<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
RSL COMMUNICATIONS, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
BERMUDA 4813 N/A
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION)
</TABLE>
----------------------
RSL COMMUNICATIONS, LTD.
CLARENDON HOUSE
CHURCH STREET
HAMILTON HM CX BERMUDA
TELEPHONE: (441) 295-2832
FAX: