Debt had been Incurred and the proceeds thereof had been applied at the
beginning of such recent fiscal quarter, would be less than 7.0 to 1.0 for such
period.
Notwithstanding the foregoing limitation, RSL COM and any Restricted
Subsidiary may Incur the following:
(1) Debt under Credit Facilities in an aggregate principal amount at any
one time not to exceed $200 million, and any renewal, extension, refinancing
or refunding thereof in an amount which, together with any principal amount
remaining outstanding under all Credit Facilities, does not exceed the
aggregate principal amount outstanding under all Credit Facilities
immediately prior to such renewal, extension, refinancing or refunding;
(2) Debt owed by RSL COM to any Restricted Subsidiary or Debt owed by a
Restricted Subsidiary to RSL COM or a Restricted Subsidiary; provided,
however, that upon either (x) the transfer or other disposition by such
Restricted Subsidiary or RSL COM of any Debt so permitted to a Person other
than RSL COM or another Restricted Subsidiary or (y) such Restricted
Subsidiary ceasing to be a Restricted Subsidiary, the provisions of this
clause (2) shall no longer be applicable to such Debt and such Debt shall be
deemed to have been Incurred at the time of such transfer or other
disposition;
(3) Debt Incurred to renew, extend, refinance or refund (each, a
"refinancing") (x) Debt outstanding at the date of the Indentures or (y)
Incurred pursuant to the first paragraph of this "Limitation on Consolidated
Debt", or clause (6) or (8) of this paragraph or (z) the notes originally
issued on the date of the Indentures or notes exchanged therefore, in each
case, in an aggregate principal amount not to exceed the aggregate principal
amount of and accrued interest on the Debt so refinanced plus the amount of
any premium required to be paid in connection with such refinancing pursuant
to the terms of the Debt so refinanced or the amount of any premium
reasonably determined by RSL COM as necessary to accomplish such refinancing
by means of a tender offer or privately negotiated repurchase, plus the
expenses of RSL COM or the Restricted Subsidiary effecting such refinancing
incurred in connection with such refinancing; provided, however, that Debt
the proceeds of which are used to refinance the new notes or Debt which is
equal in right of payment to the new notes and the new notes guarantees or
Debt which is subordinate in right of payment to the new notes and the new
notes guarantees, shall only be permitted if (A) in the case of any
refinancing of the new notes or Debt which is equal in right of payment to
the new notes and the new notes guarantees, the refinancing Debt is made
equal in right of payment or subordinated to the new notes and the new notes
guarantees and, in the case of any refinancing of Subordinated Debt, the
refinancing Debt constitutes Subordinated Debt and (B) in any case, the
refinancing Debt by its terms, or by the terms of any agreement or
instrument pursuant to which such Debt is issued, does not have a final
stated maturity prior to the final stated maturity of the Debt being
refinanced, and the Average Life of such new Debt is at least equal to the
remaining Average Life of the Debt being refinanced (assuming that such Debt
being refinanced had a final stated maturity three months later than its
actual final stated maturity);
(4) Debt in an aggregate principal amount not in excess of (A) two (2)
times the aggregate amount of RSL COM's Incremental Paid-in Capital minus
(B) $165 million;
(5) Debt in an aggregate principal amount not in excess of 80% of the
aggregate amount of accounts receivable set forth on the most recent
unaudited quarterly or audited annual financial statements of RSL COM and
its consolidated subsidiaries filed with the Commission;
39
<PAGE>
(6) Purchase Money Debt, which is incurred for the construction,
acquisition or improvement of Telecommunications Assets, provided that the
amount of such Purchase Money Debt does not exceed the cost of the
construction, acquisition or improvement of the applicable
Telecommunications Assets;
(7) Debt consisting of Permitted Interest Rate and Currency Protection
Agreements; and
(8) Debt not otherwise permitted to be Incurred pursuant to clauses (1)
through (7) above, which, together with any other outstanding Debt Incurred
pursuant to this clause (8), has an aggregate principal amount not in excess
of $50 million at any time outstanding.
For purposes of determining compliance with this "Limitation on
Consolidated Debt" covenant, with respect to any item of Debt (x) in the event
that an item of Debt meets the criteria of more than one of the types of Debt
RSL COM or a Restricted Subsidiary is permitted to Incur pursuant to the
foregoing clauses (1) through (8), RSL COM shall have the right, in its sole
discretion, to classify such item of Debt and shall only be required to include
the amount and type of such Debt under the clause permitting the Debt as so
classified and (y) any other obligation of the obligor on such Debt (or of any
other Person who could have Incurred such Debt under this covenant) arising
under any Guarantee, Lien or letter of credit supporting such Debt shall be
disregarded to the extent that such Guarantee, Lien or letter of credit secures
the principal amount of such Debt.
For purposes of determining compliance with the foregoing restriction
on the Incurrence of Debt with respect to Debt denominated in a foreign
currency, the dollar-equivalent principal amount of such
foreign-currency-denominated Debt shall be calculated based on the relevant
currency exchange rate in effect on the date that such
foreign-currency-denominated Debt was Incurred, in the case of term debt, or
first committed, in the case of revolving credit debt, provided that (x) the
dollar-equivalent principal amount of any such Debt outstanding on the Closing
Date shall be calculated based on the relevant currency exchange rate in effect
on the Closing Date and (y) if such Debt is Incurred to refinance other Debt
denominated in a foreign currency, and such refinancing would cause the
applicable dollar-denominated restriction to be exceeded if calculated at the
relevant currency exchange rate in effect on the date of such refinancing, such
dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Debt does not exceed the principal
amount of such Debt being refinanced. The principal amount of any Debt Incurred
to refinance other Debt, if Incurred in a different currency from the Debt being
refinanced, shall be calculated based on the currency exchange rate applicable
to the currencies in which such respective Debt is denominated that is in effect
on the date of such refinancing.
Limitation on Restricted Payments
RSL COM:
(A) may not, and will not permit any Restricted Subsidiary, directly or
indirectly, to declare or pay any dividend, or make any distribution, in
respect of its Capital Stock or to the holders thereof, excluding (x) any
dividends or distributions payable solely in shares of its Capital Stock
(other than Disqualified Stock) or in options, warrants or other rights to
acquire its Capital Stock (other than Disqualified Stock), (y) any dividends
paid to RSL COM or a Restricted Subsidiary or (z) pro rata dividends paid on
shares of Common Stock of Restricted Subsidiaries;
(B) may not, and may not permit any Restricted Subsidiary to, purchase,
redeem, or otherwise retire or acquire for value (x) any Capital Stock of
RSL COM or any Related Person of RSL COM (other than a permitted
refinancing) or (y) any options, warrants or rights to purchase or acquire
shares of Capital Stock of RSL COM or any Related Person of RSL COM or any
securities convertible or exchangeable into shares of Capital Stock of RSL
COM or any Related Person of RSL COM (other than a permitted refinancing);
(C) may not make, or permit any Restricted Subsidiary to make, any
Investment, except for Permitted Investments; and
(D) may not, and may not permit any Restricted Subsidiary to, redeem,
defease, repurchase, retire or otherwise acquire or retire for value, prior
to any scheduled maturity, repayment or sinking fund payment, Debt
40
<PAGE>
of the Guarantors or RSL PLC which is subordinate in right of payment to the
notes or the notes guarantees (each of clauses (A) through (D) being a
"Restricted Payment")
if:
(1) an Event of Default, or an event that with the passing of time or
the giving of notice, or both, would constitute an Event of Default, shall
have occurred and be continuing; or
(2) except with respect to Investments, upon giving effect to such
Restricted Payment, RSL COM could not Incur at least $1.00 of additional
Debt pursuant to the terms of the Indentures described in the first
paragraph of "Limitation on Consolidated Debt" above; or
(3) upon giving effect to such Restricted Payment, the aggregate of all
Restricted Payments from the date of the Indentures exceeds the sum of:
(a) (x) Consolidated Cash Flow Available for Fixed Charges since the
end of the last full fiscal quarter prior to the date of the Indentures
through the last day of the last full fiscal quarter ending immediately
preceding the date of such Restricted Payment (the "Calculation Period")
minus (y) 1.5 times Consolidated Interest Expense for the Calculation
Period plus
(b) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments) in any Person resulting from
payments of interest on Debt, dividends, repayments of loans or
advances, or other transfers of assets, in each case to RSL COM or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Consolidated Cash Flow
Available for Fixed Charges for the Calculation Period, or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"),
not to exceed, in each case, the amount of Investments previously made
by RSL COM or any Restricted Subsidiary in such Person or Unrestricted
Subsidiary plus
(c) an amount equal to the aggregate net proceeds received after the
date of the Indentures, including the fair market value of property
other than cash (determined in good faith by the Board of Directors as
evidenced by a resolution of the Board of Directors filed with the
Trustee), as capital contributions to RSL COM or from the issuance
(other than to a Subsidiary) of Capital Stock (other than Disqualified
Stock) of RSL COM and warrants, rights or options on Capital Stock
(other than Disqualified Stock) of RSL COM and the principal amount of
Debt of RSL COM or any Restricted Subsidiary that has been converted
into Capital Stock (other than Disqualified Stock and other than by a
Subsidiary) of RSL COM after the date of the Indentures plus
(d) $30 million.
Notwithstanding the foregoing:
(1) RSL COM may pay any dividend on Capital Stock of any class of RSL
COM within 60 days after the declaration thereof if, on the date when the
dividend was declared, RSL COM could have paid such dividend in accordance
with the foregoing provisions;
(2) RSL COM may make acquisitions of a minority equity interest in
entities engaged in the Telecommunications Business; provided that
(a) the acquisition of a majority equity interest in such entities
is not then permitted or practicable under applicable law without
regulatory consent or change of law,
(b) the Board of Directors of RSL COM determines in good faith that
there is a substantial probability that such approval or change of law
will be obtained,
41
<PAGE>
(c) RSL COM or one of its Restricted Subsidiaries has the right to
acquire Capital Stock representing a majority of the voting power of the
Voting Stock of such entity upon receipt of regulatory consent or change
of law and does acquire such Voting Stock reasonably promptly upon
receipt of such consent or change of law, and
(d) in the event that such consent or change of law has not been
obtained within 18 months of funding such Investment, RSL COM or one of
its Restricted Subsidiaries has the right to sell such minority equity
interest to the Person from whom it acquired such interest, for
consideration consisting of the consideration originally paid by RSL COM
and its Restricted Subsidiaries for such minority equity interest;
(3) RSL COM may repurchase any shares of its Common Stock or options
to acquire its Common Stock from Persons who were formerly directors,
officers or employees of RSL COM or any of its Subsidiaries, provided
that the aggregate amount of all such repurchases made pursuant to this
clause (3) shall not exceed $6 million, plus the aggregate cash proceeds
received by RSL COM since the date of the Indentures from issuances of
its Common Stock or options to acquire its Common Stock to directors,
officers and employees of RSL COM or any of its Restricted Subsidiaries;
(4) RSL COM or a Restricted Subsidiary may redeem, defease,
repurchase, retire or otherwise acquire or retire for value Debt of the
Guarantors or RSL PLC which is subordinated in right of payment to the
notes or the notes guarantees, as the case may be, in exchange for, or
out of the proceeds of a substantially concurrent sale (other than to a
Subsidiary) of, Capital Stock (other than Disqualified Stock of RSL COM)
or in a refinancing that satisfies the requirements of clause (3) of the
second paragraph under "Limitation on Consolidated Debt";
(5) RSL COM and its Restricted Subsidiaries may retire or repurchase
any Capital Stock of RSL COM or of any Subsidiary of RSL COM in exchange
for, or out of the proceeds of the substantially concurrent sale (other
than to a Subsidiary of RSL COM) of, Capital Stock (other than
Disqualified Stock) of RSL COM or such Restricted Subsidiary; and
(6) RSL COM or a Restricted Subsidiary may make payments or
distributions to dissenting stockholders pursuant to applicable law or
pursuant to or in connection with a transaction governed by the
provisions described below under "Mergers, Consolidations and Certain
Sales of Assets," provided that the number of shares as to which dissent
or appraisal rights are exercised and such payments or distributions are
being made does not exceed 1% of the total number of shares of all
classes for which such rights are exercisable.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
RSL COM may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary:
(1) to pay dividends (in cash or otherwise) or make any other
distributions in respect of its Capital Stock owned by RSL COM or any
Restricted Subsidiary or pay any Debt or other obligation owed to RSL COM or
any Restricted Subsidiary;
(2) to make loans or advances to RSL COM or any Restricted Subsidiary;
or
(3) to transfer any of its property or assets to RSL COM or any
Restricted Subsidiary.
Notwithstanding the foregoing, RSL COM may, and may permit any
Restricted Subsidiary to, suffer to exist any such encumbrance or restriction:
(a) pursuant to any agreement in effect on the date of the
Indentures;
42
<PAGE>
(b) pursuant to an agreement relating to any Acquired Debt, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person so acquired
and was not Incurred in anticipation of such Person being acquired;
(c) pursuant to an agreement effecting a renewal, refunding or
extension of Debt Incurred pursuant to an agreement referred to in
clause (a) or (b) above, provided, however, that the provisions
contained in such renewal, refunding or extension agreement relating to
such encumbrance or restriction are no more restrictive in any material
respect than the provisions contained in the agreement the subject
thereof;
(d) in the case of clause (3) above, contained in any security
agreement (including a Capital Lease Obligation) securing Debt of RSL
COM or a Restricted Subsidiary otherwise permitted under the Indentures,
but only to the extent such restrictions restrict the transfer of the
property subject to such security agreement;
(e) in the case of clause (3) above, with respect to customary
nonassignment provisions entered into in the ordinary course of business
in leases and other agreements;
(f) with respect to a Restricted Subsidiary imposed pursuant to an
agreement which has been entered into for the sale or disposition of all
or substantially all of the Capital Stock or assets of such Restricted
Subsidiary, provided that
(x) the consummation of such transaction would not result in an
Event of Default or an event that, with the passing of time or the
giving of notice or both, would constitute an Event of Default,
(y) such restriction terminates if such transaction is not
consummated and
(z) the consummation or abandonment of such transaction occurs
within one year of the date such agreement was entered into;
(g) pursuant to applicable law or required by any regulatory authority
having jurisdiction over RSL COM or any Restricted Subsidiary;
(h) pursuant to the Indentures and the new notes;
(i) constituting a Lien otherwise permitted pursuant to "Limitations on
Liens"; and
(j) other encumbrances or restrictions that are not materially more
restrictive than customary provisions in comparable financings provided that
RSL PLC and the Guarantors provide an Officer's Certificate to the Trustee
to the effect that in the opinion of the signers of such certificate such
encumbrances or restrictions will not materially impact RSL PLC's and
Guarantors' ability to make scheduled payments of interest and principal
under the notes.
Limitation on Issuance of Guarantees of Debt by Restricted Subsidiaries
RSL COM will not permit any Restricted Subsidiary, directly or
indirectly, to incur any Guarantee of any Debt of the Guarantors or RSL PLC
(other than the notes) unless such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture providing for a Guarantee by such
Subsidiary of the new notes; any Subsidiary Guarantee by such Subsidiary of the
new notes (x) will be senior in right of payment to any Guarantee of
Subordinated Debt of the Guarantors or RSL PLC and (y) will be equal with or
senior to any Guarantee of any other Debt of the Guarantors or RSL PLC.
Notwithstanding the foregoing, any Subsidiary Guarantee may provide by
its terms that it shall be automatically and unconditionally released and
discharged upon:
43
<PAGE>
(1) any sale, exchange or transfer, to any Person not an Affiliate of
RSL COM, of all of RSL COM's and each Restricted Subsidiary's Capital Stock
in, or all or substantially all the assets of, such Restricted Subsidiary
(which sale, exchange or transfer is not prohibited by the Indentures); or
(2) the release or discharge of the Guarantee which resulted in the
creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee.
Limitation on Liens
RSL COM may not, and may not permit any Restricted Subsidiary to, Incur
or suffer to exist any Lien on or with respect to any property or assets now
owned or hereafter acquired to secure any Debt without making, or causing such
Restricted Subsidiary to make, effective provision for securing the notes (x)
equally and ratably with such Debt as to such property for so long as such Debt
will be so secured or (y) in the event such Debt is Debt of either Guarantor
which is subordinate in right of payment to the notes, prior to such Debt as to
such property for so long as such Debt will be so secured.
The foregoing restrictions shall not apply to:
(1) Liens existing on the date of the Indentures and securing Debt
outstanding on the date of the Indentures;
(2) Liens securing Debt outstanding or available under all Credit
Facilities to the extent such Debt is permitted under clause (i) of the
"Limitation in Consolidated Debt";
(3) Liens in favor of RSL COM or any Restricted Subsidiary;
(4) Liens on real or personal property of RSL COM or a Restricted
Subsidiary acquired, constructed or constituting improvements made after the
date of original issuance of the notes to secure Purchase Money Debt which
is Incurred for the construction, acquisition and improvement of
Telecommunications Assets and is otherwise permitted under the Indentures,
provided, however, that
(a) the principal amount of any Debt secured by such a Lien does not
exceed 100% of such purchase price or cost of construction or
improvement of the property subject to such Liens,
(b) such Lien attaches to such property prior to, at the time of or
within 180 days after the acquisition, completion of construction or
commencement of operation of such property and
(c) such Lien does not extend to or cover any property other than
the specific item of property (or portion thereof) acquired, constructed
or constituting the improvements made with the proceeds of such Purchase
Money Debt;
(5) Liens to secure Acquired Debt, provided, however, that
(a) such Lien attaches to the acquired asset prior to the time of
the acquisition of such asset and
(b) such Lien does not extend to or cover any other asset;
(6) Liens to secure Debt Incurred to extend, renew, refinance or refund
(or successive extensions, renewals, refinancings or refundings), in whole
or in part, Debt secured by any Lien referred to in the foregoing clauses
(1), (2), (4) and (5) so long as the principal amount of Debt so secured is
not increased except as otherwise permitted under clause (3) of
"--Limitation on Consolidated Debt" and, in the case of Liens to secure Debt
incurred to extend, renew, refinance or refund Debt secured by a Lien
referred to in the foregoing clause (1), (4) or (5), such Liens do not
extend to any other property; and
(7) Permitted Liens.
44
<PAGE>
Limitation on Asset Dispositions
RSL COM may not, and may not permit any Restricted Subsidiary to, make
any Asset Disposition in one or more related transactions unless:
(1) RSL COM or the Restricted Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the fair market value
for the assets sold or disposed of as determined by the Board of Directors
in good faith and, in the case of an Asset Disposition in an amount greater
than $5 million, evidenced by a resolution of the Board of Directors filed
with the Trustee; and
(2) at least 75% of the consideration for such disposition consists of:
(a) cash or readily marketable cash equivalents or the assumption of
Debt of the Guarantors or RSL PLC (other than Debt that is subordinated
to the new notes and the new notes guarantees) or of a Restricted
Subsidiary and release from all liability on the Debt assumed; or
(b) Telecommunications Assets.
However, none of the provisions of this "Limitation on Asset
Dispositions" shall apply to the issuance or sale of capital stock of (x)
deltathree.com, (y) RSL COM Australia Holdings Pty. Limited or a newly-formed
parent or subsidiary thereof organized under the laws of Australia ("RSL
Australia") or (z) RSL Communications Spain S.A. or a newly-formed parent or
subsidiary thereof organized under the laws of Spain ("RSL Spain"), in each
case, made in compliance with clause (5) of "Limitation on Issuance and Sales of
Capital Stock of Restricted Securities" below.
In the event and to the extent that the Net Available Proceeds received
by RSL COM or any of its Restricted Subsidiaries from one or more Asset
Dispositions occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Consolidated Tangible Assets (determined as of
the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of RSL COM and its subsidiaries have been filed with
the Commission), then RSL COM or RSL PLC shall or shall cause the relevant
Restricted Subsidiary to:
(1) within twelve months after the date Net Available Proceeds so
received exceed 10% of Consolidated Tangible Assets:
(a) apply an amount equal to such excess Net Available Proceeds to
permanently repay unsubordinated Debt of RSL COM or any Restricted
Subsidiary providing a Subsidiary Guarantee pursuant to the "Limitation
on Issuances of Guarantees by Restricted Subsidiaries" covenant or Debt
of any other Restricted Subsidiary, in each case owing to a Person other
than RSL COM or any of its Restricted Subsidiaries; or
(b) invest an equal amount, or the amount not so applied pursuant to
clause (a) (or enter into a definitive agreement committing to so invest
within twelve months after the date of such agreement), in
Telecommunications Assets; and
(2) apply (no later than the end of the twelve-month period referred to
in clause (1)) such excess Net Available Proceeds (to the extent not applied
pursuant to clause (1)) as provided in the following paragraph of this
"Limitation on Asset Dispositions" covenant.
The amount of such excess Net Available Proceeds required to be applied
(or to be committed to be applied) during such twelve-month period as set forth
in clause (1) of the preceding sentence and not applied as so required by the
end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Dispositions" covenant totals at least $10
45
<PAGE>
million, RSL PLC shall repay any Debt of RSL COM or any Restricted Subsidiary to
the extent the terms of such Debt require repayment prior to an Offer to
Purchase being made hereunder (including by way of an offer to purchase to the
holders of such Debt, if so required). To the extent there are Excess Proceeds
after such repayment (or offer to purchase), RSL PLC must commence, not later
than the fifteenth Business Day of such month (or if later, the fifteenth
Business Day after the expiration of any such required offer to purchase), and
consummate an Offer to Purchase from the holders of the new notes on a pro rata
basis an aggregate principal amount of such new notes on the relevant Payment
Date equal to the Excess Proceeds on such date not applied or to be applied
pursuant to the first sentence of this paragraph, at a purchase price equal to
100% of the principal amount of the new notes, plus, in each case, accrued
interest (if any) to but excluding the Payment Date and, to the extent required
by the terms thereof, any other Debt of RSL COM that is equal with the new notes
at a price no greater than 100% of the principal amount (or 100% of the accreted
value in the case of original issue discount Debt) thereof plus accrued interest
to but excluding the date of purchase. To the extent there are any remaining
Excess Proceeds following the completion of the Offer to Purchase, RSL PLC must
repay such other Debt of RSL COM or Debt of a Restricted Subsidiary, to the
extent permitted under the terms thereof and, to the extent there are any
remaining Excess Proceeds after such repayment, RSL PLC shall apply such amount
to any other use as determined by RSL PLC which is not otherwise prohibited by
the Indentures.
Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries
RSL COM may not, and may not permit any Restricted Subsidiary to,
issue, transfer, convey, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary or securities convertible or exchangeable into,
or options, warrants, rights or any other interest with respect to, Capital
Stock of a Restricted Subsidiary to any Person other than RSL COM or a
Wholly-Owned Restricted Subsidiary except:
(1) a sale of all of the Capital Stock of such Restricted Subsidiary
owned by RSL COM and any Restricted Subsidiary that complies with the
provisions described under "Limitation on Asset Dispositions" above to the
extent such provisions apply;
(2) if required, the issuance, transfer, conveyance, sale or other
disposition of directors' qualifying shares;
(3) Disqualified Stock issued in exchange for, or upon conversion of, or
the proceeds of the issuance of which are used to redeem, refinance, replace
or refund shares of Disqualified Stock of such Restricted Subsidiary,
provided that the amounts of the redemption obligations of such Disqualified
Stock shall not exceed the amounts of the redemption obligations of, and
such Disqualified Stock shall have redemption obligations no earlier than
those required by, the Disqualified Stock being exchanged, converted,
redeemed, refinanced, replaced or refunded;
(4) issuances of not more than 49% of the Voting Stock and equity
interest in a Restricted Subsidiary engaged in the Telecommunications
Business:
(a) in connection with the acquisition of such Restricted Subsidiary
or of Telecommunications Assets acquired or to be acquired by RSL COM or
a Restricted Subsidiary; or
(b) to a Strategic Investor, provided that RSL COM complies with the
provisions described under "Limitation on Asset Dispositions" above to
the extent such provisions apply; and
(5) issuances or sales of capital stock of each of deltathree.com, RSL
Australia and RSL Spain, including pursuant to stock option plans or other
equity compensation and incentive plans established for each of their
respective employees, directors and consultants, so long as immediately
after giving effect to such issuances and sales, RSL PLC of such capital
stock is a Restricted Subsidiary.
Limitation on Transactions With Affiliates and Related Persons
RSL COM will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or
46
<PAGE>
assets, or the rendering of any service) with any Related Person or with any
Affiliate of RSL COM or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to RSL COM or such Restricted Subsidiary than
could be obtained, at the time of such transaction or, if such transaction is
pursuant to a written agreement, at the time of the execution of the agreement
providing therefor, in a comparable arm's length transaction with a Person that
is not a Related Person or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(1) transactions:
(a) approved by a majority of the disinterested members of the Board
of Directors; or
(b) for which RSL COM or a Restricted Subsidiary delivers to the
Trustee a written opinion of a nationally recognized investment banking
firm (or a subsidiary or affiliate thereof) in the United States stating
that the transaction is fair to RSL COM or such Restricted Subsidiary
from a financial point of view;
(2) any transaction solely between RSL COM and any of its Wholly-Owned
Restricted Subsidiaries or solely between Wholly-Owned Restricted
Subsidiaries; and
(3) any payments or other transactions pursuant to any tax-sharing
agreement between RSL COM and any other Person with which RSL COM files a
consolidated tax return or with which RSL COM is part of a consolidated
group for tax purposes.
Notwithstanding the foregoing, any transaction covered by the first
paragraph of this "Limitation on Transactions with Affiliates and Related
Persons" covenant and not covered by clauses (2) through (3) of this paragraph
must be approved or determined to be fair in the manner provided for in clause
(1) above, unless the aggregate amount of such transaction is less than $5
million in value.
Change of Control
Unless RSL PLC has theretofore exercised its right to redeem all of the
new notes in accordance with the Indentures, within 30 days of the occurrence of
a Change of Control, RSL PLC will be required to make an Offer to Purchase all
outstanding new notes at a purchase price equal to 101% of their principal
amount plus accrued interest to but excluding the date of purchase. A "Change of
Control" will be deemed to have occurred at such time as either:
(1) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 35% of the total
voting power of the Voting Stock of RSL COM on a fully diluted basis and
such ownership is greater than the amount of voting power of the Voting
Stock of RSL COM, on a fully diluted basis, held by the Existing
Stockholders and their Affiliates on such date;
(2) individuals who on the Closing Date constitute the Board of
Directors (together with any new directors whose election by the Board of
Directors or whose nomination for election by the Guarantor's stockholders
was approved by a vote of at least two-thirds of the members of the Board of
Directors then in office who either were members of the Board of Directors
on the Closing Date or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office; or
(3) all of the Common Stock of RSL PLC is not beneficially owned by RSL
COM (other than directors' qualifying shares). (ss.1017)
47
<PAGE>
In the event that RSL PLC makes an Offer to Purchase the notes, RSL PLC
and Guarantors intend to comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act.
Reports
The Guarantors and RSL PLC have agreed that, for so long as any new
notes remain outstanding, each will furnish to the holders of the new notes and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act. In addition, the Guarantors and RSL PLC will file with the
Trustee within 15 days after it files them with the Commission copies of the
annual and quarterly reports and the information, documents, and other reports
that either Guarantor or RSL PLC is required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act ("Commission Reports").
In the event either Guarantor or RSL PLC shall cease to be required to file
Commission Reports pursuant to the Exchange Act, the Guarantors and RSL PLC will
nevertheless continue to file such reports with the Commission (unless the
Commission will not accept such a filing) and the Trustee. The Guarantors and
RSL PLC will furnish copies of the Commission Reports to the holders of notes at
the time the Guarantors or RSL PLC is required to file the same with the Trustee
and will make such information available to investors who request it in writing.
(ss. 1018)
Mergers, Consolidations and Certain Sales of Assets
Neither RSL COM, RSL PLC nor, so long as its notes guarantees have not
been released as provided below under "Description of New Notes Guarantees", RSL
USA may, in a single transaction or a series of related transactions, (except,
in the case of RSL USA, in any transaction or series of related transactions as
a result of which RSL USA's notes guarantees will be released) (a) consolidate
with or merge into any other Person or permit any other Person to consolidate
with or merge into either Guarantor or RSL PLC, or (b) directly or indirectly,
transfer, sell, lease or otherwise dispose of all or substantially all of its
assets to any other Person, unless:
(1) in a transaction in which either Guarantor or RSL PLC, as applicable
does not survive or in which either Guarantor or RSL PLC sells, leases or
otherwise disposes of all or substantially all of its assets to any other
Person (other than, in any such case, either Guarantor or RSL PLC), the
successor entity to such Guarantor or RSL PLC is organized under the laws of
Bermuda, the United Kingdom, the United States of America or any State
thereof or the District of Columbia, the British Virgin Islands, Cayman
Islands, The Netherlands, Ireland or Jersey and shall expressly assume, by a
supplemental indenture executed and delivered to the Trustee in form
satisfactory to the Trustee, all of such Guarantor's or RSL PLC's
obligations under the Indentures;
(2) immediately before and after giving effect to such transaction and
treating any Debt which becomes an obligation of the Guarantors or a
Subsidiary as a result of such transaction as having been Incurred by the
Guarantors or such Subsidiary at the time of the transaction, no Event of
Default or event that with the passing of time or the giving of notice, or
both, would constitute an Event of Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of RSL COM (or other successor entity to RSL COM) is
equal to or greater than that of RSL COM immediately prior to the
transaction;
(4) if, as a result of any such transaction, property or assets of RSL
COM or any Subsidiary would become subject to a Lien prohibited by the
provisions of the Indentures described under "Limitation on Liens" above,
RSL COM or the successor entity to RSL COM shall have secured the notes as
required by said covenant;
(5) in the event that the continuing Person is incorporated in a
jurisdiction other than the United States or the jurisdiction in which such
Person was incorporated immediately prior to such transaction:
48
<PAGE>
(a) RSL PLC delivers to the Trustee an Opinion of Counsel stating
that the obligations of the continuing Person under the Indentures are
enforceable under the laws of the new jurisdiction of its incorporation
to the same extent as the obligations of RSL PLC or such Guarantor, as
the case may be, under the Indentures immediately prior to such
transaction;
(b) the continuing Person agrees in writing to submit to
jurisdiction and appoints an agent for the service of process, each
under terms substantially similar to the terms contained in the
Indentures with respect to RSL PLC or such Guarantor, as the case may
be;
(c) the continuing Person agrees in writing to pay "Additional
Amounts" as provided under the Indentures with respect to RSL PLC or
such Guarantor, as the case may be, except that such "Additional
Amounts" shall relate to any withholding tax whatsoever regardless of
any change of law (subject to exceptions substantially similar to those
contained in the Indentures and described under the heading "Additional
Amounts");
(d) the Board of Directors of such Guarantor determines in good
faith that such transaction will have no material adverse effect on any
holder of the new notes and a Board Resolution to that effect is
delivered to the Trustee; and
(e) the principal purpose of the continuing Person being
incorporated in such jurisdiction is to obtain tax benefits for such
Guarantor, RSL PLC, their direct and indirect stockholders or the
holders of the new notes; and
(6) certain other conditions are met.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in
the Indentures. Reference is made to the Indentures for the full definition of
all such terms, as well as any other terms used herein for which no definition
is provided. (ss.101)
"Acquired Debt" means, with respect to any specified Person:
(1) Debt of any other Person (x) existing at the time such Person merges
with or into or consolidates with or becomes a Subsidiary of such specified
Person or (y) that is assumed by the specified Person as part of the
acquisition by the specified Person from such other Person of property and
assets that constitute substantially all of a division or line of business
of such other Person; and
(2) Debt secured by a Lien encumbering any asset acquired by such
specified Person, which Debt was not Incurred in anticipation of, and was
outstanding prior to, such merger, consolidation or acquisition.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Subsidiaries (including
a consolidation or merger or other sale of any such Subsidiary with, into or to
another Person in a transaction in which such Subsidiary ceases to be a
Subsidiary of the specified Person, but excluding (x) a disposition by a
Subsidiary of such Person to such Person or a Wholly-Owned Subsidiary of such
Person or by such Person to a Wholly-Owned Subsidiary of such Person or by a
Restricted Subsidiary to RSL COM or a Restricted Subsidiary or by RSL COM to a
Restricted Subsidiary and (y) any transaction that is governed by the provisions
described above under "Mergers, Consolidations and Certain Sales of Assets") of:
49
<PAGE>
(1) shares of Capital Stock or other ownership interests of a Subsidiary
of such Person,
(2) substantially all of the assets of such Person or any of its
Subsidiaries representing a division or line of business (other than as part
of a Permitted Investment) or
(3) other assets or rights of such Person or any of its Subsidiaries
outside of the ordinary course of business;
provided in the case of each of the preceding clauses (1), (2) and (3), that the
aggregate consideration for such transfer, conveyance, sale, lease or other
disposition is equal to $2.0 million or more in any 12-month period.
"Average Life" means, at any date of determination with respect to any
Debt, the quotient obtained by dividing (1) the sum of the products of (a) the
number of years from such date of determination to the dates of each successive
scheduled principal payment of such Debt and (b) the amount of such principal
payment by (2) the sum of all such principal payments.
"Capital Lease Obligation" of any Person means the obligation to pay
rent or other payment amounts under a lease of (or other Debt arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with generally accepted
accounting principles (a "Capital Lease"). The stated maturity of such
obligation shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty. The principal amount of such
obligation shall be the capitalized amount thereof that would appear on the face
of a balance sheet of such Person in accordance with generally accepted
accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow Available for Fixed Charges" for any period
means the Consolidated Net Income of RSL COM and its Restricted Subsidiaries for
such period increased by the sum of:
(1) Consolidated Interest Expense of RSL COM and its Restricted
Subsidiaries for such period, plus
(2) Consolidated Income Tax Expense of RSL COM and its Restricted
Subsidiaries for such period, plus
(3) the consolidated depreciation and amortization expense included in
the income statement of RSL COM and its Restricted Subsidiaries for such
period, plus
(4) any non-cash expense related to the issuance to employees of RSL COM
or any Restricted Subsidiary of RSL COM of options to purchase Capital Stock
of RSL COM or such Restricted Subsidiary, plus
(5) any charge related to any premium or penalty paid in connection with
redeeming or retiring any Debt prior to its stated maturity;
provided, however, that there shall be excluded therefrom the Consolidated Cash
Flow Available for Fixed Charges (if positive) of any Restricted Subsidiary of
RSL COM (calculated separately for such Restricted Subsidiary in the same manner
as provided above for RSL COM) that is subject to a restriction which prevents
the payment of dividends or the making of distributions to RSL COM or another
Restricted Subsidiary RSL COM to the extent of such restriction.
50
<PAGE>
"Consolidated Income Tax Expense" for any period means the aggregate
amounts of the provisions for income taxes of RSL COM and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Interest Expense" means for any period the interest
expense included in a consolidated income statement (excluding interest income)
of RSL COM and its Restricted Subsidiaries for such period in accordance with
generally accepted accounting principles, including without limitation or
duplication (or, to the extent not so included, with the addition of):
(1) the amortization of Debt discounts;
(2) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities;
(3) fees with respect to interest rate swap or similar agreements or
foreign currency hedge, exchange or similar agreements;
(4) Preferred Stock dividends of RSL COM and its Restricted Subsidiaries
(other than dividends paid in shares of Preferred Stock that is not
Disqualified Stock) declared and paid or payable;
(5) accrued Disqualified Stock dividends of RSL COM and its Restricted
Subsidiaries, whether or not declared or paid;
(6) interest on Debt guaranteed by RSL COM and its Restricted
Subsidiaries (but only to the extent such interest is actually paid by RSL
COM or a Restricted Subsidiary); and
(7) the portion of any Capital Lease Obligation paid during such period
that is allocable to interest expense;
excluding, however, any premiums, fees and expenses (and any amortization
thereof) payable in connection with the offerings of the new notes, all of the
foregoing as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with generally accepted accounting
principles.
"Consolidated Net Income" for any period means the net income (or loss)
of RSL COM and its Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles;
provided that there shall be excluded therefrom:
(1) the net income (or loss) of any Person acquired by RSL COM or a
Restricted Subsidiary in a pooling-of-interests transaction for any period
prior to the date of such transaction,
(2) the net income (or loss) of any Person that is not a Restricted
Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to RSL COM or a Restricted Subsidiary by such
Person during such period,
(3) gains or losses on Asset Dispositions by RSL COM or its Restricted
Subsidiaries,
(4) all extraordinary gains and extraordinary losses, determined in
accordance with generally accepted accounting principles,
(5) the cumulative effect of changes in accounting principles,
(6) non-cash gains or losses resulting from fluctuations in currency
exchange rates and
(7) the tax effect of any of the items described in clauses (1) through
(6) above.
51
<PAGE>
"Consolidated Net Worth" of any Person means the stockholders' equity
of such Person, determined on a consolidated basis in accordance with generally
accepted accounting principles, less amounts attributable to Disqualified Stock
of such Person.
"Consolidated Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under generally accepted accounting principles would be included on a
consolidated balance sheet of such Person and its Subsidiaries after deducting
therefrom all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, which in each case under
generally accepted accounting principles would be included on such consolidated
balance sheet.
"Credit Facility" means credit agreements, vendor financings or other
facilities or arrangements made available from time to time to RSL COM and its
Restricted Subsidiaries by banks, other financial institutions and/or equipment
manufacturers for the Incurrence of Debt, including the private or public
issuance of debt securities or the provision of letters of credit and any
related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified or restated from time to time.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, the amount of:
(1) every obligation of such Person for money borrowed,
(2) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses,
(3) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person,
(4) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (including securities repurchase
agreements but excluding trade accounts payable or accrued liabilities
arising in the ordinary course of business which are not overdue or which
are being contested in good faith),
(5) every Capital Lease Obligation of such Person,
(6) all Receivables Sales of such Person, together with any obligation
of such Person to pay any discount, interest, fees, indemnities, penalties,
recourse, expenses or other amounts in connection therewith,
(7) all obligations to redeem Disqualified Stock issued by such Person,
(8) every obligation under Interest Rate and Currency Protection
Agreements of such Person and
(9) every obligation of the type referred to in clauses (1) through (8)
of another Person and all dividends of another Person the payment of which,
in either case, such Person has Guaranteed to the extent the same is
Guaranteed by such Person.
The "amount" or "principal amount" of Debt at any time of determination
as used herein represented by:
(a) any Debt issued at a price that is less than the principal
amount at maturity thereof, shall be the amount of the liability in
respect thereof determined in accordance with generally accepted
accounting principles,
(b) any Receivables Sale shall be the amount of the unrecovered
capital or principal investment of the purchaser (other than RSL COM or
a Restricted Subsidiary) thereof to the extent such Person is liable
therefore, excluding amounts representative of yield or interest earned
on such investment or
52
<PAGE>
(c) any Disqualified Stock shall be the maximum fixed redemption or
repurchase price in respect thereof.
"Disqualified Stock" of any Person means any Capital Stock of such
Person which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of such Person, any
Subsidiary of such Person or the holder thereof, in whole or in part, on or
prior to the final stated maturity of the new notes, provided, however, that any
Preferred Stock which would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase or
redeem such Preferred Stock upon the occurrence of a Change of Control occurring
prior to the final maturity of the new notes shall not constitute Disqualified
Stock if the change of control provisions applicable to such Preferred Stock are
no more favorable to the holders of such Preferred Stock than the provisions
applicable to the new notes contained in the covenant described under "Change of
Control" and such Preferred Stock specifically provides that such Person will
not repurchase or redeem any such stock pursuant to such provisions prior to
such Person's repurchase of such new notes as are required to be repurchased
pursuant to the covenant described under "Change of Control" (purchases or
redemptions paid in Capital Stock that do not constitute Disqualified Stock are
not restricted under this definition).
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A" (or higher) according to Standard &
Poor's Ratings Service or Moody's Investors Service, Inc. at the time as of
which any investment or rollover therein is made.
"Event of Default" has the meaning set forth under "Events of Default"
below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any successor act) and the rules and regulations thereunder.
"Existing Stockholders" means (a) R.S. Lauder, Gaspar & Co., L.P.,
("RSLAG"), (b) partners in RSLAG and Lauder Gaspar Ventures LLC and their
Affiliates, in each case as of the Closing Date, (c) Itzhak Fisher, Ronald S.
Lauder, Leonard A. Lauder, Jacob Z. Schuster, Nir Tarlovsky, Nesim N. Bildirici,
and Eugene Sekulow, (d) family members of any of the foregoing, (e) trusts, the
only beneficiaries of which are persons or entities described in clauses (a)
through (d) above and (f) partnerships which are controlled by the persons or
entities described in clauses (a) through (d) above.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged and
which have a remaining weighted average life to maturity of not less than one
year from the date of Investment therein.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing, or having the economic effect of
guaranteeing, any Debt of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Debt,
(2) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt, or
(3) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Debt (and "Guaranteed" and "Guaranteeing" shall
have meanings correlative to the foregoing);
53
<PAGE>
provided, however, that the Guarantee by any Person shall not include
endorsements by such Person for collection or deposit, in either case, in the
ordinary course of business.
"Incremental Paid-in Capital" means as of any date the cumulative
aggregate amount of the increase in paid-in capital (determined in accordance
with generally accepted accounting principles applied on a consistent basis)
since September 30, 1997, as determined based on the most recent unaudited
quarterly or audited annual financial statements of RSL COM and its consolidated
subsidiaries filed with the Commission, as compared with RSL COM's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
enter into a Guarantee in respect of or otherwise become liable in respect of
such Debt or other obligation including by acquisition of Subsidiaries or the
recording, as required pursuant to generally accepted accounting principles or
otherwise, of any such Debt or other obligation on the balance sheet of such
Person (and "Incurrence", "Incurred", "Incurrable" and "Incurring" shall have
meanings correlative to the foregoing); provided, however, that a change in
generally accepted accounting principles that results in an obligation of such
Person that exists at such time becoming Debt shall not be deemed an Incurrence
of such Debt and that neither the accrual of interest nor the accretion of
original issue discount shall be deemed an Incurrence of Debt.
"Interest Rate or Currency Protection Agreement" of any Person means
any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance
or other extension of credit or capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise), to, or purchase or acquisition of
Capital Stock, bonds, notes, debentures or other securities or evidence of Debt
issued by, any other Person, including any payment on a Guarantee of any
obligation of such other Person, but excluding any loan, advance or extension of
credit to an employee of RSL COM or any of its Subsidiaries in the ordinary
course of business and commercially reasonable extensions of trade credit.
Without limiting the foregoing, the term "Investment" shall include:
(1) the designation of a Restricted Subsidiary (other than
deltathree.com and its Subsidiaries) as an Unrestricted Subsidiary; and
(2) the fair market value of the Capital Stock (or any other
Investment), held by RSL COM or any of its Restricted Subsidiaries, of (or
in) any Person (other than deltathree.com and its Subsidiaries) that has
ceased to be a Restricted Subsidiary.
For purposes of the definition of "Unrestricted Subsidiary" and the "Limitation
on Restricted Payments" covenant, (a) "Investment" shall include the fair market
value of the assets (net of liabilities (other than liabilities to RSL COM or
any of its Restricted Subsidiaries)) of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary, (b)
the fair market value of the assets (net of liabilities (other than liabilities
to RSL COM or any of its Restricted Subsidiaries)) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary shall be considered a reduction in outstanding Investments
and (c) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer. Notwithstanding
the foregoing, an acquisition of assets (including, without limitation, Capital
Stock or rights to acquire Capital Stock) by RSL COM or any of its Restricted
Subsidiaries shall be deemed not to be an Investment to the extent that the
consideration therefor consists of Common Stock of RSL COM.
"Lien" means, with respect to any property or assets, any mortgage or
deed of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness), encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including, without limitation,
any conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
54
<PAGE>
"Marketable Securities" means:
(1) Government Securities;
(2) any certificate of deposit maturing not more than 270 days after the
date of acquisition issued by, or time deposit of, an Eligible Institution;
(3) commercial paper maturing not more than 270 days after the date of
acquisition issued by a corporation (other than an Affiliate of the
Guarantor) with a rating, at the time as of which any investment therein is
made, of "A-1" (or higher) according to Standard & Poor's Ratings Service or
"P-1" (or higher) according to Moody's Investor Service, Inc.;
(4) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution;
(5) time deposits, certificates of deposit, bank promissory notes and
bankers' acceptances maturing not more than 180 days after the acquisition
thereof and guaranteed or issued by any of the ten largest banks (based on
assets as of the immediately preceding December 31), organized under the
laws of any jurisdiction in which one of the Restricted Subsidiaries does
business or any foreign country recognized by the United States and which
are not under intervention, bankruptcy or similar proceeding, not to exceed
$10 million outstanding at any one term; and
(6) any fund investing exclusively in investments of the types described
in clauses (1) through (4) above.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable cash equivalents received (including amounts received
by way of sale or discounting of any note installment receivable or other
receivable, but excluding any other consideration received in the form of
assumption by the acquiror of Debt or other obligations relating to such
properties or assets) therefrom by such Person, net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred and all federal, state, provincial, foreign and
local taxes required to be accrued as a liability as a consequence of such
Asset Disposition,
(2) all payments made by such Person or its Subsidiaries on any Debt
which is secured by such assets in accordance with the terms of any Lien
upon or with respect to such assets or which must by the terms of such Lien,
or in order to obtain a necessary consent to such Asset disposition or by
applicable law, be repaid out of the proceeds from such Asset Disposition,
(3) all distributions and other payments made to minority interest
holders in Subsidiaries of such person as a result of such Asset Disposition
and
(4) appropriate amounts to be provided by such Person or any Subsidiary
thereof, as the case may be, as a reserve in accordance with generally
accepted accounting principles against any liabilities associated with such
assets and retained by such Person or any Subsidiary thereof, as the case
may be, after such Asset Disposition including without limitation,
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Disposition, in each
case as determined by the board of directors of such Person, in its
reasonable good faith judgment;
provided, however, that any reduction in such reserve within twelve months
following the consummation of such Asset Disposition will be treated for all
purposes of the Indentures and the new notes as a new Asset Disposition at the
time of such reduction with Net Available Proceeds equal to the amount of such
reduction.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of RSL PLC by first class mail, postage prepaid, to each holder of new
notes at his address appearing in the Note Register on the date of this offering
to purchase up to the principal amount of new notes specified in such Offer at
the purchase price specified
55
<PAGE>
in such Offer (as determined pursuant to the Indentures). Unless otherwise
required by applicable law, the Offer shall specify an expiration date (the
"Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of new notes within five Business Days after the Expiration Date.
RSL PLC shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of RSL
PLC's obligation to make an Offer to Purchase, and the Offer shall be mailed by
RSL PLC or, at RSL PLC's request, by the Trustee in the name and at the expense
of RSL PLC. The Offer shall contain information concerning the business of RSL
COM its Subsidiaries which the Guarantors and RSL PLC in good faith believe will
enable such holders to make an informed decision with respect to the Offer to
Purchase (which at a minimum will include (a) the most recent annual and
quarterly financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the documents
required to be filed with the Trustee pursuant to the Indentures (which
requirements may be satisfied by delivery of such documents together with the
Offer), (b) a description of material developments in RSL COM's business
subsequent to the date of the latest of such financial statements referred to in
clause (a) (including a description of the events requiring RSL PLC to make the
Offer to Purchase), (c) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring RSL PLC to
make the Offer to Purchase and (d) any other information required by applicable
law to be included therein). The Offer shall contain all instructions and
materials necessary to enable such holders to tender new notes pursuant to the
Offer to Purchase. The Offer shall also state:
(1) the Section of the Indentures pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount at maturity of the outstanding new
notes offered to be purchased by RSL PLC pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such has been determined
pursuant to the Section of the Indentures requiring the Offer to Purchase)
(the "Purchase Amount");
(4) the purchase price to be paid by RSL PLC for each $1,000 aggregate
principal amount of dollar notes (or (Euro)1,000 aggregate principal amount
of euro notes, as the case may be) accepted for payment (as specified
pursuant to the Indentures) (the "Purchase Price");
(5) that the holder may tender all or any portion of the new notes
registered in the name of such holder and that any portion of a dollar note
tendered must be tendered in an integral multiple of $1,000 principal amount
(or (Euro)1,000 principal amount in the case of a euro note);
(6) the place or places where new notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any new note not tendered or tendered but not
purchased by RSL PLC pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each new note being accepted for payment pursuant to the Offer
to Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each holder electing to tender a note pursuant to the Offer to
Purchase will be required to surrender such note at the place or places
specified in the Offer prior to the close of business on the Expiration Date
(such note being, if RSL PLC or the Trustee so requires, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to
RSL PLC and the Trustee duly executed by, the holder thereof or his attorney
duly authorized in writing);
(10) that holders will be entitled to withdraw all or any portion of new
notes tendered if RSL PLC (or their Paying Agent) receives, not later than
the close of business on the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of the new note the holder
56
<PAGE>
tendered, the certificate number of the new note the holder tendered
and a statement that such holder is withdrawing all or a portion of his
tender;
(11) that (a) if new notes in an aggregate principal amount at maturity
less than or equal to the Purchase Amount are duly tendered and not
withdrawn pursuant to the Offer to Purchase, RSL PLC shall purchase all such
new notes and (b) if new notes in an aggregate principal amount at maturity
in excess of the Purchase Amount are tendered and not withdrawn pursuant to
the Offer to Purchase, RSL PLC shall purchase new notes having an aggregate
principal amount at maturity equal to the Purchase Amount on a pro rata
basis (with such adjustments as may be deemed appropriate so that only new
notes in denominations of $1,000 or ((Euro)1,000, in the case of the euro
notes) or integral multiples thereof shall be purchased); and
(12) that in the case of any holder whose new notes are purchased only
in part, RSL PLC shall execute, and the Trustee shall authenticate and
deliver to the holder of such note without service charge, a new note or
notes, of any authorized denomination as requested by such holder, in an
aggregate principal amount at maturity equal to and in exchange for the
unpurchased portion of the new notes so tendered.
Any Offer to Purchase shall be governed by and effected in accordance
with the Offer for such Offer to Purchase.
"Permitted Interest Rate or Currency Protection Agreement" of any
Person means any Interest Rate or Currency Protection Agreement entered into
with one or more financial institutions in the ordinary course of business that
is designed to protect such person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"Permitted Investment" means:
(1) any Investment in RSL COM or a Restricted Subsidiary;
(2) any Investment in any Person as a result of which such Person
becomes a Restricted Subsidiary of RSL COM or upon the making of which such
Person will be merged or consolidated with or into or transfer all or
substantially all of its assets to RSL COM or a Restricted Subsidiary;
(3) any investment in Marketable Securities;
(4) securities or other investments received in settlement of debts
created in the ordinary course of business and owing to the ordinary course
of business and owing to RSL COM or any Restricted Subsidiary, or as a
result of foreclosure, perfection or enforcement of any Lien, or in
satisfaction of judgments, including in connection with any bankruptcy
proceeding or other reorganization of another Person;
(5) securities or other investments received as consideration in sales
or other dispositions of property or assets, including Asset Dispositions
made in compliance with the "Limitation on Asset Sales" covenant;
(6) any investment in equity securities of a Person engaged in
Telecommunications Business (which term includes any Internet-based
business) received in exchange for equity securities of deltathree.com.; and
(7) other investments at any time outstanding (measured on the date each
such Investment was made without giving effect to subsequent changes in
value) in an aggregate amount not to exceed 10.0% of RSL COM's total
consolidated assets.
"Permitted Liens" means:
(1) Liens for taxes, assessments, governmental charges or claims which
are not yet delinquent or which are being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if
any, as shall be required in conformity with generally accepted accounting
principles shall have been made therefor;
57
<PAGE>
(2) other Liens incidental to the conduct of RSL COM's and its
Restricted Subsidiaries' business or the ownership of its property and
assets not securing any Debt, and which do not in the aggregate materially
detract from the value of RSL COM's and its Subsidiaries' property or assets
when taken as a whole, or materially impair the use of such assets and
property in the operation of its business;
(3) Liens with respect to assets of a Subsidiary granted by such
Subsidiary to RSL COM to secure Debt owing to RSL COM;
(4) pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of statutory obligations;
(5) deposits made to secure the performance of tenders, bids, leases,
and other obligations of like nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money);
(6) zoning restrictions, servitudes, easements, rights-of-way,
restrictions and other similar charges or encumbrances incurred in the
ordinary course of business which, in the aggregate, do not materially
detract from the value of the property subject thereto or interfere with the
ordinary conduct of the business of RSL COM or its Restricted Subsidiaries;
(7) Liens on Capital Stock of Restricted Subsidiaries securing
obligations not exceeding $75 million at any time outstanding of RSL COM or
any Restricted Subsidiary to repurchase or redeem shares of Capital Stock of
such Restricted Subsidiary held by Persons who are not Affiliates or Related
Persons of RSL COM;
(8) Liens arising out of judgments or awards against RSL COM or any
Restricted Subsidiary with respect to which RSL COM or such Restricted
Subsidiary is prosecuting an appeal or proceeding for review and RSL COM or
such Restricted Subsidiary is maintaining adequate reserves in accordance
with generally accepted accounting principles; and
(9) any interest or title of a lessor in the property subject to any
lease other than a Capital Lease.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or agency or political subdivision thereof or any other entity.
"Purchase Money Debt" means Debt (including Acquired Debt and Debt
represented by Capital Lease Obligations, mortgage financings and purchase money
obligations) incurred for the purpose of financing all or any part of the cost
of construction, acquisition or improvement by RSL COM or any Restricted
Subsidiary of any Telecommunications Assets of RSL COM or any Restricted
Subsidiary and including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as the same may be
amended, supplemented, modified or restated from time to time.
"Receivables" means receivables, chattel paper, instruments, documents
or intangibles evidencing or relating to the right to payment of money.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purpose of collection and not as a
financing arrangement.
"Related Person" of any Person means any other Person directly or
indirectly owning
(a) 5% or more of the outstanding Common Stock of such Person (or,
in the case of a Person that is not a corporation, 5% or more of the
outstanding equity interest in such Person) or
(b) 5% or more of the combined outstanding voting power of the
Voting Stock of such Person, except that, for purposes of the covenant
entitled "Transactions with Affiliates and Related Persons," Related
Person means any other Person directly or indirectly owning 10% or more
of the combined outstanding
58
<PAGE>
voting power of the Voting Stock of such Person (or, in the case of a
Person that is not a corporation, 10% or more of the outstanding equity
interest in such Person).
"Restricted Subsidiary" means any Subsidiary of RSL COM other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries:
(1) for the most recent fiscal year of RSL COM, accounted for more than
10% of the consolidated revenues of RSL COM and its Restricted Subsidiaries;
or
(2) as of the end of such fiscal year, was the owner of more than 10% of
the consolidated assets of RSL COM and its Restricted Subsidiaries, all as
set forth on the most recently available consolidated financial statements
of RSL COM for such fiscal year.
"Strategic Investor" means a corporation, partnership or other entity
engaged in the Telecommunications Business that has, or 80% or more of the
Voting Stock of which is owned by a Person that has, an equity market
capitalization or paid in capital, at the time of any Investment by such
corporation, partnership or other entity in a Restricted Subsidiary pursuant to
clause (4)(b) of "Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries", in excess of $100 million.
"Subordinated Debt" means Debt of RSL COM or its Restricted
Subsidiaries as to which the payment of principal of (and premium, if any) and
interest and other payment obligations in respect of such Debt shall be
subordinate to the prior payment in full of the new notes to at least the
following extent:
(1) no payments of principal of (or premium, if any) or interest on or
otherwise due in respect of such Debt may be permitted for so long as any
default in the payment of principal (or premium, if any) or interest on the
new notes exists;
(2) in the event that any other default that with the passing of time or
the giving of notice, or both, would constitute an event of default exists
with respect to the new notes, upon notice by 25% or more in principal
amount of the new notes to the Trustee, the Trustee shall have the right to
give notice to RSL COM or such Restricted Subsidiary and the holders of such
Debt (or trustees or agents therefor) of a payment blockage, and thereafter
no payments of principal of (or premium, if any) or interest on or otherwise
due in respect of such Debt may be made for a period of 179 days from the
date of such notice; and
(3) such Debt may not:
(x) provide for payments of principal of such Debt at the
stated maturity thereof or by way of a sinking fund applicable
thereto or by way of any mandatory redemption, defeasance,
retirement or repurchase thereof by RSL COM or such Restricted
Subsidiary (including any redemption, retirement or repurchase
which is contingent upon events or circumstances, but excluding
any retirement required by virtue of acceleration of such Debt
upon an event of default thereunder), in each case prior to the
final Stated Maturity of the new notes; or
(y) permit redemption or other retirement (including
pursuant to an offer to purchase made by RSL COM or such
Restricted Subsidiary) of such other Debt at the option of the
holder thereof prior to the final Stated Maturity of the new
notes, other than a redemption or other retirement at the option
of the holder of such Debt (including pursuant to an offer to
purchase made by RSL COM or such Restricted Subsidiary) which is
conditioned upon a change of control of RSL COM pursuant to
provisions substantially similar to those described under
"Change of Control" (and which shall provide that such Debt will
not be repurchased pursuant to such provisions prior to RSL
COM's or such Subsidiary's repurchase of the new notes required
to be repurchased by RSL COM pursuant to the provisions
described under "Change of Control").
59
<PAGE>
"Subsidiary" of any Person means:
(1) a corporation more than 50% of the combined voting power of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof; or
(2) any other Person (other than a corporation) in which such Person, or
one or more other Subsidiaries of such Person or such Person and one or more
other Subsidiaries thereof, directly or indirectly, has at least a majority
ownership and power to direct the policies, management and affairs thereof.
"Subsidiary Guarantor" means a Subsidiary of RSL COM that has
unconditionally guaranteed, by supplemental indenture substantially in the form
attached to the Indentures and satisfactory to the Trustee, the payment in full
of the principal of (and premium, if any) and interest on the new notes.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business, including a majority of
the Voting Stock of a Person engaged in the Telecommunications Business and a
minority equity interest in a Person engaged in a Telecommunications Business
(which term includes any Internet-based business) received in exchange for
equity securities of deltathree.com.
"Telecommunications Business" means the business of:
(1) transmitting, or providing services relating to the transmission of,
voice, video or data through owned or leased transmission facilities;
(2) creating, developing or marketing communications related network
equipment, software and other devices for use in a Telecommunications
Business; or
(3) evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in (1) or (2)
above; provided that the determination of what constitutes a
Telecommunications Business shall be made in good faith by the Board of
Directors of the RSL COM.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of RSL COM that at the time of determination shall be
designated an Unrestricted Subsidiary of RSL COM by the Board of Directors
in the manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary
(including any newly acquired or newly formed Subsidiary of RSL COM) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, RSL COM or any Restricted Subsidiary;
provided that:
(a) any Guarantee by RSL COM or any Restricted Subsidiary of any
Debt of the Subsidiary being so designated shall be deemed an
"Incurrence" of such Debt and an "Investment" by RSL COM or such
Restricted Subsidiary (or both, if applicable) at the time of such
designation, in each case, to the extent such Debt is so Guaranteed by
RSL COM or such Restricted Subsidiary;
(b) either
(x) the Subsidiary to be so designated has total assets of
$1,000 or less or
(y) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the "Limitation on
Restricted Payments" covenant described herein (provided that
this
60
<PAGE>
clause (y) shall not apply in the case of the designation of
deltathree.com and its Subsidiaries as Unrestricted Subsidiaries.) and
(c) if applicable, the Incurrence of Debt and the Investment referred to in
clause (A) of this proviso would be permitted under the "Limitation on
Consolidated Debt" and "Limitation on Restricted Payments" covenants
described herein.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided that immediately after giving effect to such
designation (x) RSL COM could Incur $1.00 of additional Debt under the first
paragraph of the "Limitation on Debt" covenant described below and (y) no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly-Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Voting Stock or other ownership interests (other
than directors' qualifying shares) of which shall at the, time be owned by such
Person or by one or more Wholly-Owned Subsidiaries of such Person or by, such
Person and one or more Wholly-Owned Subsidiaries of such Person.
Description of the New Notes Guarantees
The Guarantors will unconditionally and irrevocably guarantee the due
and punctual payment of the principal of and interest on and other amounts
payable under each of the new dollar notes and the new euro notes, when and as
the same shall become due and payable, whether at the stated maturity, by
declaration of acceleration, upon redemption or otherwise; provided that the new
notes guarantees shall not be enforceable against the Guarantors at the time
that determination of such net worth is, under applicable law, relevant to the
enforceability of such new notes guarantees. The obligations of the Guarantors
under the new notes guarantees will be direct, unsecured and unsubordinated
obligations of the Guarantors and will rank equal in right of payment with other
existing and future direct, unsecured and unsubordinated obligations of the
Guarantors. The new notes guarantees, as applicable, will effectively rank
junior to any secured indebtedness of the Guarantors to the extent of the assets
securing such indebtedness.
RSL USA's new notes guarantees may be released at any time without the
consent of the holders:
(1) upon a sale of 100% of the capital stock of RSL USA or a sale of all
or substantially all assets of RSL USA, or
(2) if Standard & Poor's Corporation advises RSL PLC that the release of
RSL USA's new notes guarantees would not result in a downgrade of the rating
on the new notes or the placement of the new notes on creditwatch with
negative implications.
Upon any release of RSL USA's new notes guarantees, RSL USA's guarantee of RSL
PLC's other outstanding notes would also be released.
Events of Default
The following will be Events of Default under the Indentures:
(1) failure to pay principal of (or premium, if any, on) any new note
when due;
(2) failure to pay any interest on any new note when due, continued for
30 days;
61
<PAGE>
(3) default in the payment of principal and interest on new notes
required to be purchased pursuant to an Offer to Purchase as described under
"Change of Control" when due and payable;
(4) failure to perform or comply with the provisions described under
"Mergers, Consolidations and Certain Sales of Assets" and "Limitation on
Asset Dispositions";
(5) failure to perform any other covenant or agreement of RSL PLC or
either Guarantor under the Indentures or the new notes continued for 60 days
after written notice to RSL PLC by the Trustee or holders of at least 25% in
aggregate principal amount at maturity of outstanding new notes;
(6) default under the terms of any instrument evidencing or securing
Debt of either Guarantor, RSL PLC or any Subsidiary having an outstanding
principal amount of $10.0 million individually or in the aggregate which
default results in the acceleration of the payment of such indebtedness or
constitutes the failure to pay such indebtedness when due;
(7) the rendering of a final judgment or judgments (not subject to
appeal) against either Guarantor, RSL PLC or any Subsidiary of an amount in
excess of $10.0 million (net of indemnities and funds actually received or
to be received within 90 days of such judgment) which remains undischarged
or unstayed for a period of 60 days after the date on which the right to
appeal has expired; and
(8) certain events of bankruptcy, insolvency or reorganization affecting
either Guarantor, RSL PLC or any Significant Subsidiary. (ss.501)
Subject to the provisions of the Indentures relating to the duties of
the Trustee in case an Event of Default (as defined) shall occur and be
continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indentures at the request or direction of any of the
holders of new notes, unless such holders shall have offered to the Trustee
reasonable indemnity. (ss. 603) Subject to such provisions for the
indemnification of the Trustee, the holders of a majority in aggregate principal
amount at maturity of the outstanding new notes will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee. (ss.
512)
If an Event of Default (other than an Event of Default described in
clause (8) above) shall occur and be continuing, either the Trustee or the
holders of at least 25% in aggregate principal amount at maturity of the
outstanding new notes may accelerate the principal amount of the new notes;
provided, however, that after such acceleration, but before a judgment or decree
based on acceleration, the holders of a majority in aggregate principal amount
at maturity of such outstanding new notes may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than the
non-payment of accelerated principal amount have been cured or waived as
provided in the Indentures. If an Event of Default specified in clause (8) above
occurs, the outstanding new notes will ipso facto become immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder. (ss. 502) For information as to waiver of defaults, see the heading
"Modification and Waiver".
No holder of any new note will have any right to institute any
proceeding with respect to the Indentures or for any remedy thereunder, unless
such holder shall have previously given to the Trustee written notice of a
continuing Event of Default (as defined) and unless also the holders of at least
25% in aggregate principal amount at maturity of the outstanding new notes shall
have made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee, and the Trustee shall not have received
from the holders of a majority in aggregate principal amount at maturity of the
outstanding new notes a direction inconsistent with such request and shall have
failed to institute such proceeding within 60 days. (ss. 507) However, such
limitations do not apply to a suit instituted by a holder of a new note for
enforcement of payment of the principal amount of and premium, if any, or
interest on such new note on or after the respective due dates expressed in such
note. (ss. 508)
The Guarantors and RSL PLC will be required to furnish to the Trustee
quarterly a statement as to the performance by the Guarantors and RSL PLC of
certain of their obligations under the Indentures and as to any default in such
performance. (ss. 1019)
62
<PAGE>
Defeasance
Defeasance and Discharge. The Indentures will provide that RSL PLC will
be deemed to have paid and RSL PLC and the Guarantors will be discharged from
any and all obligations in respect of the new notes on the 123rd day after the
deposit referred to below, and the provisions of the Indentures will no longer
be in effect with respect to the new notes (except for, among other matters,
certain obligations to register the transfer or exchange of the new notes, to
replace stolen, lost or mutilated new notes, to maintain paying agencies and to
hold monies for payment in trust) or the new notes guarantees if, among other
things, (A) RSL PLC has irrevocably deposited or caused to be irrevocably
deposited with the Trustee, in trust, money and/or U.S. Government Obligations
that through the payment of interest, premium, if any, and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, without consideration of the reinvestment of such
interest and after payment of all state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, the principal amount of,
premium, if any, and accrued interest on the new notes on the stated maturity of
such principal or interest or upon earlier redemption in accordance with the
terms of the Indentures and the new notes, (B) RSL PLC has delivered to the
Trustee either (1) a ruling based on relevant law and practice at the time
directed to the Trustee from the Inland Revenue or other relevant tax authority
to the effect that the holders will not recognize income, gain or loss for U.K.
income tax as a result of RSL PLC's exercise, disregarding U.K. income tax on
any amounts that would have been received but for such exercise of its option
under this "Defeasance" provision and will be subject to U.K. income tax on the
same amount and in the same manner and at the same time as would have been the
case it such option had not been exercised or (2) an Opinion of Counsel to the
same effect as the ruling described in clause (1) above, (C) RSL PLC has
delivered to the Trustee (1) either (x) an Opinion of Counsel to the effect that
holders will not recognize income, gain or loss for U.S. federal income tax as a
result of RSL PLC's exercise of its option under this "Defeasance" provision and
will be subject to U.S. federal income tax on the same amount and in the same
manner and at the same time as would have been the case if such option had not
been exercised, which Opinion of Counsel must be based upon (and accompanied by
a copy of) a ruling published by the Internal Revenue Service to the same effect
unless there has been a change in relevant U.S. federal income tax law after the
Closing Date or (y) a ruling directed to the Trustee received from the Internal
Revenue Service to the same effect as Opinion of Counsel and (2) an Opinion of
Counsel to the effect that the creation of the defeasance trust does not violate
the Investment Issuer Act of 1940 and after the passage of 123 days following
the deposit, the trust fund will not be subject to the effect of Section 547 of
the United States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law, (D) immediately after giving effect to such deposit on a pro forma
basis, no Default or Event of Default, or event that after the giving of notice
or lapse of time or both would become a Default or an Event of Default, shall
have occurred and be continuing on the date of such deposit or during the period
ending on the 123rd day after the date of such deposit, and such deposit shall
not result in a breach or violation of, or constitute a default under, any other
agreement or instrument to which RSL PLC or any of its Subsidiaries is a party
or by which RSL PLC or any of its Subsidiaries is bound, (E) if at such time the
new notes are listed on a national securities exchange, RSL PLC has delivered to
the Trustee an Opinion of Counsel to the effect that the new notes will not be
delisted as a result of RSL PLC's exercise of its option under this "Defeasance"
provision, and (F) RSL PLC shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, in each case stating that all the above
conditions precedent have been complied with.
Defeasance of Certain Covenants and Certain Events of Default. The
Indentures further will provide that the provisions of the Indentures will no
longer be in effect with respect to clauses (3) and (4) under "Mergers,
Consolidations and Certain Sale of Assets" and all the covenants described
herein under "Covenants" (other than "Mergers, Consolidations and Certain Sales
of Assets"), clauses (c), (f) and (g) under "Events of Default" with respect to
such clauses (3) and (4) under "Mergers, Consolidations and Certain Sale of
Assets" and such covenants and clauses (c), (f) and (g) under "Events of
Default" shall be deemed not to be Events of Default, upon, among other things,
the deposit with the Trustee, in trust, of money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
new notes on the stated maturity of such payments in accordance with the terms
of the Indentures and the new notes, the satisfaction of the provisions
described in clauses (C)(2) and (D) of the preceding paragraph and the delivery
by RSL PLC to the Trustee of an Opinion of Counsel to the effect that, among
other things, the holders will not recognize any income, gain or loss for U.S.
federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of
63
<PAGE>
Default and will be subject to U.S. federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event RSL PLC
exercises its option to omit compliance with certain covenants and provisions of
the Indentures with respect to the new notes as described in the immediately
preceding paragraph and the new notes are declared due and payable because of
the occurrence of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the new notes at the time of their stated
maturity but may not be sufficient to pay amounts due on the new notes at the
time of the acceleration resulting from such Event of Default. However, RSL PLC
will remain liable for such payments and the new notes guarantees with respect
to such payments will remain in effect.
Modification and Waiver
Modifications and amendments of the Indentures may be made by RSL PLC,
the Guarantors and the Trustee with the consent of the holders of a majority in
aggregate principal amount of the outstanding new notes; provided, however, that
no such modification or amendment may, without the consent of the holder of each
outstanding new note, affected thereby, (a) change the due date of any
installment of principal or interest on any new notes, (b) reduce the principal
amount of, (or the premium) or interest on, any new notes, (c) change the
currency of payment of principal of, (or premium) or interest on, any new notes,
(d) impair the right to institute suit for the enforcement of any payment on or
with respect to any new notes, (e) reduce the above-stated percentage of
outstanding new notes necessary to modify or amend the Indentures, (f) reduce
the percentage of aggregate principal amount of outstanding new notes necessary
for waiver of compliance with certain provisions of the Indentures or for waiver
of certain defaults, (g) modify any provisions of the Indentures relating to the
modification and amendment of the Indentures or the waiver of past defaults or
covenants, except as otherwise specified, or (h) following the mailing of any
Offer to Purchase, modify any Offer to Purchase for the new notes required under
the "Limitation on Asset Dispositions" and the "Change of Control" covenants
contained in the Indentures in a manner materially adverse to the holders
thereof. (ss. 902)
The holders of a majority in aggregate principal amount of the
outstanding new notes, on behalf of all holders of new notes, may waive
compliance by the Guarantors and RSL PLC with certain restrictive provisions of
the Indentures. (ss. 1020) Subject to certain rights of the Trustee, as provided
in the Indentures, the holders of a majority in aggregate principal amount of
the outstanding new notes, on behalf of all holders of new notes, may waive any
past default under the Indentures, except a default in the payment of principal,
premium or interest or a default arising from failure to purchase any note
tendered pursuant to an Offer to Purchase. (ss. 513)
Notwithstanding the foregoing, without the consent of any holder of new
notes, the Guarantors and the Trustee may amend or supplement the Indentures and
the new notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated new notes in addition to or in
place of certificated new notes;
(c) to provide for the assumption of obligations of RSL PLC and the
Guarantors to holders of the new notes in the case of a transaction
governed by the provisions described above under "Mergers,
Consolidations and Certain Sales of Assets" or to secure the new notes;
(d) to make any change that would provide any additional rights or
benefits to the holders of the new notes or that does not adversely
affect the legal rights under the Indentures of any such holder; or
(e) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indentures under the Trust
Indentures Act. (ss.901).
64
<PAGE>
The Trustee
The Indentures provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indentures. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it under the Indentures
and use the same degree of care and skill in its existence as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. (ss. 601)
The Indentures and provisions of the Trust Indenture Act incorporated
by reference therein contain limitations on the rights of the Trustee, should it
become a creditor of RSL PLC or either Guarantor, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claim as security or otherwise. The Trustee is permitted to engage in other
transactions with RSL PLC, the Guarantors or any Affiliate, provided, however,
that if it acquires any conflicting interest (as defined in the Indentures or in
the Trust Indenture Act), it must eliminate such conflict or resign. (ss.ss.
608, 613)
Additional Amounts
Payments made by RSL PLC or the Guarantors pursuant to the new notes or
the new notes guarantees will be made without withholding or deduction for taxes
unless required by law. In the event of (1) any change that becomes effective
after the date hereof in the laws of the U.K. or Bermuda or of any political
subdivision or taxing authority thereof or therein or any change in the
interpretation or administration thereof or (2) a failure by RSL PLC to list or
maintain a listing of the new notes on a "recognized stock exchange" (within the
meaning of Section 841 of the U.K. Income and Corporation Taxes Act 1988) (a
"Listing Failure"), the effect of which, in each case, is to require the
withholding or deduction by RSL PLC or the Guarantors pursuant to the new notes
or the new notes guarantees, respectively, of any amount for taxes that would
not have been required to be withheld or deducted absent such event, RSL PLC or
the Guarantors will pay, to the extent it may then lawfully do so, such
additional amounts ("Additional Amounts") as may be necessary in order that
every net payment of the principal of and interest on the new notes, after
deduction for withholding for or on account of any future tax, assessment or
other governmental charge will not be less than the amount provided for in the
notes to be then due and payable; provided, however, that the foregoing
obligation to pay Additional Amounts shall not apply in respect of:
(a) any tax, withholding, assessment or other governmental
charge which would not have been imposed but for (x) the existence
of any present or former connection between such holder (or between
a fiduciary, settlor, beneficiary, member or shareholder of, or
possessor of a power over, such holder, if such holder is an estate,
trust, partnership or corporation) and the U.K. or Bermuda or any
political subdivision or taxing authority thereof including, without
limitation, such holder (or such fiduciary, settlor, beneficiary,
member, shareholder or possessor) being or having been a citizen or
resident thereof or being or having been present or engaged in trade
or business therein or having or having had a permanent
establishment therein or (y) the presentation of a new note or a new
notes guarantee (where presentation is required) for payment on a
date more than 30 days after the date on which such payment became
due and payable or the date on which payment thereof is duly
provided for, whichever occurs later, except for Additional Amounts
with respect to taxes that would have been imposed had the holder
presented the note for payment within such 30-day period;
(b) any estate, inheritance, gift, sale, transfer or personal
property tax;
(c) any tax, assessment or other governmental charge that is
withheld by reason of the failure to timely comply by the holder or
the beneficial owner of the new note with a request in writing of
RSL PLC or either Guarantor (which request shall be furnished to the
Trustee) (x) to provide information concerning the nationality,
residence or identity of the holder or such beneficial owner or (y)
to make any declaration or other similar claim or satisfy any
information or reporting requirement, which, in the case of (x) or
(y), is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing or domicile jurisdiction as a
precondition to exemption from or reduction of all or part of such
tax, assessment or other governmental charge; provided, however,
that this clause (c) shall not apply to limit RSL PLC's or the
Guarantors' obligation to pay Additional Amounts if the completing
and filing of the information described in subclause (x) or the
declaration or other claim described in subclause (y) would be
materially more
65
<PAGE>
onerous in form, in procedure or in substance of information
disclosed, in comparison to the information reporting requirements
imposed under U.S. tax law with respect to Forms 1001, W-8 and W-9;
or
(d) any tax, withholding, assessment or other governmental
charge resulting from a Listing Failure with respect to any note
issued in the form of a Definitive Registered Note pursuant to the
terms of the Deposit Agreement and the relevant Indentures; or
(e) any combination of items (a), (b),(c) and (d) above; nor
shall Additional Amounts be paid with respect to any payment of the
principal of, or any interest on, any new note or new notes
guarantees to any holder who is not the sole beneficial owner of
such new note or new notes guarantees or is a fiduciary or
partnership, but only to the extent that a beneficial owner, a
beneficiary or a settlor with respect to a fiduciary or a member of
the partnership would not have been entitled to the payment of the
Additional Amount had the beneficial owner, beneficiary, settlor or
member of such partnership received directly its beneficial or
distributive share of the payment.
At least 30 days prior to each date on which any payment under or with
respect to the new notes is due and payable, if RSL PLC or the Guarantors will
be obligated to pay Additional Amounts with respect to such payment, RSL PLC or
the Guarantors will deliver to the Trustee an Officer's Certificate stating the
fact that such Additional Amounts will be payable and the amounts so payable and
will set forth such other information necessary to enable the Trustee to pay
such Additional Amounts to Holders on the payment date. Whenever in the
Indentures or in this offering circular there is mentioned, in any context, the
payment of principal (and premium, if any), redemption price, interest or any
other amount payable under or with respect to any new note, such mention shall
be deemed to include mention of the payment of Additional Amounts to the extent
that, in such. context, Additional Amounts are, were or would be payable in
respect thereof. See the heading "Optional Redemption."
RSL PLC or the Guarantors, as the case may be, will also (1) make (or
cause to be made) such withholding or deduction and (2) remit (or cause to be
remitted) the full amount deducted or withheld to the relevant authority in
accordance with applicable law. RSL PLC or the Guarantors, as the case may be,
will make reasonable efforts to obtain certified copies of tax receipts
evidencing the payment of any taxes so deducted or withheld from each taxing
authority imposing such taxes. RSL PLC or the Guarantors, as the case may be,
will furnish to the Trustee as promptly as practicable after the payment of any
taxes so deducted or withheld is due pursuant to applicable law, either
certified copies of tax receipts evidencing such payment or, if the receipts are
not obtainable, other evidence of such payments by RSL PLC or the Guarantors.
Consent to Jurisdiction and Service
RSL COM, RSL USA and RSL PLC have appointed RSL Communications N.
America, Inc. as their agent for service of process in any suit, action or
proceeding with respect to the Indentures or the new notes or the new notes
guarantees and for actions brought under federal or state securities laws
brought in any federal or state court located in the City of New York and will
agree to submit to such jurisdiction.
Governing Law
The Indentures, the new notes and the new notes guarantees are governed
by, and construed in accordance with, the laws of the State of New York.
66
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material U.S. federal income tax
consequences of the exchange of old notes for new notes as of the date hereof.
Such summary is not binding on any taxing authority or the courts, and no U.S.
tax ruling has been or will be sought. The discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations, rulings and judicial decisions as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in U.S. federal
income tax consequences different from those discussed below. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below.
The exchange of an old note for a corresponding new note pursuant to
the exchange offer will not be a taxable event for U.S. federal income tax
purposes because such new note will not be considered to differ materially in
kind or extent from the corresponding old note. As a result, there should be no
material U.S. federal income tax consequences to a holder exchanging an old note
for a corresponding new note pursuant to the exchange offer.
Each holder of old notes should consult his, her or its own tax advisor
as to the particular tax consequences of exchanging old notes for new notes,
including the applicability and effect of any state, local or foreign tax laws.
CERTAIN UNITED KINGDOM TAX CONSIDERATIONS
The following summary describes the material U.K. income and capital
gains tax consequences expected to result to holders whose old notes are
exchanged for new notes in the exchange offer. This summary is based on current
U.K. law and U.K. Inland Revenue practice which may change prospectively or
retrospectively. There can be no assurance that the U.K. Inland Revenue would
not take a contrary view and no ruling from the U.K. Inland Revenue has been or
will be sought.
For U.K. tax purposes, the exchange of the old notes for the new notes
will have no U.K. capital gains tax consequences for a U.S. holder who is
neither resident nor ordinarily resident in the U.K. (nor has become non-U.K.
resident or ordinarily resident in the last five tax years), nor carries on a
trade, profession or vocation in the U.K. through a branch or agency to which
the new notes are attributable.
US holders should be aware that, under current UK law, upon the
issuance to the holder of Definitive Registered Notes, such holder will become
subject to UK income tax (currently 20%) to be withheld on any payments of
interest on the Definitive Registered Notes. The US holder of Definitive
Register Notes will not, unless there has been a change in law or a "Listing
Failure" (as defined herein) and certain other conditions are met, be entitled
to receive Additional Amounts (as referred to above) with respect to such
Definitive Registered Notes. However, a US holder of Definitive Registered Notes
may be entitled to receive a refund of part of the withheld amounts from the
Inland Revenue in certain circumstances.
In May 1998, the European Commission presented to the Council of
Ministers of the European Union a proposal to oblige Member States to adopt
either a "withholding tax system" or an "information reporting system" in
relation to interests, discounts and premiums. This proposal was not adopted and
it is uncertain whether or not it will be reconsidered. If it is subsequently
adopted, it is not clear whether it will be adopted in its original form. The
"withholding tax system" would require a paying agent established in a Member
State to withhold tax at a minimum rate of 20 per cent from any discount paid to
an individual resident in another Member States unless such an individual
presents a certificate obtained from the tax authorities of the Member State in
which he is resident confirming that those authorities are aware of the payment
due to that individual. Difficulties in establishing who is beneficially
entitled to the income might result in a payment being subject to withholding
tax where the income is collected by an agent in a Member State. The
"information reporting system" would require a Member State to supply, to the
other Member States, details of any discount made by the paying agents within
its jurisdiction to an individual resistant in another Member State. For these
purposes, the term "paying agent: is widely defined and includes an agent who
collects discounts on behalf of an individual beneficially entitled thereto.
67
<PAGE>
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of old notes that were acquired for
the account of such broker-dealer as a result of market-making or other trading
activities (other than old notes acquired directly from RSL PLC or any affiliate
of RSL PLC) may exchange such old notes for new notes pursuant to the exchange
offer, provided, that each broker-dealer that receives new notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of new notes received in exchange for
old notes where such old notes were acquired as a result of market-making
activities or other trading activities. RSL PLC has agreed to keep the
Registration Statement effective for a period of 90 days following the closing
of the exchange offer.
RSL PLC will not receive any proceeds from any sale of new notes by
broker-dealers or any holder of new notes. New notes received by broker-dealers
for their own account pursuant to the exchange offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the new notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be an
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
RSL PLC has agreed to pay all expenses incident to the exchange offer
and to RSL PLC's performance of, or compliance with, the registration rights
agreement (other than commissions or concessions of any brokers or dealers) and
will indemnify the holders of the new notes (including any broker-dealers)
against any liabilities under the Securities Act.
Following consummation of the exchange offer, RSL PLC may, in its sole
discretion, commence one or more additional exchange offers to holders of old
notes who did not exchange their old notes for new notes in the exchange offer
on terms which may differ from those contained in the registration rights
agreement. This prospectus, as it may be amended or supplemented from time to
time, may be used by RSL PLC in connection with any such additional exchange
offers. Such additional exchange offers will take place from time to time until
all outstanding old notes have been exchanged for new notes pursuant to the
terms and conditions contained herein.
LEGAL MATTERS
Certain matters relating to the new notes are being passed upon for us
by Field Fisher Waterhouse, London, United Kingdom. Certain matters relating to
the new notes and the new notes guarantees are being passed upon for us by
Debevoise & Plimpton, New York, New York and by Conyers, Dill & Pearman,
Hamilton, Bermuda.
EXPERTS
The consolidated financial statements and the related financial
statement schedules as of December 31, 1999 and 1998, and for each of the three
years in the period ended December 31, 1999 included and incorporated in this
prospectus by reference from RSL COM's Annual Report on Form 10-K/A for the year
ended December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are included and incorporated herein
by reference, and have been so included and incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
68
<PAGE>
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
RSL COM is a Bermuda corporation and RSL PLC is a United Kingdom
corporation. Certain of their directors and officers, and certain of the experts
named herein, are not residents of the United States. All or a substantial
portion of the assets of such persons are or may be located outside the United
States. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons or to enforce against them
judgments obtained in the United States courts. RSL COM has been advised by its
legal counsel in Bermuda, Conyers, Dill & Pearman, that there is doubt as to the
enforcement in Bermuda, in original actions or in actions for enforcement of
judgments of United States courts, of liabilities predicated upon U.S. Federal
securities laws, although Bermuda courts will enforce foreign judgments for
liquidated amounts in civil matters, subject to certain conditions and
exceptions. RSL PLC has been advised by its legal counsel in the United Kingdom,
Field Fisher Waterhouse, that there is doubt as to the enforceability of certain
civil liabilities under U.S. Federal securities laws in original actions of
English courts, but that, subject to certain exceptions and time limitations,
English courts may treat a final and conclusive judgment of a U.S. court for a
liquidated amount as a debt enforceable by fresh proceedings in the English
courts. Such counsel has expressed no opinion, however, as to whether an
enforcement by an English court of any judgment would be in pounds sterling or
as of which date, if any, the determination of the applicable exchange rate from
U.S. dollars to pounds sterling may be made.
Each of RSL PLC, RSL COM and RSL USA has appointed RSL Communications
N. America, with an address at 810 Seventh Avenue, 39th Floor, New York, New
York 10019, as its agent for services for this offering of the new notes.
69
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RSL COMMUNICATIONS, LTD.
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1999.................................. F-3
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 1997,
December 31, 1998 and December 31, 1999.................................................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1997,
December 31, 1998 and December 31, 1999.................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, December 31, 1998 and
December 31, 1999........................................................................................ F-7
Notes to Consolidated Financial Statements................................................................. F-8
Condensed Consolidated Balance Sheets as of March 31, 2000 (Unaudited) and December 31, 1999............... F-31
Condensed Consolidated Statements of Operations for the Three Month Periods Ended March 31, 2000
(Unaudited) and 1999 (Unaudited)......................................................................... F-32
Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2000
(Unaudited) and 1999 (Unaudited)......................................................................... F-33
Notes to Condensed Consolidated Financial Statements....................................................... F-34
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
RSL Communications, Ltd.
We have audited the accompanying consolidated balance sheets of RSL
Communications, Ltd., a Bermuda corporation, and its subsidiaries (together, the
"Company"), as of December 31, 1999 and 1998, and the related consolidated
statements of operations and comprehensive loss, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries at December 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
New York, New York
March 2, 2000
F-2
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................................... $ 367,823 $ 238,724
Accounts receivable--net........................................................... 181,845 258,983
Marketable securities--available for sale.......................................... 98,637 72,813
Prepaid expenses and other current assets.......................................... 77,772 116,929
---------- ----------
Total current assets................................................................. 726,077 687,449
---------- ----------
Restricted marketable securities--held to maturity................................... 20,159 --
---------- ----------
Marketable securities--available for sale............................................ 12,911 11,341
---------- ----------
Property and Equipment:
Telecommunications equipment....................................................... 300,647 488,383
Furniture, fixtures and information systems........................................ 68,861 121,712
---------- ----------
369,508 610,095
Less accumulated depreciation...................................................... (45,785) (134,559)
---------- ----------
Property and equipment--net........................................................ 323,723 475,536
---------- ----------
Investment in unconsolidated subsidiaries............................................ 8,446 16,872
---------- ----------
Goodwill and other intangible assets--net of accumulated amortization................ 589,517 606,039
---------- ----------
Deposits and other assets............................................................ 33,760 6,071
---------- ----------
Total assets......................................................................... $1,714,593 $1,803,308
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable................................................................... $ 170,135 $ 186,354
Accrued expenses................................................................... 191,234 262,880
Notes payable...................................................................... 11,537 1,190
Deferred revenue................................................................... 23,647 19,412
Capital lease obligations--current portion......................................... 24,593 22,158
Other liabilities.................................................................. 49,781 31,725
---------- ----------
Total current liabilities............................................................ 470,927 523,719
---------- ----------
Other liabilities--noncurrent........................................................ 9,239 15,986
---------- ----------
Long-term debt--less current portion................................................. 12,643 4,386
---------- ----------
Senior notes--net.................................................................... 998,868 1,186,904
---------- ----------
Capital lease obligations--less current portion...................................... 77,864 82,671
---------- ----------
Total liabilities.................................................................... 1,569,541 1,813,666
---------- ----------
Minority interest.................................................................... 11,568 73,254
---------- ----------
Commitments and contingencies Shareholders' Equity (Deficit):
Common Stock, Class A--par value $0.00457; 26,529,479 and 31,017,249 issued and
outstanding at December 31, 1998 and 1999, respectively.......................... 121 141
Common Stock, Class B--par value $0.00457; 26,245,315 and 24,267,283 issued and
outstanding at December 31, 1998 and 1999, respectively.......................... 120 111
Common Stock, Class C--par value $0.00457; 0 shares issued......................... -- --
Preferred stock--par value $0.00457; 65,700,000 shares authorized, 0 shares
issued........................................................................... -- --
Warrants--Common Stock, exercise price of $0.00457................................. 4,597 3,993
Additional paid-in capital......................................................... 501,239 645,336
Deferred compensation.............................................................. -- (8,348)
Accumulated deficit................................................................ (367,163) (725,390)
Accumulated other comprehensive (loss) gain........................................ (5,430) 545
---------- ----------
Total shareholders' equity (deficit)................................................. 133,484 (83,612)
---------- ----------
Total Liabilities and Shareholders' Equity (Deficit)................................. $1,714,593 $1,803,308
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
($ AND SHARES IN THOUSANDS, EXCEPT LOSS PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues................................................................. $ 300,796 $ 885,938 $1,469,849
---------- ---------- ----------
Operating costs and expenses:
Cost of services (exclusive of depreciation and amortization
shown separately below)............................................. 265,321 702,602 1,034,334
Selling, general and administrative expenses........................... 94,712 238,141 447,883
Non-cash compensation expense.......................................... -- -- 23,562
Special charge......................................................... -- -- 30,143
Depreciation and amortization.......................................... 21,819 75,445 177,865
---------- ---------- ----------
381,852 1,016,188 1,713,787
---------- ---------- ----------
Loss from operations..................................................... (81,056) (130,250) (243,938)
Interest income.......................................................... 13,826 16,104 20,593
Interest expense......................................................... (39,373) (75,431) (133,244)
Other income--net........................................................ 6,595 739 764
Foreign exchange transaction gain (loss)................................. -- (11,055) 17,022
Minority interest........................................................ 210 6,079 (11,365)
Loss in equity interest of unconsolidated subsidiaries................... -- (3,276) (4,718)
Income taxes............................................................. (401) (1,334) (3,341)
---------- ---------- ----------
Loss before extraordinary item........................................... (100,199) (198,424) (358,227)
Extraordinary item....................................................... -- (20,800) --
---------- ---------- ----------
Net loss................................................................. (100,199) (219,224) (358,227)
Other Comprehensive Income gain (loss):
Foreign exchange translation adjustment................................ (4,666) 897 7,583
Unrealized loss on securities.......................................... -- (1,039) (1,608)
---------- ---------- ----------
Comprehensive loss....................................................... $ (104,865) $ (219,366) $ (352,252)
========== ========== ==========
Loss per share of common stock before extraordinary item................. $ (5.27) $ (4.52) $ (6.63)
Extraordinary item per share of common stock............................. $ -- $ (0.47) $ --
Net loss per share of common stock....................................... $ (5.27) $ (4.99) $ (6.63)
Weighted average number of shares of common stock outstanding............ 19,008 43,913 54,022
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)
($ AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B PREFERRED COMMON STOCK
COMMON STOCK COMMON STOCK STOCK WARRANTS ADDITIONAL
---------------- ---------------- ---------------- ---------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
December 31, 1996.......... -- $ -- 10,529 $ 48 9,244 $ 93 1,652 $5,544 $ 63,520
Initial Public Offering of
Class A Common Stock....... 8,280 38 -- -- -- -- -- -- 167,504
Issuance of Class A Common
Stock for acquisition of
certain minority interests,
warrants and options
exercised.................. 2,593 11 -- -- -- -- (39) (133) 41,757
Conversion of Preferred Stock
in exchange for Class B
Common Stock............... -- -- 20,232 93 (9,244) (93) -- -- --
Foreign Currency Translation
Adjustment................. -- -- -- -- -- -- -- -- --
Amortization of deferred
financing costs............ -- -- -- -- -- -- -- -- 1,544
Net loss..................... -- -- -- -- -- -- -- -- --
------ ---- ------ ---- ------ ---- ------ ------ --------
BALANCE
December 31, 1997.......... 10,873 49 30,761 141 -- -- 1,613 5,411 274,325
Secondary offering of
Class A Common Stock....... 7,544 34 -- -- -- -- -- -- 169,955
Issuance of Class A Common
Stock for acquisition of
certain minority interests,
distribution rights,
warrants and options
exercised.................. 3,596 17 -- -- -- -- (243) (814) 57,063
Conversion of Class B Common
Stock in exchange for
Class A Common Stock....... 4,516 21 (4,516) (21) -- -- -- -- --
Change in minority interest
from step acquisition...... -- -- -- -- -- -- -- -- (104)
Foreign Currency Translation
Adjustment................. -- -- -- -- -- -- -- -- --
Unrealized loss on
securities................. -- -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- -- --
------ ---- ------ ---- ------ ---- ------ ------ --------
BALANCE
December 31, 1998.......... 26,529 $121 26,245 $120 -- $ -- 1,370 $4,597 $501,239
<CAPTION>
ACCUMULATED
DEFERRED OTHER
COMPENSATION ACCUMULATED COMPREHENSIVE
EXPENSE DEFICIT LOSS TOTAL
------------ ----------- ------------- ---------
<S> <C> <C> <C> <C>
BALANCE
December 31, 1996.......... $ -- $ (47,740) $ (622) $ 20,843
Initial Public Offering of
Class A Common Stock....... -- -- -- 167,542
Issuance of Class A Common
Stock for acquisition of
certain minority interests,
warrants and options
exercised.................. -- -- -- 41,635
Conversion of Preferred Stock
in exchange for Class B
Common Stock............... -- -- -- --
Foreign Currency Translation
Adjustment................. -- -- (4,666) (4,666)
Amortization of deferred
financing costs............ -- -- -- 1,544
Net loss..................... -- (100,199) -- (100,199)
-------- --------- ------- ---------
BALANCE
December 31, 1997.......... -- (147,939) (5,288) 126,699
Secondary offering of
Class A Common Stock....... -- -- -- 169,989
Issuance of Class A Common
Stock for acquisition of
certain minority interests,
distribution rights,
warrants and options
exercised.................. -- -- -- 56,266
Conversion of Class B Common
Stock in exchange for
Class A Common Stock....... -- -- -- --
Change in minority interest
from step acquisition...... -- -- -- (104)
Foreign Currency Translation
Adjustment................. -- -- 897 897
Unrealized loss on
securities................. -- -- (1,039) (1,039)
Net loss..................... -- (219,224) -- (219,224)
-------- --------- ------- ---------
BALANCE
December 31, 1998.......... -- $(367,163) $(5,430) $ 133,484
</TABLE>
(Continued on next page)
F-5
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)
($ AND SHARES IN THOUSANDS) (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS B PREFERRED COMMON STOCK
COMMON STOCK COMMON STOCK STOCK WARRANTS ADDITIONAL
---------------- ---------------- ---------------- ---------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
December 31, 1998.......... 26,529 $121 26,245 $120 -- $ -- 1,370 $4,597 $501,239
Issuance of Common Stock by
subsidiaries............... -- -- -- -- -- -- -- -- 89,097
Issuance of Class A Common
Stock for acquisition of
certain minority interests,
warrants and options
exercised.................. 2,510 11 -- -- -- -- (180) (604) 36,116
Conversion of Class B Common
Stock in exchange for
Class A Common Stock....... 1,978 9 (1,978) (9) -- -- -- -- --
Deferred Compensation
Expense.................... -- -- -- -- -- -- -- -- 25,694
Amortization of Deferred
Compensation Expense....... -- -- -- -- -- -- -- -- --
Costs incurred to obtain
noteholders' consent for
security offerings......... -- -- -- -- -- -- -- -- (6,810)
Foreign Currency Translation
Adjustment................. -- -- -- -- -- -- -- -- --
Unrealized loss on
securities................. -- -- -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- -- -- --
------ ---- ------ ---- ------ ---- ------ ------ --------
BALANCE
December 31, 1999.......... 31,017 $141 24,267 $111 -- $ -- 1,190 $3,993 $645,336
====== ==== ====== ==== ====== ==== ====== ====== ========
<CAPTION>
ACCUMULATED
DEFERRED OTHER
COMPENSATION ACCUMULATED COMPREHENSIVE
EXPENSE DEFICIT LOSS TOTAL
------------ ----------- ------------- ---------
<S> <C> <C> <C> <C>
BALANCE
December 31, 1998.......... -- $(367,163) $(5,430) $ 133,484
Issuance of Common Stock by
subsidiaries............... -- -- -- 89,097
Issuance of Class A Common
Stock for acquisition of
certain minority interests,
warrants and options
exercised.................. -- -- -- 35,523
Conversion of Class B Common
Stock in exchange for
Class A Common Stock....... -- -- -- --
Deferred Compensation
Expense.................... (25,694) -- -- --
Amortization of Deferred
Compensation Expense....... 17,346 -- -- 17,346
Costs incurred to obtain
noteholders' consent for
security offerings......... -- -- -- (6,810)
Foreign Currency Translation
Adjustment................. -- -- 7,583 7,583
Unrealized loss on
securities................. -- -- (1,608) (1,608)
Net loss..................... -- (358,227) -- (358,227
-------- --------- ------- ---------
BALANCE
December 31, 1999.......... $ (8,348) $(725,390) $ 545 $ (83,612)
======== ========= ======= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
RSL COMMUNICATIONS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss................................................................... $ (100,199) $ (219,224) $ (358,227)
Adjustments to reconcile net loss to net cash used in operating
activities, net of effects of purchase of subsidiaries:
Depreciation and amortization.......................................... 21,819 75,445 177,865
Accretion of interest expense on senior discount notes................. -- 25,706 34,482
Non-cash compensation.................................................. -- -- 23,562
Provision for losses on accounts receivable............................ 10,908 9,043 18,021
Foreign currency transaction (gain) loss............................... -- 6,441 (17,288)
Equity loss on investment in unconsolidated subsidiaries............... -- 3,276 4,718
Extraordinary loss..................................................... -- 20,800 --
Accretion of interest income on restricted marketable securities....... (5,504) (2,727) (973)
Loss (gain) on sales of assets......................................... -- 367 (537)
Reversal of accrued liabilities........................................ (7,000) -- --
Changes in assets and liabilities:
Increase in accounts receivable........................................ (45,069) (49,321) (103,213)
Decrease (increase) in deposits and other assets....................... (2,929) (48,869) 5,565
(Increase) in prepaid expenses and other current assets................ (13,196) (65,842) (43,996)
Increase in accounts payable and accrued expenses...................... 56,354 123,813 76,087
Increase (decrease) in deferred revenue and other current
liabilities.......................................................... (2,155) 38,018 13,807
Increase (decrease) in other long-term liabilities..................... (4,841) 322 11,242
---------- ---------- ----------
Net cash used in operating activities...................................... (91,812) (82,752) (158,885)
---------- ---------- ----------
Cash flows used in investing activities:
Purchase of property and equipment....................................... (36,357) (181,937) (207,667)
Acquisition of subsidiaries.............................................. (77,813) (287,044) (66,442)
Net redemptions (purchases) of marketable securities for sale............ 54,167 (74,834) 25,796
Proceeds from maturities of restricted marketable securities............. 41,038 29,141 21,132
Proceeds from sales of property and equipment............................ 144 5,236 679
---------- ---------- ----------
Net cash used in investing activities...................................... (18,821) (509,438) (226,502)
---------- ---------- ----------
Cash flows provided by financing activities:
Proceeds from issuance of Notes.......................................... -- 791,992 170,835
Proceeds from sales of subsidiaries stock................................ -- -- 143,952
Proceeds from notes payable.............................................. -- 1,306 10,850
Proceeds from long-term debt............................................. -- 13,386 5,231
Payment of long-term debt and notes payable.............................. (12,750) (1,548) (43,657)
Principal payments under capital lease obligations....................... (2,757) (5,241) (16,253)
Proceeds from issuance of common and preferred stock and warrants........ 182,160 180,807 2,124
Payment of offering costs and fees....................................... (14,618) (21,071) (2,670)
Payment for consent solicitation......................................... -- -- (6,810)
Payment of premium and principal on the 1996 Notes......................... -- (144,155) --
---------- ---------- ----------
Net cash provided by financing activities.................................. 152,035 815,476 263,602
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents........................... 41,402 223,286 (121,785)
Effects of foreign currency exchange rates on cash......................... (576) (357) (7,314)
Cash and cash equivalents at beginning of year............................. 104,068 144,894 367,823
---------- ---------- ----------
Cash and cash equivalents at end of year................................... $ 144,894 $ 367,823 $ 238,724
========== ========== ==========
Supplemental disclosure of cash flows information:
Cash paid for:
Interest............................................................... $ 41,285 $ 46,930 $ 97,111
========== ========== ==========
Income tax............................................................. $ 401 $ 1,334 $ 5,807
========== ========== ==========
Supplemental schedule of noncash investing and financing activities:
Assets acquired under capital lease obligations.......................... $ 13,060 $ 65,728 $ 48,333
========== ========== ==========
Issuance of Class A Common Stock......................................... $ 41,635 $ 54,524 $ 33,399
========== ========== ==========
Acquisition costs included in current liabilities........................ $ 17,929 $ 1,900 --
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. BUSINESS DESCRIPTION
RSL Communications, Ltd. ("RSL"), a Bermuda corporation, is the successor
in interest to RSL Communications Inc., a British Virgin Islands corporation,
which is the successor in interest to RSL Communications, Inc., a Delaware
corporation. RSL, together with its direct and indirect subsidiaries are
referred to herein as the "Company." We are a rapidly growing facilities-based
communications company that provides a broad range of the voice, data/Internet
and value-added product and service solutions primarily to small and medium
sized businesses and residential customers in selected markets around the globe.
The Company currently has revenue producing operations and provides services in
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Portugal, Spain,
Sweden, Switzerland, Mexico, the United Kingdom, United States, and Venezuela.
2. ACQUISITIONS
1999 Acquisitions
Multilink
In January 1999, our subsidiary RSL COM Italia acquired 51% of Multilink
s.r.l. a reseller of long distance telecommunications services in Italy for $1.1
million and recorded a similar amount as goodwill.
Access Communication
In May 1999, our subsidiary RSL COM Canada acquired 100% of Access
Communications Inc., for approximately $1.3 million in cash and recorded the
same amount as goodwill. Access offers local access and long distance
telecommunications services to small and medium size businesses.
Cisneros Group
During 1997,we formed a joint venture with entities controlled by the
Cisneros Group of Companies to pursue our Latin American expansion and through
June of 1999 we owned 51% of this joint venture. In June, 1999 we acquired the
minority interest from the Cisneros Group in exchange for 1.03 million shares of
our common stock and recorded goodwill of $23.9 million representing the fair
market value of the shares plus $4 million cash.
Advanced Telecom
In October 1999, our subsidiary RSL COM UK Ltd. purchased 100% of Advanced
Telecom Plc, a UK telecommunications reseller for approximately $14.4 million
and recorded approximately the same amount as goodwill.
Cetel
During 1999, our subsidiary RSL COM Spain acquired a 33% interest of
Consoricao Europeo para las Telecomunicaciones S.A. (Cetel) for approximately
$9.6 million. Cetel is a nationwide telecommunications services provider in
Spain. We account for our investment in Cetel under the equity method.
VIP
In December, 1999 our subsidiary RSL COM Finland Oy, purchased 51% of the
equity of VIP Tietoverkot Oy ("VIP") for a cash purchase price of approximately
$0.9 million. VIP offers internet access, web hosting and value-added
application services in all major cities in Finland. In connection with this
acquisition, we recorded approximately $0.8 million as goodwill.
In addition, during 1999 we acquired minority interests of several
subsidiaries primarily in Australia, Austria, Finland and the U.S. for cash and
common stock of $33.9 million.
F-8
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
2. ACQUISITIONS--(CONTINUED)
1998 Acquisitions
Telecenter OY
In January, 1998 our subsidiary RSL COM Finland Oy, purchased 90% of the
equity of Telecenter OY, an independent sales agent in Finland. We paid
approximately $14.4 million and recorded approximately $8.1 million as goodwill.
First Direct Communications Pty. Limited and Link Telecommunications Pty Ltd.
In March 1998, our subsidiary RSL COM Australia Pty. Ltd. acquired the
customer base of First Direct Communications Pty. Limited and Link
Telecommunications Pty Ltd., two switchless mobile telecommunications resellers,
for approximately $19.6 million and recorded the same amount as a customer base.
Tele 2001
In May, 1998 our subsidiary RSL COM Sweden AB, purchased 100% of the equity
of Tele 2001, a Swedish Telecommunications reseller, for approximately
$1.0 million and recorded the same amount as goodwill.
Westinghouse Communications
In July, 1998 we acquired the business of Westinghouse Communications
("WestComm"), a division of CBS Corporation, for a cash purchase price of
approximately $91.2 million plus the assumption of certain liabilities amounting
to $38.3 million. WestComm provides both voice telephony and data services to a
customer base consisting primarily of small to medium size businesses in the
United States. In connection with this purchase, we recorded approximately
$129.5 million as goodwill.
Westel Telecommunications Ltd.
In July, 1998 we acquired 100% of Westel Telecommunications Ltd. ("Westel")
from British Columbia Railway Company for a cash purchase price of approximately
$37.6 million (the "Westel Acquisition"). Westel offers a broad range of
enhanced telecommunications services (including long distance, data, private
line and Internet access) to a customer base consisting primarily of commercial
and residential customers located in British Columbia. In connection with this
purchase, we recorded approximately $9.0 million as goodwill.
MK Telecom Network Inc.
In connection with the Westel Acquisition and in compliance with the
Canadian Telecommunications Act (the "Telecom Act"), we agreed to transfer (the
"MK Network Transfer") Westel's "telecommunications facilities" (as defined in
the Telecom Act) to MK Telecom Network Inc. ("MK Network"), an entity in which
the Company owns a 46.7% beneficial interest, for a purchase price of
approximately $6.5 million, the net realizable value of the assets transferred
to MK Network (such assets were purchased in the Westel acquisition). The MK
Network Transfer was effective as of July 31, 1998. We recorded our investment
in MK Network as an equity investment which was completed through a transfer of
assets, which we recorded at our historical cost basis (which also approximates
net realizable value). The assets transferred consist of telecommunications
microwave facilities. Westel, MK Network and their respective owners are not
related parties.
Comesa
In July 1998, our subsidiary RSL COM Italia S.r.l. ("RSL Italy"), acquired
75% of the equity of Comesa, a telecommunications company located in Northern
Italy. We paid approximately $1.0 million and recorded approximately
$1.5 million as goodwill.
F-9
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
2. ACQUISITIONS--(CONTINUED)
Geovox SARL
In July 1998, our subsidiary RSL COM France S.A., purchased 100% of the
equity of Geovox SARL, a prepaid calling card company operating in Paris, France
for approximately $1.9 million in cash plus the assumption of certain
liabilities amounting to $2.8 million. In connection with this purchase we
recorded approximately $4.7 million as goodwill.
TC Telecom GmbH
In July 1998, our subsidiary RSL COM Austria AG, acquired 100% of the
equity of TC Telecom GmbH, a telecommunications reseller located in Austria, for
approximately $1.1 million and recorded the same amount as goodwill.
Motorola Tel.co
In August 1998 we acquired the business of Motorola Tel.co ("Motorola
Tel.co") in the United Kingdom and Germany from Motorola Inc. Motorola Tel.co
resells wireless services and related products in these countries to a base of
over 350,000 subscribers. We paid approximately $68.1 million plus the
assumption of certain liabilities amounting to $10.6 million and recorded
approximately $78.7 million as goodwill.
One Step Billing Inc.
In October 1998, we acquired a customer base from One Step Billing Inc. in
the United States for approximately $15.1 million and recorded an equal amount
as customer base.
TDL
In December 1998, we acquired the business of TDL, a reseller of
telecommunications services based in the United Kingdom. We paid approximately
$2.1 million plus the assumption of certain liabilities amounting to $1.7
million and recorded approximately $3.8 million as goodwill.
Telegate Holding GmbH
In May 1998, we acquired a 49.86% ownership interest in Telegate Holding
GmbH ("Telegate Holding"), which holds a 54.55% ownership interest in Telegate
AG ("Telegate"), resulting in a 27.19% economic interest in Telegate. Telegate
is a directory information provider in Germany. In December 1998, we increased
our shareholdings in Telegate Holding to 50.2%; no additional contribution was
paid related to this increment. We paid $33.6 million and recorded approximately
$35.6 million as goodwill.
1997 Acquisitions/New Operations
deltathree.com
During 1997, we acquired a majority interest in deltathree.com an internet
telephony service provider. We paid approximately $8.8 million for approximately
72% ownership of deltathree.com We acquired the remaining 28% interest during
1998 for approximately $2.9 million in cash and $8.7 million through the
issuance of stock. In connection with this transaction, we recorded
approximately $15.4 million as goodwill. In November, 1999 deltathree.com
completed an initial public offering and our equity interest was decreased to
68%. We recorded our share of the net proceeds from the sale of deltathree.com's
shares as an increase in our paid in capital.
F-10
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
2. ACQUISITIONS--(CONTINUED)
Maxitel
In April 1997, our subsidiary RSL Com Europe Ltd ("RSL Europe") acquired a
30.4% interest in Maxitel Servicos e Gestao de Telecommunicacoes, S.A.
("Maxitel"), a Portuguese international telecommunications carrier for
$2.1 million, and in 1998 increased its ownership interest in Maxitel to 39% for
an additional $1.3 million.
Pacific Star Communications Limited
In April 1997, we acquired substantially all of the commercial customer
contracts of Pacific Star Communications Limited, an Australian based company.
We paid approximately $1.5 million in cash and recorded this amount as a
customer base.
Newtelco
In August 1997, our subsidiary RSL Europe purchased 90% of the stock of
Newtelco Telekom AG, an Austrian start-up telecommunications company for an
$800,000 investment in the company.
RSL Com Italia S.r.l
In August 1997, our subsidiary RSL Europe acquired 85% of the stock in RSL
Italy, an Italian telecommunications reseller. We paid approximately $1.7
million for our investment in RSL Italy.
EZI Phonecard Holdings Pty. Limited
In October 1997, our subsidiary RSL Australia acquired 85% of EZI Phonecard
Holdings Pty. Limited for approximately $200,000 in cash and the assumption of
net liabilities of $1.3 million. In connection with this purchase, RSL Australia
recorded approximately $1.5 million as goodwill.
Call Australia Group
In October 1997, RSL Australia acquired 100% of the issued capital of each
of Call Australia Pty. Ltd., Associated Service Providers Pty. Limited, Digiplus
Pty. Limited, Power Serve Communications Consultants Pty. Limited, Talk 2000
Networks Pty. Limited and Telephone Bill Pty. Limited (collectively the "Call
Australia Group"), leading Australian switchless resellers, for approximately
$24.5 million. In 1998, we made a final payment of $1.0 million plus an
assumption of liabilities of approximately $2.9 million. In connection with this
purchase, RSL Australia recorded approximately $28.4 million as goodwill.
LDM Systems, Inc.
In October 1997, we acquired 100% of the outstanding common stock of LDM
Systems, Inc. ("LDM"). In connection with this acquisition, we paid
approximately $14.9 million in 1997 and recorded a purchase price adjustment of
approximately $4.0 million in 1998. In connection with this transaction, we
recorded approximately $18.9 million as goodwill.
Callcom AG fur TeleKommunikation
In December 1997, RSL Europe acquired a 78.5% interest in Callcom AG fur
TeleKommunikation ("RSL Switzerland") for $2.1 million in cash.
European Telecom S.A./N.V.
In December 1997, RSL Europe acquired 90% of European Telecom S.A./N.V.
("RSL Belgium") which in turn owns 100% of European Telecom SARL ("RSL
Luxemburg"). We paid approximately $18.6 million in 1997 and $0.3 million in
1998 for this acquisition and recorded approximately $19.1 million as goodwill.
F-11
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
2. ACQUISITIONS--(CONTINUED)
Accounting Treatment
Acquisitions, unless otherwise stated, have been accounted for by the
purchase method of accounting and, accordingly, the purchase prices have been
allocated to the assets acquired, primarily fixed assets, accounts receivable
and customer bases, and liabilities assumed based on their estimated fair values
at the dates of acquisition. The excess of the purchase price over the estimated
fair values of the net assets acquired has primarily been recorded as goodwill,
which is amortized over five to twenty years. The valuation of our acquired
assets and liabilities for the 1999 acquisitions are preliminary and as a
result, the allocation of the acquisition costs among the tangible and
intangible assets may change.
The following presents our unaudited pro forma consolidated statements of
operations data for the years ended December 31, 1997 and 1998 as though the
acquisitions of Westinghouse, Westel, LDM, Call Australia Group, and EZI had
occurred on January 1, 1997. All other acquisitions had insigificant operations
prior to the date of acquisition. The unaudited pro forma consolidated
statements do not necessarily represent what our results of operations would
have been had such acquisitions actually occurred on such date.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Revenues................................................................... $ 556,500 $ 1,015,422
========= ===========
Net loss................................................................... $(102,891) $ (223,588)
========= ===========
Net loss per share......................................................... $ (5.41) $ (5.09)
========= ===========
</TABLE>
Marketing Agreement
In June 1998, we entered into a marketing and distribution services
agreement with Metro Holding AG ("Metro Holding"), the management holding
company for Metro AG, one of the largest retailers in Europe. Under this
agreement, Metro Holding will assist us in promoting, marketing, selling and
distributing our services through Metro AG's wholesale and retail operations in
Europe. This arrangement is designed to provide us access to Metro AG's
extensive distribution network and customer base (which includes a large number
of small and medium-sized businesses). In connection with its alliance with us,
Metro Holding initially acquired in April 1998 a 12.5% equity interest in RSL
Europe. In June 1998, Metro Holding converted all of its interest in RSL Europe
into 1,607,142 shares of our Class A Common Stock (based on value for value) and
purchased an equal number of Class A Common Stock from certain of our
shareholders. In the aggregate at December 31, 1999, Metro Holding holds
approximately 5.8% of our outstanding stock, which it is required to hold until
at least April 1, 2001. We have recorded in the consolidated financial
statements the issuance of such equity at fair market value, $45 million, based
on the quoted market value of our stock at the time of the transaction, and have
recorded the distribution rights as an intangible asset in a like amount which
is being amortized over the five-year life of the agreement.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation--The consolidated
financial statements include the accounts of RSL Communications, Ltd. and its
majority-owned subsidiaries from the date of acquisition or commencement of
operations. All significant intercompany transactions have been eliminated in
consolidation.
We have majority ownership of all of our subsidiaries except for Maxitel,
MK Network and Cetel which we account for under the equity method of accounting.
Management Assumptions--The preparation of the consolidated financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses. Such
estimates primarily relate to
F-12
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
reserves recorded for doubtful accounts and accruals for other claims. Actual
results could differ from these estimates.
Foreign Currency Translation and Transaction--Local currencies are
considered the functional currencies of our foreign operating entities. Assets
and liabilities of foreign entities have been translated into United States
dollars using the exchange rates in effect at the balance sheet dates. Results
of operations of foreign entities are translated using the average exchange
rates prevailing throughout the period. We utilize a net settlement process with
our correspondents comprised of special drawing rights ("SDRs"). SDRs are the
established method of settlements among international telecommunications
carriers. The SDRs are valued based upon the values of a basket of foreign
currencies. Translation effects are accumulated as part of other comprehensive
loss in equity. Gains and losses from foreign currency transactions are included
in the consolidated statements of operations and comprehensive loss. Foreign
currency transaction gains for the year ended December 31,1999 were $17 million
as compared to losses for the year ended December 31, 1998 of $11 million
primarily as a result of the decrease in the Deutsche mark against the U.S.
dollar in 1999 as compared with an increase in the Deutsche mark against the
U.S. dollar in 1998 in connection with our 1998 Deutsche mark denominated Senior
Discount Notes.
Cash and Cash Equivalents--We consider all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Accounts Receivable--Accounts receivable are stated net of the allowance
for doubtful accounts of approximately $26,000,000 and $37,000,000 at December
31, 1998 and 1999, respectively. We recorded bad debt expense of approximately
$10,900,000, $9,000,000 and $18,000,000 for the years ended December 31, 1997,
1998 and 1999, respectively.
Accrued Expenses--Accrued expenses for the years ended December 31, 1998
and 1999 consist primarily of accrued interest, accrued acquisition costs and
accrued transmission costs.
Marketable Securities--Marketable securities consist principally of U.S.
Treasury bills, commercial paper and corporate notes with a maturity date
greater than three months when purchased. Available for sale securities are
stated at the lower of amortized cost or market value, and the held to maturity
securities are stated at amortized cost. Gains and losses, both realized and
unrealized, are measured using the specific identification method. Market value
is determined by the most recently traded price of the security at the balance
sheet date. Marketable securities are defined as either available for sale or
held to maturity securities under the provisions of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," depending on the
security.
Property and Equipment and Related Depreciation--Property and equipment are
stated at cost or fair value at the date of acquisition, and in the case of
equipment under capital leases, the present value of the future minimum lease
payments, less accumulated depreciation and are amortized over the remainder of
the life. Depreciation is calculated using the straight-line method over the
estimated useful lives of the depreciable assets, which range from three to
fifteen years. Improvements are capitalized, while repair and maintenance costs
are charged to operations as incurred. Depreciation expense was $9,794,000,
$32,439,000 and $90,477,000 for the years ended December 31, 1997, 1998 and
1999, respectively.
Impairment of Assets--Our long-lived assets and identifiable intangibles
are reviewed for impairment whenever events or changes in circumstances indicate
that the net carrying amount may not be recoverable. When such events occur, we
measure impairment by comparing the carrying value of the long-lived asset to
the estimated undiscounted future cash flows expected to result from the use of
the assets and their eventual disposition. If the sum of the expected
undiscounted future cash flows is less than the carrying amount of the assets,
we would recognize an impairment loss. The impairment loss, if determined to be
necessary, would be measured as the amount by which the carrying amount of the
asset exceeds the fair value of the asset. We determined that, as of December
31, 1998 and 1999, there had been no impairment in the carrying value of the
long-lived assets.
F-13
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Goodwill and Related Amortization--Goodwill represents the excess of cost
over the fair value of the net assets of acquired entities, and is being
amortized using the straight-line method over five to twenty years. We
periodically review the value of our goodwill to determine if an impairment has
occurred. We measure the potential impairment of recorded goodwill by the
undiscounted value of expected future cash flows in relation to our net goodwill
in our subsidiary. Based on our review, we do not believe that an impairment of
our goodwill has occurred as of December 31, 1998 and 1999.
Other Intangible Assets--Other intangible assets acquired through purchase
acquisitions include distribution rights, customer bases and operating licenses
which are being amortized over lives ranging from two to five years using the
straight-line method. Deferred financing costs incurred in connection with the
Senior Notes are being amortized on a straight-line basis over ten years.
Deposits and Other Assets--Deposits consist principally of amounts paid to
our carrier vendors.
Revenue Recognition and Deferred Revenue--We record revenue based on
minutes (or fractions thereof) of customer usage. We record payments received in
advance for prepaid calling card services and services to be supplied under
contractual agreements as deferred revenue until such related services are
provided.
Other Liabilities--Other liabilities consists primarily of value-added tax
and payroll and related benefits obligations.
Cost of Services--Cost of services is comprised primarily of transmission
costs.
Selling Expenses--Selling costs such as recurring commissions and marketing
costs are treated as period costs. Customer acquisition costs, primarily related
to our cellular businesses, are amortized over the average lives of the
contracts of approximately twelve months. Such costs are recorded in selling,
general and administrative expenses in our consolidated statements of operations
and comprehensive loss.
Income Taxes--We account for income taxes under the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". SFAS No. 109 establishes financial accounting and reporting standards
for the effect of income taxes that result from activities during the current
and preceding years. SFAS No. 109 requires an asset and liability approach for
financial reporting for income taxes. Our foreign subsidiaries file separate
income tax returns in the jurisdiction of their operations. Our United States
subsidiaries file stand-alone United States income tax returns.
Loss per Common Share--Our loss per common share is calculated by dividing
the loss attributable to common shares by the weighted average number of shares
outstanding. Outstanding common stock options and warrants are not included in
the loss per common share calculation as their effect is antidilutive.
Sales of Subsidiary Stock--During 1999 our subsidiaries Telegate AG and
deltathree.com issued common shares in connection with their initial public
offerings raising $144.0 million in the aggregate. We recorded our share of the
net proceeds of these sales as additional paid in capital.
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 measure those instruments at fair value, as well as identify the
conditions for which a derivative may be specifically designed as a hedge. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. We have not
participated in any hedging activities in connection with foreign currency
exposure.
F-14
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Reclassification
Certain previously reported amounts have been reclassified to conform with
the current period presentation.
4. 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 is 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. These expenses appear in the accompanying year ended
December 31, 1999 income statement as $30.1 million in the special charge line
item and $2.0 million in the cost of services line item. During the fourth
quarter of 1999, we incurred $3.0 million for terminating leases, $5.8 million
for the severance of 76 telemarketing employees and 104 other staff employees
and $6.6 million for asset write downs including inventory. As of December 31,
1999 the reserve balance was $16.7 million, of which $10.1 million is for
terminating leases and $6.6 million is for severance payments to be paid out
primarily to former employees who have already been severed, during the first
three quarters of 2000 in accordance with local country requirements.
5. CONCENTRATION OF CREDIT RISK
We are subject to significant concentrations of credit risk which consist
principally of trade accounts receivable, cash and cash equivalents, and
marketable securities. Our U.S. subsidiaries sell a significant portion of their
services to other carriers and, as a result, maintain significant receivable
balances with certain carriers. If the financial condition and operations of
these customers deteriorate below critical levels, our operating results could
be adversely affected.
We maintain our cash with high quality credit institutions, and our cash
equivalents and marketable securities are in high quality securities.
6. MARKETABLE SECURITIES
A summary of our available for sale marketable securities at December 31,
1998 and December 31, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
--------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- -------- --------- -------
<S> <C> <C> <C> <C>
Corporate Notes.......................................... $ 6,651 $ 6,640 $ -- $ --
Medium-Term Notes........................................ 5,023 5,006 -- --
Commercial Paper......................................... 86,963 86,997 50,203 50,210
Federal Agency Notes..................................... -- -- 22,640 22,603
--------- -------- ------- -------
98,637 98,643 72,843 72,813
Mutual Funds--Long-Term.................................. 13,950 12,911 13,950 11,341
--------- -------- ------- -------
$ 112,587 $111,554 $86,793 $84,154
========= ======== ======= =======
</TABLE>
We have recorded our available for sale marketable securities at the lower
of amortized cost or market value. The difference between amortized cost and
market value has been recorded as unrealized loss on securities within
shareholders' equity (deficit).
F-15
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
6. MARKETABLE SECURITIES--(CONTINUED)
The carrying value of the available for sale marketable securities by
maturity date at December 31, 1998 and December 31, 1999 is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Matures in one year............................................... $ 98,637 $72,813
Matures after one year through three years........................ 12,911 11,341
--------- -------
Total............................................................. $ 111,548 $84,154
========= =======
</TABLE>
Proceeds from the sale of available for sale marketable securities for the
years ended December 31, 1997, 1998 and 1999 were $27,675,000, $35,757,000 and
$41,840,000, respectively. Gross gains (losses) of $(2,000), $(367,000) and
$11,000 were realized on these sales for the years ended December 31, 1997, 1998
and 1999.
7. INCOME TAXES
We have incurred consolidated losses since inception for both book and tax
purposes. Several of our subsidiaries which are profitable have recorded income
tax expense in the aggregate of approximately $401,000, $1,334,000 and
$3,341,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
As of December 31, 1997, 1998 and 1999, we had net operating loss carryforwards
generated primarily in the United States and the United Kingdom of approximately
$148 million, $367 million and $725 million, respectively. The net operating
loss carryforwards will expire at various dates beginning in 2010 through 2014
if not utilized. The utilization of the net operating loss carryforwards is
subject to certain limitations.
In accordance with SFAS No. 109, we have computed the components of
deferred income taxes as of December 31, 1998 and 1999 as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
Deferred tax assets................................................. $ 147,000 $ 290,000
Less valuation allowance............................................ (147,000) (290,000)
--------- ---------
Net deferred tax assets............................................. $ -- $ --
========= =========
</TABLE>
Our net operating losses generated the deferred tax assets. At
December 31, 1998 and 1999, a valuation allowance of $147,000,000 and
$290,000,000, respectively, is provided as the realization of the deferred tax
assets is not assured.
8. NOTES PAYABLE AND LONG-TERM DEBT
Senior Notes
On October 3, 1996, RSL Communications PLC ("RSL PLC"), a wholly-owned
subsidiary of RSL Communications, Ltd. (apart from its subsidiaries, the
"Guarantor"), issued (the "Debt Offering") 300,000 Units, each consisting of an
aggregate of one $1,000 Senior Note (collectively, the "1996 Notes") due 2006
bearing interest at the rate of 12 1/4% and one warrant to purchase 3.975 Class
A common shares which expire in ten years (collectively, the "Warrants"). The
exercise price of such Warrants is $0.00457.
The value ascribed to the Warrants was $4,000,000. The unamortized discount
is recorded as a reduction against the face value of the 1996 Notes, and is
amortized over the life of the 1996 Notes.
Such unamortized discount was $1,783,000 and $1,553,000 at December 31,
1998 and December 31, 1999, respectively.
The 1996 Notes, which are guaranteed by the Guarantor, are redeemable, at
RSL PLC's option, subsequent to November 15, 2001, initially at 106.1250% of
their principal amount, declining to 103.0625% of their
F-16
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
8. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)
principal amount for the calendar year subsequent to November 15, 2002, and at
100% of their principal amount subsequent to November 15, 2003. The 1996 Notes,
or a portion thereof, may also be redeemed upon the consummation of a public
equity offering which yields proceeds in excess of a specified amount.
In April 1998, we used approximately $101.0 million of the net proceeds
from our initial public offering of shares of Class A Common Stock (the "IPO")
in 1997 to redeem (the "Equity Clawback") $90.0 million of the 1996 Notes at a
premium of $11.0 million, as permitted under the 1996 Indenture. In April 1998,
we used approximately $43.1 million to redeem (the "Buyback") $37.5 million of
the 1996 Notes at a premium of $5.6 million, as permitted under the 1996
Indenture. The redemption premiums, and part of the discount and offering costs
were expensed in the amount of $20.8 million in the second quarter of 1998 as an
extraordinary item.
In connection with the issuance of the 1996 Notes, we were required to
maintain restricted marketable securities in order to make the first six
scheduled interest payments on the 1996 Notes. Such restriction was ended with
the sixth semi--annual payment made in November 1999 and the securities matured.
On February 27, 1998, RSL PLC completed concurrent offerings (the "1998
U.S. Offerings") of $200.0 million principal amount of 9 1/8% Senior Notes due
2008 and $328.1 million principal amount at maturity ($200.0 million initial
accreted value) of 10 1/8% Senior Discount Notes due 2008 (together, the "1998
U.S. Notes"). The 1998 U.S. Offerings generated gross proceeds to us of $400.0
million. On March 16, 1998, RSL PLC completed an offering (the "1998 DM
Offering," and together with the 1998 U.S. Offerings, the "1998 Offerings") of
182.0 million Deutsche mark denominated 10% Senior Discount Notes due 2008 (the
"1998 DM Notes," and together with the 1998 U.S. Notes, the "1998 Notes"). The
1998 DM Offering generated gross proceeds to us of $99.0 million.
In November 1998, RSL PLC issued (the "12% Notes Offering") $100 million
aggregate principal amount at maturity of 12% Senior Notes due 2008 (the "12%
Notes"). The 12% Notes generated gross proceeds to us of approximately $94.5
million.
In December 1998, RSL PLC issued (the "10 1/2% Notes Offering" and,
together with the 12% Notes Offering, the "New Notes Offerings") $200 million
aggregate principal amount of 10 1/2% Senior Notes due 2008 (the "10 1/2% Notes"
and, together with the 12% Notes, the "New Notes"). The 10 1/2% Notes generated
gross proceeds to us of approximately $198.5 million.
In May, 1999 RSL PLC issued (the "9 7/8% Notes Offering") $175 million
aggregate principal amount at maturity of 9 7/8% Senior Notes due 2009. The
9 7/8% Notes generated gross proceeds to us of approximately $170.8 million.
In September, 1999, pursuant to a consent solicitation, we obtained the
consent of holders of our outstanding debt and amended our indentures governing
our debt. These amendments were to permit the issuance and sale of capital stock
of deltathree.com and our Australian subsidiary in public or private
transactions without restricting the use of proceeds solely to investments in
telecommunications assets. In connection with the consent solicitation, total
fees paid were approximately $6.8 million. We recorded these fees as a reduction
in paid in capital received by deltathree.com in connection with its initial
public offering.
In connection with the New 1998 Notes Offerings, RSL PLC entered into
registration rights agreements for the benefit of the holders of the New Notes
(the "New Notes Registration Rights Agreements"), pursuant to which RSL PLC
agreed to offer to exchange the New Notes for substantially identical notes
registered under the Securities Act. In February and March of 1999, in
accordance with the New Notes Registration Rights Agreements, RSL and RSL PLC
offered for exchange the New Notes for substantially identical notes registered
under the Securities Act. The Company's Registration Statement on Form S-4
(Registration No. 333-70023) filed with the Commission with respect to such
offering was declared effective by the Commission on January 26, 1999.
F-17
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
8. NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)
The 1996 Notes, the 1998 Notes, the New 1998 Notes and the 1999 Notes are
collectively referred to herein as the "Notes." The Notes are fully and
unconditionally guaranteed as to payment of principal, interest and any other
amounts thereof by us and RSL COM U.S.A.
The indentures pursuant to which the Notes were issued contains certain
restrictive covenants which impose limitations on RSL and certain of its
subsidiaries ability to, among other things: (i) incur additional indebtedness,
(ii) pay dividends or make certain other distributions, (iii) issue capital
stock of certain subsidiaries, (iv) guarantee debt, (v) enter into transactions
with shareholders and affiliates, (vi) create liens, (vii) enter into
sale-leaseback transactions, and (viii) sell assets. Notwithstanding the
foregoing, these indentures do not impose restrictions on our ability to obtain
funds by dividends or loans from our subsidiaries.
At December 31, 1998 and 1999, we were in compliance with the above
restrictive covenants.
Credit Facilities
Through LDM, we have a $10.0 million revolving credit facility all of which
was available at December 31,1999. This facility accrues interest at the prime
rate plus 2.5% per annum.
At December 31, 1999, Telegate had $26 million of revolving credit
facilities with various banks that accrue interest at a rate of 6.0%, all of
which was available.
Through RSL COM Canada, we have a $6.9 million revolving credit facility of
which $5.3 million was used for the lease of telecommunications equipment. The
lease terms provide for monthly payments through February 2006 at an interest
rate of 8.7% per annum.
Vendor Financing
One of our primary equipment vendors has provided some of our subsidiaries
approximately $85 million in vendor financing to fund the purchase of additional
switching and related telecommunications capital equipment. At December 31,
1999, all available amounts were utilized under this facility. Borrowings from
this equipment vendor accrue interest at a rate of LIBOR, plus 3.50% to 5.25% or
STIBOR plus 3.50% depending on the equipment purchased and whether the loan is
guaranteed by the Swedish Export Credits Guarantee Board. We repaid
approximately $30 million of the outstanding balance by the end of the first
quarter of 2000.
Long-term debt maturities at December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
----------
<S> <C>
2000............................................................................ $ 1,190
2001............................................................................ 1,150
2002............................................................................ 3,237
2003............................................................................ --
2004............................................................................ --
2005 and thereafter............................................................. 1,327,862
----------
Total........................................................................... 1,333,439
Less Discount................................................................... (140,959)
Less Current Maturities......................................................... (1,190)
----------
Long-Term Debt.................................................................. $1,191,290
==========
</TABLE>
At December 31, 1999, the Notes had a fair value of approximately $1,099
million. The decline in the fair value is primarily due to changes in the
interest rate environment. The remainder of our long-term debt had fair values
which approximated their carrying amounts.
Interest expense on the above notes was approximately $37,136,000,
$70,860,000 and $118,379,000 for the years ended December 31, 1997, 1998 and
1999, respectively.
F-18
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
9. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets at December 31, 1998 and 1999 consist
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ---------
<S> <C> <C>
Goodwill............................................................. $513,068 $ 601,573
Customer base........................................................ 49,822 52,924
Deferred financing costs............................................. 19,902 22,572
Distribution right................................................... 47,281 47,459
Other intangibles.................................................... 13,837 19,195
-------- ---------
643,910 743,723
Less accumulated amortization........................................ (54,393) (137,684)
-------- ---------
Goodwill and Other Intangible Assets--Net............................ $589,517 $ 606,039
======== =========
</TABLE>
Amortization expense for the years ended December 31, 1997, 1998 and 1999
was $9,980,000, $43,006,000, and $87,388,000, respectively.
10. SHAREHOLDERS' EQUITY
Common Stock
On September 30, 1997, we revised our capital structure (the
"Recapitalization"), in part to (i) effect a 2.19-for-one stock split for each
outstanding share of each class of common shares and each outstanding share of
Preferred Stock, (ii) increase the number of authorized shares of its Class A
Common Stock and Class B Common Stock to an aggregate of 438,000,000 shares and
(iii) increase the number of authorized shares of its Preferred Stock to
65,700,000. The holders of the Class A Common Stock are entitled to one vote per
share, and the holders of the Class B Common Stock are entitled to ten votes per
share. During 1998, 4,515,411 shares were converted from Class B Common Stock in
exchange for Class A Common Stock.
On September 30, 1997, we commenced an initial public offering of 8,280,000
shares of its Class A Shares. The aggregate offering price of the 8,280,000
shares of Class A Common Stock sold in the equity offering to the public was
$182,160,000 (at $22.00 per share), with net proceeds to us of $167,542,000.
On November 30, 1998, we commenced a secondary public offering of 7,544,278
shares of its Class A Shares. The aggregate offering price of the 7,544,278
shares of Class A Common Stock sold in the equity offering to the public was
$180,120,000 (at $23.875 per share), with net proceeds to us of $169,989,000.
In June 1997, RSL North America's founder and former Chairman elected to
exchange his shares in RSL North America, a subsidiary of the Company, for
shares in the Company. Accordingly, we issued 1,457,094 of the Class A Common
Stock, par value $0.00457 per share, of the Company in exchange for 15,619
shares of common stock of RSL North America and recorded approximately
$32,575,000 as additional paid in capital and an equal amount as goodwill.
In March 1998, we registered 1,152,715 shares of Class A Common Stock to be
issued pursuant to the terms of the warrant agreement governing the Warrants
(the "Warrant Registration") and 300,000 shares of Class A Common Stock to be
sold by a corporation wholly owned by a former Vice Chairman of the Company, and
members of his family (the "Selling Shareholder") (which necessarily assumes the
conversion by the Selling Shareholder of an identical number of shares of Class
B Common Stock). The Warrant Registration was required pursuant to a
registration rights agreement entered into in connection with the private
offering (the "1996 Units Offering") of 300,000 units (the "Units") each
consisting of (i) $1,000 principal amount of 12 1/4% Senior Notes due 2006 and
(ii) one warrant to purchase 3.975 shares of Class A Common Stock of RSL (each a
"Warrant"). During 1997, 1998 an 1999 we issued 39,740, 242,943 and 179,445
shares of Class A Common Stock upon the exercise of warrants, respectively.
F-19
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
10. SHAREHOLDERS' EQUITY--(CONTINUED)
In connection with the marketing and distribution services agreement
entered into with Metro Holding in June 1998, as mentioned in Note 2, we issued
1,607,142 shares of Class A Common Stock.
During 1998 and 1999, we issued 1,232,339 and 798,475 shares of Class A
Common Stock upon the exercise of options, respectively. In addition, we issued
54,750 shares in both 1998 and in 1999 of Class A Common Stock upon the vesting
of restricted stock.
During 1998 and 1999, in connection with the acquisition of certain
minority interests, we issued 428,272 and 1,492,314 shares of Class A Common
Stock, respectively.
Preferred Stock
During 1995, we issued 9,243,866 shares of our preferred stock to the
holders of our Class B Common Stock for cash of $13,354,000. The preferred stock
ranked senior to our common stock as to dividends and a liquidation preference
of $1.00 per share. Each share was convertible at the holder's option into 2.19
shares of Class B Common Stock. All preferred shares were automatically
converted into our Class B Common Stock in 1997 as the public offering yielded
proceeds in excess of $25,000,000, in accordance with the terms of the Preferred
Stock agreement. Dividends, at the rate of 8%, were cumulative. Upon conversion
of the shares of the preferred stock, the cumulative dividends were deemed to be
canceled and waived upon conversion. The cumulative amount of such dividends was
approximately $16,000. As of December 31, 1998 and 1999, there was no preferred
stock outstanding.
11. CAPITAL LEASE OBLIGATIONS
Future minimum annual payments applicable to assets held under capital
lease obligations for years subsequent to December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
----------
<S> <C>
2000.............................................................................. $ 26,287
2001.............................................................................. 24,152
2002.............................................................................. 18,596
2003.............................................................................. 12,841
2004.............................................................................. 10,726
2005 and thereafter............................................................... 23,880
--------
Total minimum lease obligations................................................... 116,482
Less interest..................................................................... (11,653)
--------
Present value of future minimum lease obligations................................. 104,829
Less current portion.............................................................. (22,158)
--------
Long-term lease obligations....................................................... $ 82,671
========
</TABLE>
The assets and liabilities under capital leases are recorded at the present
value of the minimum lease payments using effective interest rates ranging from
9% to 11% per annum.
Assets held under capital leases aggregated $76,087,000 and $109,020,000 at
December 31, 1998 and 1999, respectively. At December 31, 1998 and 1999, the
related accumulated depreciation was $4,895,000 and $18,512,000 respectively.
12. RELATED PARTY TRANSACTIONS
During 1999 RSL Management Corporation ("RSL Management"), which is wholly
owned by Ronald S. Lauder, the Chairman of the Board of the Company and our
principal shareholder, sublet an aggregate of 7,500 square feet of office space
to us at an annual rent of $591,000 per annum. RSL Management sublet such space
from The Estee Lauder Companies Inc. ("Estee Lauder"). Ronald S. Lauder is also
a principal shareholder
F-20
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
12. RELATED PARTY TRANSACTIONS--(CONTINUED)
of Estee Lauder and Leonard A. Lauder, a director of the Company, is the
Chairman of the Board of Directors of Estee Lauder. Fred Langhammer, a director,
is the President and Chief Executive Officer of Estee Lauder. This sublease
agreement was terminated without penalty on March 31, 2000. In addition, RSL
Management provides payroll and benefit services to the Company for an annual
fee of $6,000, $9,000 and $12,000 for the years ended December 31, 1997, 1998
and 1999, respectively.
We have employment contracts with certain of our executive officers. These
agreements expire beginning December 2000 through January, 2003 unless
terminated earlier by the executive or by us, and provide for annual salaries,
and bonuses based on our performance. Salary expense for executive officers was
approximately $1.6 million, $2.1 million and $2.3 million for the years ended
December 31, 1997, 1998 and 1999, respectively. The aggregate commitment for
annual future salaries pursuant to the employment agreements at December 31,
1999, excluding bonuses, is approximately $2.1 million, $2.2 million and $2.3
million for 2000, 2001 and 2002, respectively.
13. EMPLOYEE BENEFIT PLANS
In 1996, we instituted a defined 401(k) contribution plan which provides
retirement benefits for most of our U.S. employees. Our contributions to the
defined contribution plan, which are based on a percentage of the employee's
annual compensation subject to certain limitations, were not significant for the
years ended December 31, 1997, 1998 and 1999. Our subsidiary, Telegate,
established a defined benefit pension plan covering the members of Telegate's
board of directors effective December 31, 1998. Telegate did not make any
contributions to the plan nor did the plan pay any benefits in the year ended
December 31, 1999.
14. STOCK OPTION PLANS
1995 Stock Option Plan
In April 1995, we established an Incentive Stock Option Plan (as amended
and restated, the "1995 Plan") to reward employees, nonemployee consultants and
directors for service to us and to provide incentives for future service and
enhancement of shareholder value. The 1995 Plan is administered by the
Compensation Committee of our Board of Directors (the "Committee"). The
Committee consists of three members of the Board of Directors. The Plan provides
for awards of up to 2,847,000 shares of our Class A Common Stock.
The options granted under the 1995 Plan terminate on the tenth anniversary
of the date of grant. As of December 31, 1999 a total of 2,716,617 options have
been granted of which 444,868 were outstanding (and 327,703 were outstanding and
exercisable) under this plan. In connection with the initial public offering of
our Class A Common Shares in 1997, this plan was replaced by our other existing
plans. We will not grant further options under the 1995 Plan.
1997 Stock Incentive Plan
The 1997 Stock Incentive Plan (the "1997 Stock Plan") was adopted in
conjunction with the initial public offering of our Class A common shares in
1997 to attract, retain and motivate our key employees. The 1997 Stock Plan is
administered by the Committee. The 1997 Stock Plan provides for the grant of the
incentive and non-incentive stock options, stock appreciation rights, restricted
stock, and various combinations thereof. The maximum number of shares of
Class A Common Stock available under the 1997 Stock Plan is 8,100,000, with no
more than 500,000 options or stock appreciation rights to be granted to any one
participant in a calendar year. In March, 1999 the Committee determined that
with respect to awards previously granted and awards granted in the future, in
the event of a change in control, 100% of the awards granted will immediately
become fully vested and excercisable or, at the Committee's sole discretion, the
award may be exchanged for a payment to a participant in cash of an amount equal
to the excess of the change in control price over the exercise price for the
award, provided certain conditions are met. The options vest over a three-year
period and terminate on the seventh
F-21
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
14. STOCK OPTION PLANS--(CONTINUED)
anniversary of the date of grant, unless a different vesting schedule is
designated by the Committee. As of December 31, 1999, a total of 4,605,617
options and 164,250 shares of restricted stock have been granted under this
plan.
1997 Performance Incentive Compensation Plan
During 1997, we established the 1997 Performance Incentive Compensation
Plan (the "1997 Performance Plan") to reward employees for superior performance.
The 1997 Performance Plan is effective through and including the year 2000,
unless extended or earlier terminated by the Board of Directors. Awards under
the 1997 Performance Plan may be made to key employees recommended by the Chief
Executive Officer, selected by the Committee and approved by the Board of
Directors, and may be paid in cash, in shares of Class A Common Stock or in any
combination thereof, provided that at least 50% of such award is required to be
paid in cash. The 1997 Performance Plan provides for the grant of up to 400,000
shares of Class A Common Stock. No shares have been granted under the 1997
Performance Plan.
1997 Directors' Compensation Plan
During 1997, we adopted the 1997 Directors' Compensation Plan (the "1997
Directors' Plan"). Under the 1997 Directors' Plan, each non-employee Director
will be granted options annually to acquire a number of Class A Common Stock
with an aggregate fair market value on the date of grant equal to $50,000,
except for the Chairman and the Vice Chairman of the Board, whose grants have a
fair market value of $150,000 and $75,000, respectively. The 1997 Directors'
Plan provides for the grant of up to 250,000 shares of Class A Common Stock. The
options have a ten-year term and vest over a five-year period, subject to
certain acceleration provisions. A total of 103,365 options have been granted
under this plan.
The exercise price of stock options granted under the 1997 Stock Plan, the
1997 Performance Plan and the 1997 Directors' Plan (collectively, the "1997
Plans") will equal the fair market value of the Class A Common Stock on the date
of the grant. We record stock option grants under the 1997 Plans based on the
fair market value of the underlying security on the date of grant. We used the
expected life of the underlying security to calculate the fair market value of
such security.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF RANGE OF AVERAGE
OPTIONS EXERCISE PRICES EXERCISE PRICE
---------- --------------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1996.................................... 1,707,324 $ .000457-2.06 $ 0.82
Granted........................................................... 1,459,195 .00457-26.15 9.675
Exercised......................................................... (712,142) .000457 .000457
Rescinded/Canceled................................................ -- -- --
---------- --------------- --------
Outstanding at December 31, 1997.................................... 2,454,377 .000457-26.15 5.94
Granted........................................................... 675,822 .043-26.15 21.974
Exercised......................................................... (1,232,339) .000457-18.625 1.32
Rescinded/Canceled................................................ (20,929) 12.142-22.00 13.747
---------- --------------- --------
Outstanding at December 31, 1998.................................... 1,876,931 .000457-26.15 14.655
Granted........................................................... 3,583,258 0.043-31.44 20.96
Exercised......................................................... (798,475) .000457-18.265 1.459
Rescinded/Canceled................................................ (235,459) 24.26 24.26
---------- --------------- --------
Outstanding at December 31, 1999.................................... 4,426,255 .000457-31.44 21.633
---------- --------------- --------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES AVERAGE
EXERCISABLE EXERCISE PRICE
----------- --------------
<S> <C> <C>
December 31, 1997............................................................ 459,607 $ 0.44
December 31, 1998............................................................ 397,115 $ 4.11
December 31, 1999............................................................ 754,522 $12.40
</TABLE>
F-22
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
14. STOCK OPTION PLANS--(CONTINUED)
The following table summarizes information concerning the remaining options
granted under the 1995 Plan and the 1997 Plans outstanding as of December 31,
1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ------------------------
WEIGHTED AVERAGE WEIGHTED
NUMBER AVERAGE REMAINING NUMBER OF AVERAGE
RANGE OF OF SHARES EXERCISE CONTRACTUAL SHARES EXERCISE
EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
---------------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.000457 174,293 $ 0.00 5.3 174,293 $ 0.00
0.00457 121,978 0.00 7.5 48,978 0.00
0.01 54,750 0.01 9.6 54,750 0.01
2.05 29,600 2.05 6.6 29,600 2.05
12.14-17.00 88,687 12.36 6.9 49,060 12.37
18.26-26.15 3,556,947 23.25 6.0 397,841 21.84
28.88-31.44 400,000 29.74 6.1 0 0
---------------- --------- ------ --- ------- ------
$0.000457-31.44 4,426,255 $21.63 6.1 754,522 $12.40
================ ========= ====== === ======= ======
</TABLE>
At December 31, 1999, we have authorized and reserved the following amounts
for future grants: approximately 3,514,842 shares of Class A Common Stock under
the 1997 Stock Plan, 400,000 under the 1997 Performance Plan and 150,044 under
the 1997 Directors' Plan.
SFAS Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS
No. 123") was issued by the FASB in 1995 and if fully adopted, changes the
methods for recognition of costs on plans similar to those we have. Adoption of
the recognition provisions of SFAS No. 123 is optional; however, pro forma
disclosures as if we adopted the cost recognition requirements under SFAS No.
123 are presented below.
Under SFAS No. 123, for options granted, the fair value at the date of
grant was estimated using the Black-Scholes option pricing model. The fair value
was estimated using the minimum value method. Under this method, a volatility
factor of approximately 0.7 was used for options granted on or after the date of
the initial public offering and the minimum value method was used for options
granted prior to the date of the initial public offering, as there was no market
for our common stock in which to measure the stock price volatility.
The following weighted average assumptions were used in calculating the
fair value of the options granted in the years ended December 31, 1997, 1998 and
1999, respectively: risk-free interest rates between 4.54% and 5.95%; no
dividends are expected to be declared; expected life of the options are between
39 and 51 months, between 18 and 42 months and between 18 and 42 months,
respectively; and a maximum contractual life of 10 years.
F-23
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
14. STOCK OPTION PLANS--(CONTINUED)
For purposes of the pro forma disclosures, the estimated fair value of the
options granted is amortized to compensation expense over the options' vesting
period. Our pro forma information is as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT LOSS PER
COMMON SHARE AND WEIGHTED AVERAGE
FAIR VALUE OF OPTIONS GRANTED)
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net loss:
As reported........................................................... $(100,199) $(219,224) $(358,227)
Pro forma............................................................. (118,176) (224,197) (380,929)
Net loss per common share:
As reported........................................................... (5.27) (4.99) (6.63)
Pro forma............................................................. (6.22) (5.11) (7.05)
Weighted average fair value of options granted during the period........ $ 12.32 $ 7.36 $ 12.01
</TABLE>
We also granted restricted units ("Restricted Units") under the 1997 Stock
Plan. All grants of Class A Common Stock and Restricted Units vest over a
three-year period and were made at the fair market value on the date of grant.
Restricted Units granted under the 1997 Plan to certain employees generally are
convertible into shares of Class A Common Stock or cash, at our discretion.
As of December 31, 1999, the approximate total number of shares of Class A
Common Stock into which all outstanding Restricted Units may be converted, based
on the valuations attributed to our subsidiaries is estimated to be
approximately 1,099,000. As of December 31, 1999, vested and exercisable
Restricted Units which may be converted, based on the valuations attributed to
the Company's subsidiaries is estimated to be 447,000 at a weighted average
exercise price of $2.47 per share.
Upon completion of deltathree.com's initial public offering, shares of its
Class A common stock were issued in exchange for vested restricted units on a
one-for-one basis upon payment of the related exercise price. In addition,
options were issued to purchase shares of deltathree.com's Class A common stock
in exchange for unvested restricted units on a one-for-one basis, with the same
exercise prices and vesting schedules as the corresponding restricted units.
Pursuant to generally accepted accounting principles, the restricted units were
considered variable grants. Consequently, the changes in the fair value of the
underlying shares at each balance date affected the aggregate amount of deferred
compensation recorded by deltathree.com and by us.
In April 1999, deltathree.com granted options to purchase an aggregate of
1.1 million shares of its common stock to executive officers of deltathree.com,
subject to completion of its initial public offering. Such options vest over a
three-year period from the date of grant and are exercisable for a period of
seven years from the date of grant. We recorded deferred compensation expense of
$23.6 million in 1999 primarily related to the deltathree.com restricted units
and options. As of December 31, 1999 $8.3 million was deferred and is included
as a reduction of stockholders' equity and is being amortized by charges to
operations over the three-year vesting period.
In addition, in November 1999, deltathree.com adopted the 1999 Stock
Incentive Plan ("the Plan"). Under the Plan, 4,000,000 shares were reserved for
issuance upon the exercise of awards to be granted. In addition,
deltathree.com's compensation committee may grant both incentive and
non-incentive stock options for common stock of deltathree.com. The options
generally have a term of seven years and become exercisable in three equal
installments commencing on the first anniversary of the date of the grant. The
purchase price per share payable upon exercise of an option is no less than the
fair market value of the share at the date of grant. As of December 31, 1999,
options to purchase 502,800 shares of deltathree.com were outstanding with
exercise prices of $15 and $25 per share.
F-24
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, we were committed to unrelated parties for the rental
of office space under operating leases. Minimum annual lease payments with
respect to the leases is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
----------
<S> <C>
2000............................................................................... $11,769
2001............................................................................... 8,539
2002............................................................................... 6,458
2003............................................................................... 5,445
2004 and Thereafter................................................................ 5,419
-------
$37,630
=======
</TABLE>
Rent expense on the above leases for the years ended December 31, 1997,
1998 and 1999 was $3,842,000, $4,724,000 and $8,668,000 respectively.
We are also committed to pay for transmission capacity under certain
operating leases. The minimum annual lease payments with respect to these
agreements is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
----------
<S> <C>
2000.............................................................................. $135,286
2001.............................................................................. 43,653
2002.............................................................................. 29,678
2003 and Thereafter............................................................... 3,220
--------
$211,837
========
</TABLE>
We recorded expenses in connection with such commitments for the years
ended December 31, 1997, 1998 and 1999 of approximately $9,100,000, $81,997,000
and $141,781,000 respectively.
Commitments and Contingencies--On October 8, 1999, Aerotel, Ltd. and
Aerotel U.S.A. commenced a suit against us, deltathree.com and one of our U.S.
subsidiaries in the United States District Court for the Southern District of
New York. Aerotel alleges that we are infringing on a patent issued to Aerotel
in November 1987 by making, using, selling and offering for sale prepaid
telephone card products in the United States. Aerotel seeks an injunction to
stop us from using technology covered by this patent, monetary damages in an
unspecified amount and reimbursement of attorneys' fees. We have answered the
complaint and the parties are currently engaged in pre-trial discovery. As we
continue to evaluate these claims, we believe that we have meritorious defenses
to the claims and intend to defend the lawsuit vigorously. However, the outcome
of the litigation is inherently unpredictable and an unfavorable result may have
a material adverse effect on us. Regardless of the ultimate outcome, the
litigation could result in substantial expenses to us and significant diversion
of efforts by our managerial and other personnel.
We are, from time to time, a party to litigation that arises in the normal
course of our business operations. Except as previously described, we are not
presently a party to any litigation that we believe could reasonably be expected
to have a material adverse effect on our business or results of operations.
We are involved in various claims that arose in the ordinary course of our
businesses. The expected settlements from certain of these matters have been
accrued and are recorded as Other Liabilities. In our opinion,
F-25
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
the settlement of such claims would not have a material adverse effect on our
consolidated financial position or results of our operations.
In connection with the acquisition of one of our United States
subsidiaries, we recorded what we believed to be our best estimate of the
unfavorable portion related to certain transmission capacity agreements. During
1997, we successfully amended such transmission capacity agreements. The
resulting settlement of approximately $7,000,000 was recorded as Other
Income--Net in the statements of operations and comprehensive loss.
We are a party to separate stockholder agreements with certain minority
stockholders of our subsidiaries, pursuant to which we have granted put rights
with roll-up right provisions ("put rights"). These agreements restrict the sale
of the minority stockholders' interest to any person or entity other than us and
in certain cases require us to purchase these interests in certain of our
subsidiaries. Certain of the minority stockholders have the option to require us
to purchase their interests at any time in exchange for cash or Class A Common
Stock (in most instances, at our sole discretion) and have the right to require
us to purchase their interests in whole or in part at various times through
December 31, 2005 or upon cessation of such stockholder's employment with us for
any reason. Generally, the minority stockholder remains employed by us and
receives a salary and a performance based bonus. We have issued put rights to
substantially all of our subsidiaries' minority stockholders at the time we
acquired a majority shareholding in the entity acquired or formed. Such put
rights were issued to create an incentive for our minority shareholders to
maximize the long term value of their respective subsidiaries and to provide
liquidity to the shareholders at the time of exercise.
Our issuance of put rights did not at the time of grant provide the
recipient of such rights with any tangible value other than the right to put
their minority shares to us, in a value for value exchange (fair value of the
minority shares of the subsidiary for fair value of Class A Common Stock or
cash), in most instances, at our sole discretion. Solely for the purpose of
illustration, if all such options were in effect on December 31, 1999, our
aggregate purchase obligation is estimated to be approximately $50.3 million at
that date.
16. SIGNIFICANT CUSTOMER
For the years ended December 31, 1997, 1998 and 1999 no customer accounted
for more than 10% of our revenues.
17. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
General Information
We have four reportable segments: three regional segments in, Europe, North
America and Asia/Pacific and other operations (which include immaterial
operations in Latin America) and deltathree.com, our global internet telephony
subsidiary. Revenues from deltathree.com have been immaterial to us. However
with the proceeds of deltathree.com's initial public offering in November 1999,
it will incur significant marketing and infrastructure costs as it executes its
expansion plans. The Company's three regional segments are strategic business
units that offer primarily identical products and services. They are managed
separately because each business within the regions is naturally aligned to its
geographic neighbors. Similar operating segments that operate in different
countries are managed separately, and, in accordance with the provisions of SFAS
131, we have aggregated similar operating segments into the three regional
segments.
(a) Information about Operating Profit or Loss and Total Assets
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. We evaluate performance based on
the profit or loss from operations.
F-26
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
17. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION--(CONTINUED)
We account for inter-segment sales and transfers as if the sales or
transfers were inter-company and accordingly, no profit or loss is included
among the segments. We do not systematically allocate assets or a proportionate
allocation of indebtedness to the divisions of the subsidiaries constituting our
consolidated group.
General corporate expenses are included within selling, general and
administrative expenses in the statements of operations and comprehensive loss.
The following table provides certain segment data on our operations for the
years ended December 31, 1997, 1998 and 1999 (in thousands).
<TABLE>
<CAPTION>
OPERATING
REVENUE LOSS TOTAL ASSETS
---------- --------- ------------
<S> <C> <C> <C>
Year Ended December 31, 1997
Europe................................................................... $ 73,653 $ (35,905) $ 106,746
North America............................................................ 194,129 (24,954) 109,960
Asia/Pacific and Other................................................... 32,625 (3,430) 58,030
deltathree.com........................................................... 389 (1,166) 8,403
---------- --------- ----------
$ 300,796 $ (65,455) $ 283,139
========== ========= ==========
Year Ended December 31, 1998
Europe................................................................... $ 306,289 $ (56,391) $ 450,596
North America............................................................ 448,232 (14,746) 399,843
Asia/Pacific and Other................................................... 129,675 (14,163) 90,073
deltathree.com........................................................... 1,742 (6,415) 25,676
---------- --------- ----------
$ 885,938 $ (91,715) $ 966,188
========== ========= ==========
Year Ended December 31, 1999
Europe................................................................... $ 736,274 $ (60,873) $ 774,193
North America............................................................ 546,615 (59,220) 433,548
Asia/Pacific and Other................................................... 183,338 (36,442) 155,769
deltathree.com........................................................... 3,622 (38,334) 126,833
---------- --------- ----------
$1,469,849 $(194,869) $1,490,343
========== ========= ==========
</TABLE>
F-27
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
17. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION--(CONTINUED)
(b) Reconciliations (in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Loss from Operations
Total loss from operations for reportable segments.............. $(65,455) $ (91,715) $(194,869)
Unallocated amounts:
Loss from operations of corporate headquarters............... (15,601) (38,535) (49,069)
-------- --------- ---------
Total consolidated loss from operations......................... $(81,056) $(130,250) $(243,938)
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Assets
Total assets for reportable segments...................................... $ 966,188 $1,490,343
Other operational segment assets.......................................... 30,371 --
Unallocated amounts:
Net assets of corporate headquarters................................... 718,034 312,965
---------- ----------
Total consolidated assets................................................. $1,714,593 $1,803,308
========== ==========
</TABLE>
18. SUMMARIZED FINANCIAL INFORMATION
The following presents summarized financial information of RSL PLC, as of
December 31, 1998 and 1999 and for the years ended December 31, 1997, 1998 and
1999. RSL PLC is a wholly owned subsidiary of ours. RSL PLC had no independent
operations other than serving solely as a foreign holding company for certain of
our U.S. and European operations. The Notes issued by RSL PLC are fully and
unconditionally guaranteed by us and RSL COM U.S.A. Our financial statements
are, except for our capitalization, corporate overhead expenses, certain
operations and available credit facilities, identical to the financial
statements of RSL PLC (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Current Assets................................................... $ 686,727 $ 520,411
Non-current Assets............................................... 877,696 972,319
Current Liabilities.............................................. 411,667 453,089
Non-current Liabilities.......................................... 1,479,159 1,635,765
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenue................................................. $ 266,142 $ 754,970 $ 1,282,889
Loss Before Extraordinary Item.......................... (95,824) (169,372) (269,870)
Extraordinary Item...................................... -- (20,800) --
Net Loss................................................ (95,824) (190,172) (269,870)
</TABLE>
19. SUBSEQUENT EVENT
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 $111.0 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
F-28
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
19. SUBSEQUENT EVENT--(CONTINUED)
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 notes, which are guaranteed by us and by RSL COM U.S.A., a wholly
owned subsidiary of RSL PLC (the "Guarantor Subsidiary"), bear interest at an
annual rate of 12 7/8 %. The debt issuances 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.
Presented below are condensed consolidating financial statement data as of
and for the year ending December 31, 1999. The Notes issued by RSL PLC are fully
and unconditionally guaranteed by us and by RSL COM U.S.A.on a joint and several
basis.
<TABLE>
<CAPTION>
For the year ended Dec 31, 1999
---------------------------------------------------------------------------
Non-Guarantor Consolidated
Income Statement Data RSL Ltd. RSL PLC RSL COM U.S.A. Subsidiaries Adjustments Total
-------- --------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - $ 784,805 $ 498,084 $ 186,960 $ - $ 1,469,849
Operating Expenses 24,059 877,012 553,097 261,443 (1,824) 1,713,787
-------- --------- ------------ ----------- -------- -----------
Loss From Operations (24,059) (92,207) (55,013) (74,483) 1,824 (243,938)
Other Income/(Expense) 13,804 (119,086) (3,564) (3,011) (2,432) (114,289)
-------- --------- ------------ ----------- -------- -----------
Net Loss $(10,255) $(211,293) $ (58,577) $ (77,494) $ (608) $ (358,227)
======== ========= ============ =========== ======== ===========
<CAPTION>
December 31, 1999
----------------------------------------------------------------------------
RSL COM Non-Guarantor Consolidated
Balance Sheet Data RSL Ltd. RSL PLC U.S.A. Subsidiaries Adjustments Total
--------- ----------- ---------- ------------- ------------ ------------
Assets
<S> <C> <C> <C> <C> <C> <C>
Current Assets $ 942,861 $ 415,460 $ 104,951 $ 169,590 $ (945,413) $ 687,449
Property and Equipment - Net 2,701 316,855 93,781 62,199 - 475,536
Goodwill and Other Intangible Assets - Net 23,595 352,059 177,004 53,381 - 606,039
Other Assets 264,321 31,236 1,384 35,043 (297,700) 34,284
---------- ----------- ---------- ----------- ----------- -----------
$1,233,478 $ 1,115,610 $ 377,120 $ 320,213 $(1,243,113) $1,803,308
========== =========== ========== =========== =========== ===========
Liabilities and Shareholder's Equity (Deficiency)
Notes Payable, Current portions of Capital Lease
Obligations and Long-term debt $ - $ 18,710 $ 4,473 $ 6,574 $ (6,409) $ 23,348
Current Liabilities 900,183 278,933 150,973 177,507 (1,007,225) 500,371
Long-term funding - Parent - (6,290) 325,481 23,735 (342,926) 0
Non-current portion of Capital Lease Obligations,
Long-term debt and Other - 1,305,389 11,185 46,627 0 1,363,201
Shareholder's Equity (Deficiency) 333,295 (481,132) (114,992) 65,770 113,447 (83,612)
---------- ---------- ------------ ----------- ----------- -----------
$1,233,478 $1,115,610 $ 377,120 $ 320,213 $(1,243,113) $1,803,308
========== ========== ============ =========== =========== ===========
<CAPTION>
For the year ended December 31, 1999
---------------------------------------------------------------------
Non-Guarantor Consolidated
Cash Flow Data RSL Ltd. RSL PLC RSL COM U.S.A. Subsidiaries Total
-------- --------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Net cash used in Operating Activities $ 685 $ (112,541) $ (57,142) $ 10,113 $ (158,885)
Net cash used in Investing Activities (7,039) (128,699) (33,699) (57,065) $ (226,502)
Net cash provided by Financing Activities 9,057 14,806 82,687 157,052 263,602
</TABLE>
F-29
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
20. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth selected unaudited quarterly financial
information for the years ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- --------- ---------
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
Revenues....................................................... $ 42,168 $ 67,193 $ 83,243 $ 108,192
======== ======== ========= =========
Net loss....................................................... $(19,147) $(21,570) $ (27,342) $ (32,140)
======== ======== ========= =========
Net loss per share of Common Stock............................. $ (1.82) $ (1.90) $ (2.28) $ (0.77)
======== ======== ========= =========
Weighted average number of shares of Common Stock
outstanding.................................................. 10,541 11,378 11,998 41,633
======== ======== ========= =========
Year Ended December 31, 1998
Revenues....................................................... $131,635 $166,567 $ 265,916 $ 321,820
======== ======== ========= =========
Loss before extraordinary item................................. $(35,334) $(41,176) $ (58,941) $ (62,973)
Extraordinary item............................................. -- (20,800) -- --
-------- -------- --------- ---------
Net loss....................................................... $(35,334) $(61,976) $ (58,941) $ (62,973)
======== ======== ========= =========
Loss per share of Common Stock before extraordinary item....... $ (0.85) $ (0.97) $ (1.34) $ (1.33)
======== ======== ========= =========
Net loss per share of Common Stock............................. $ (0.85) $ (1.47) $ (1.34) $ (1.33)
======== ======== ========= =========
Weighted average number of shares of Common Stock
outstanding.................................................. 41,777 42,295 44,124 47,392
======== ======== ========= =========
Year Ended December 31, 1999
Revenues....................................................... $340,281 $367,700 $ 368,831 $ 393,037
======== ======== ========= =========
Net loss....................................................... $(56,965) $(72,855) $(118,897) $(109,510)
======== ======== ========= =========
Net loss per share of Common Stock............................. $ (1.08) $ (1.36) $ (2.17) $ (2.00)
======== ======== ========= =========
Weighted average number of shares of Common Stock
outstanding.................................................. 52,930 53,394 54,702 54,891
======== ======== ========= =========
</TABLE>
F-30
<PAGE>
RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
ASSETS ---------- -------------
(UNAUDITED)
<S> <C> <C>
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
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-31
<PAGE>
RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
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
</TABLE>
See notes to condensed consolidated financial statements.
F-32
<PAGE>
RSL COMMUNICATIONS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
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 $ --
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-33
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
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)
======== ========
</TABLE>
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.
F-34
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
4. SUMMARIZED FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
Presented below are condensed consolidating financial statement data as of
and for the quarter ending March 31, 2000. The Notes issued by RSL PLC are fully
and unconditionally guaranteed by us and by RSL COM U.S.A.on a joint and several
basis.
<TABLE>
<CAPTION>
For the months ended March 31, 2000
----------------------------------------------------------------------------------
Non-Guarantor Consolidated
Income Statement Data RSL Ltd. RSL PLC RSL COM U.S.A. Subsidiaries Adjustments Total
---------- ---------- --------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - $ 232,185 $ 89,358 $ 54,340 $ - $ 375,883
Operating Expenses 2,948 259,745 99,151 71,797 (307) 433,334
---------- ---------- --------------- ----------- -------------- -------------
Loss from Operations (2,948) (27,560) (9,793) (17,457) 307 (57,451)
Other Income/(Expense) 3,332 (35,805) (395) 4,089 987 (27,792)
---------- ---------- --------------- ----------- -------------- -------------
Net Loss $ 384 $ (63,365) $ (10,188) $ (13,368) $ 1,294 $ (85,243)
========== ========== =============== =========== ============== =============
<CAPTION>
March 31, 2000
----------------------------------------------------------------------------------
Non-Guarantor Consolidated
Balance Sheet Data RSL Ltd. RSL PLC RSL COM U.S.A. Subsidiaries Adjustments Total
---------- ---------- -------------- ------------ -------------- -------------
Assets
<S> <C> <C> <C> <C> <C> <C>
Current Assets $1,066,793 $ 613,881 $ 92,387 $ 161,789 $ (1,070,757) $ 864,093
Property and Equipment - Net 2,685 327,251 91,717 60,238 - 481,891
Goodwill and Other Intangible Assets - Net 24,211 350,064 171,059 62,182 - 607,516
Other Assets 273,082 34,121 850 37,288 (308,615) 36,726
---------- ---------- -------------- ------------ -------------- -------------
$1,366,771 $1,325,317 $ 356,013 $ 321,497 $ (1,379,372) $1,990,226
========== ========== ============== ============ ============== ==============
<CAPTION>
Liabilities and Shareholder's Equity (Deficiency)
<S> <C> <C> <C> <C> <C> <C>
Notes Payable, Current Portions of Capital
Lease Obligations and Long-term debt $ - $ 17,300 $ 4,022 $ 6,516 $ (6,408) $ 21,430
Current Liabilities 1,026,308 281,990 104,606 166,341 (1,147,553) 431,692
Long-term funding - Parent 0 (60,275) 362,677 19,838 (322,240) 0
Non-current Portion of Capital Lease
Obligations,Long-term debt and Other 592 1,513,597 10,287 48,973 - 1,573,449
Shareholder's Equity (Deficiency) 339,871 (427,295) (125,579) 79,829 96,829 (36,345)
---------- ---------- ----------- ------------- -------------- -------------
$1,366,771 $ 1,325,317 $ 356,013 $ 321,497 $(1,379,372) $1,990,226
====================== =========== ============= ============== =============
<CAPTION>
For the three months ended March 31, 2000
----------------------------------------------------------------
Non-Guarantor Consolidated
Cash Flow Data RSL Ltd. RSL PLC RSL COM U.S.A. Subsidiaries Total
---------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net Cash used in Operating Activities $ (358) (104,712) $ (1,650) $ (8,575) $ (115,295)
Net Cash used in Investing Activities (6,836) (30,553) (2,516) (23,007) (62,912)
Net Cash provided by Financing Activities 6,882 304,123 (1,349) (3,964) 305,692
</TABLE>
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.
F-35
<PAGE>
RSL COMMUNICATIONS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
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.
F-36
<PAGE>
<TABLE>
<S> <C>
========================================================= =======================================================
You should rely only on the information
contained in this prospectus and the information to
which we have referred you. We have not authorized any
person to provide you with information different from
the information contained in this prospectus. This
prospectus is not an offer to sell and it does not seek
an offer to buy these securities in any jurisdiction
where an offer or sale is not permitted. The
information contained in this prospectus is correct
only as of the date of this prospectus, regardless of
the time of the delivery of this prospectus or any sale
of these securities.
$100,000,000
(Euro)100,000,000
------------
RSL Communications PLC
12 7/8% Senior Exchange Notes due 2010
TABLE OF CONTENTS
Page
Guaranteed as to payment of principal
Incorporation of Certain Documents by Reference.....2 and interest by
Where You Can Find More Information.................2 RSL Communications, Ltd.
Certain UK Related Regulatory Issues................2 and
Summary.............................................3 RSL COM U.S.A., Inc.
Risk Factors.......................................12
The Exchange Offers................................16 ____________
Description of Certain Indebtedness................23
Description of the New Notes and the New Notes
Guarantees....................................31
Certain United States Federal Income Tax
Considerations................................67
[LOGO]
Certain United Kingdom Tax Considerations..........67
Plan of Distribution...............................68
Legal Matters......................................68
Experts............................................68 ____________
Service of Process and Enforcement of Liabilities..69
========================================================= =======================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Under Bermuda law and the Registrant's Memorandum of Association and
bye-laws, the directors, secretary and other officers for the time being of the
Registrant and the liquidator or trustees (if any) for the time being acting in
relation to any of the affairs of the Registrant and every one of them, and
their heirs, executors and administrators, shall be indemnified and secured
harmless out of the assets of the Registrant from and against all actions,
costs, charges, losses, damages and expenses which they or any of them, their
heirs, executors or administrators, shall or may incur or sustain by or by
reason of any act done, concurred in or omitted in or about the execution of
their duty, or supposed duty, or in their respective offices or trusts, and none
of them shall be answerable for the acts, receipts, neglects or defaults of the
others of them or for joining in any receipts for the sake of conformity, or for
any bankers or other persons with whom any moneys or effects belonging to the
Registrant shall or may be lodged or deposited for safe custody, or for
insufficiency or deficiency of any security upon which any moneys of or
belonging to the Registrant shall be placed out on or invested, or for any other
loss, misfortune or damage which may happen in the execution of their respective
offices or trusts, or in relation thereto, provided that this indemnity shall
not extend to any matter in respect of any fraud or dishonesty which may attach
to any of said persons.
Under the laws of the United Kingdom and RSL PLC's Articles of
Association, except in the case of fraud or misconduct, the directors and
officers of RSL PLC are indemnified out of the assets of RSL PLC against all
losses or liabilities which they may sustain or incur in or about the execution
of the duties of their office or otherwise and no director or officer of RSL PLC
shall be liable for any loss, damage or misfortune which may happen to or be
incurred by RSL PLC in the execution of the duties of their office or in
relation thereto.
RSL COM U.S.A., Inc. is incorporated under the laws of the State of
Delaware. Section 145 of the Delaware Corporation Law, as amended, and Article
SEVENTH of RSL USA's Restated Certificate of Incorporation provide for the
indemnification, except in the case of fraud or misconduct, of officers,
directors, employees and agents of RSL USA for certain expenses incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative, and for
the purchase and maintenance of insurance by RSL USA on behalf of officers,
directors, employees and agents of RSL USA against any liability asserted
against, and incurred by, any such officer, director, employee or agent in such
capacity.
Item 21. Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
*3.1 Restated Certificate of Incorporation of RSL COM U.S.A., Inc. as filed with the
Secretary of State of the State of Delaware on January 15, 1997
*3.2 By-Laws of RSL COM U.S.A., Inc. (as amended to date).
*4.1 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.
*4.2 Dollar Note Indenture, dated as of February 22, 2000, by RSL Communications PLC, RSL
Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as Trustee.
*4.3 Euro Note Indenture, dated as of February 22, 2000, among RSL Communications PLC, RSL
Communications, Ltd. and RSL COM U.S.A., Inc. to the Chase Manhattan Bank, as Trustee
*4.4 Exchange and Registration Rights Agreement, dated as of February 22, 2000, among RSL
Communications PLC, RSL Communications, Ltd. and Goldman Sachs & Co.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
5.1 Opinion of Conyers, Dill & Pearman.
5.2 Opinion of Field Fisher Waterhouse.
5.3 Opinion of Debevoise & Plimpton.
*10.1 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 10 1/2% Senior Notes due 2008
*10.2 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 9 1/8% Senior Notes due 2008
*10.3 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 12 1/4% Senior Notes due 2006
*10.4 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 12% Senior Notes due 2008
*10.5 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 10 1/8% Senior Discount Notes due 2008
*10.6 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 10% Senior Discount Notes due 2008
*10.7 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 9 7/8% Senior Notes due 2009
12 Ratio of Earnings to Fixed Charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Conyers, Dill & Pearman (included in Exhibit 5.1).
23.3 Consent of Field Fisher Waterhouse (included in Exhibit 5.2).
23.4 Consent of Debevoise & Plimpton (included in Exhibit 5.3).
*24.1 Powers of Attorney (included in the signature pages to the Registration Statement).
25.1 Statement of Eligibility and Qualification under the U.S. Trust Indenture Act of 1939
(Form T-1) of The Chase Manhattan Bank as trustee with
respect to the 12 7/8% Senior Dollar Exchange Notes
due 2010 and 12 2/8% Senior Euro Exchange Notes due
2010 of RSL Communications PLC.
**27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal with respect to the 12 7/8% Senior Exchange Notes due 2010
of RSL Communications PLC.
*99.2 Form of Notice of Guaranteed Delivery with respect to the 12 7/8% Senior Exchange Notes
due 2010 of RSL Communications PLC.
*99.3 Form of Letter to Beneficial Holders with respect to the 12 7/8% Senior Exchange Notes
due 2010 of RSL Communications PLC.
</TABLE>
* Previously filed.
<PAGE>
** Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000.
Item 22. Undertakings
(1) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrants' annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(2) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(3) The undersigned registrants hereby undertake to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(4) The undersigned registrants hereby undertake to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on July 17, 2000.
RSL COMMUNICATIONS PLC
By: /s/ Donald R. Shassian
----------------------
Donald R. Shassian
Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Itzhak Fisher and Donald R.
Shassian his true and lawful attorney-in-fact and agent, each acting alone, with
full power of substitution and resubstitution, for him and in his name, place,
and stead, in any and all capacities, to sign any or all amendments (including
post- effective amendments) to this registration statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto each said attorney-in-fact and agent full power and
authority to do and reform each and every act and thing requisite or necessary
to be done in and about the premises, as person, hereby ratifying and conforming
all that either said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
** Director and Chairman of the Board of July 17, 2000
------------------------------------------ Directors
(Ronald S. Lauder)
** Director, President and Chief Executive July 17, 2000
------------------------------------------ Officer
(Itzhak Fisher) (Principal Executive Officer)
/s/ Steven F. Schiffman Chief Financial Officer July 17, 2000
------------------------------------------ (Principal Financial Officer)
(Steven F. Schiffman)
** Director July 17, 2000
------------------------------------------
(Nesim Bildirici)
** Director July 17, 2000
------------------------------------------
(Jacob Z. Schuster)
** Director July 17, 2000
------------------------------------------
(Eugene Sekulow)
** Director July 17, 2000
------------------------------------------
(Nir Tarlovsky)
**By: /s/ Donald R. Shassian
-------------------------------------
Donald R. Shassian
Attorney-in-Fact
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on July 17, 2000.
RSL COMMUNICATIONS, LTD.
By: /s/ Donald R. Shassian
----------------------
Donald R. Shassian
Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Itzhak Fisher and Donald R.
Shassian his true and lawful attorney-in-fact and agent, each acting alone, with
full power of substitution and resubstitution, for him and in his name, place,
and stead, in any and all capacities, to sign any or all amendments (including
post- effective amendments) to this registration statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto each said attorney-in-fact and agent full power and
authority to do and reform each and every act and thing requisite or necessary
to be done in and about the premises, as person, hereby ratifying and conforming
all that either said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director and Chairman of the Board of July 17, 2000
------------------------------------------ Directors
(Ronald S. Lauder)
** Director, President and Chief Executive July 17, 2000
------------------------------------------ Officer
(Itzhak Fisher) (Principal Executive Officer)
/s/ Steven F. Schiffman Chief Financial Officer July 17, 2000
------------------------------------------ (Principal Financial Officer)
(Steven F. Schiffman)
** Global Controller (Controller and July 17, 2000
------------------------------------------ Principal Accounting Officer)
(Joel S. Beckoff)
** Director July 17, 2000
------------------------------------------
(Gustavo A. Cisneros)
** Director July 17, 2000
------------------------------------------
(Fred H. Langhammer)
** Director July 17, 2000
------------------------------------------
(Leonard A. Lauder)
** Director July 17, 2000
------------------------------------------
(Jacob Z. Schuster)
** Director July 17, 2000
------------------------------------------
(Eugene Sekulow)
** Director July 17, 2000
------------------------------------------
(Nicolas G. Trollope)
**By:/s/ Donald R. Shassian
-------------------------------------
Donald R. Shassian
Attorney-in-Fact
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on July 17, 2000.
RSL COM U.S.A., INC.
By: /s/ Michael Marino
------------------
Michael Marino
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Itzhak Fisher and Donald R.
Shassian his true and lawful attorney-in-fact and agent, each acting alone, with
full power of substitution and resubstitution, for him and in his name, place,
and stead, in any and all capacities, to sign any or all amendments (including
post- effective amendments) to this registration statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto each said attorney-in-fact and agent full power and
authority to do and reform each and every act and thing requisite or necessary
to be done in and about the premises, as person, hereby ratifying and conforming
all that either said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
** Director and Chairman of the Board of July 17, 2000
------------------------------------------ Directors
(Itzhak Fisher)
** Director, President and Chief Executive July 17, 2000
------------------------------------------ Officer
(Michael Marino) (Principal Executive Officer)
** Chief Financial Officer July 17, 2000
------------------------------------------ (Principal Financial Officer)
(Patricia D. Mazon)
/s/ Donald R. Shassian Director July 17, 2000
------------------------------------------
(Donald R. Shassian)
** Director July 17, 2000
------------------------------------------
(Joel Beckoff)
*By: /s/ Donald R. Shassian
------------------------------------
Donald R. Shassian
Attorney-in-Fact
</TABLE>
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
*3.1 Restated Certificate of Incorporation of RSL COM U.S.A., Inc. as filed with the
Secretary of State of the State of Delaware on January 15, 1997
*3.2 By-Laws of RSL COM U.S.A., Inc. (as amended to date).
*4.1 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.
*4.2 Dollar Note Indenture, dated as of February 22, 2000, by RSL Communications PLC, RSL
Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as Trustee.
*4.3 Euro Note Indenture, dated as of February 22, 2000, among RSL Communications PLC, RSL
Communications, Ltd. and RSL COM U.S.A., Inc. to the Chase Manhattan Bank, as Trustee
*4.4 Exchange and Registration Rights Agreement, dated as of February 22, 2000, among RSL
Communications PLC, RSL Communications, Ltd. and Goldman Sachs & Co.
5.1 Opinion of Conyers, Dill & Pearman.
5.2 Opinion of Field Fisher Waterhouse.
5.3 Opinion of Debevoise & Plimpton.
*10.1 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 10 1/2% Senior Notes due 2008
*10.2 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 9 1/8% Senior Notes due 2008
*10.3 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 12 1/4% Senior Notes due 2006
*10.4 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 12% Senior Notes due 2008
*10.5 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 10 1/8% Senior Discount Notes due 2008
*10.6 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 10% Senior Discount Notes due 2008
*10.7 Second Supplemental Indenture, dated as of February 22, 2000, by RSL Communications PLC,
RSL Communications, Ltd. and RSL COM U.S.A., Inc. to The Chase Manhattan Bank, as
Trustee, regarding 9 7/8% Senior Notes due 2009
12 Ratio of Earnings to Fixed Charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Conyers, Dill & Pearman (included in Exhibit 5.1).
23.3 Consent of Field Fisher Waterhouse (included in Exhibit 5.2).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
23.4 Consent of Debevoise & Plimpton (included in Exhibit 5.3).
*24.1 Powers of Attorney (included in the signature pages to the Registration Statement).
25.1 Statement of Eligibility and Qualification under the U.S. Trust Indenture Act of 1939
(Form T-1) of The Chase Manhattan Bank as trustee with
respect to the 12 7/8% Senior Dollar Exchange Notes
due 2010 and 12 2/8% Senior Euro Exchange Notes due
2010 of RSL Communications PLC.
**27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal with respect to the 12 7/8% Senior Exchange Notes due 2010
of RSL Communications PLC.
*99.2 Form of Notice of Guaranteed Delivery with respect to the 12 7/8% Senior Exchange Notes
due 2010 of RSL Communications PLC.
*99.3 Form of Letter to Beneficial Holders with respect to the 12 7/8% Senior Exchange Notes
due 2010 of RSL Communications PLC.
</TABLE>
* Previously filed.
** Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000.
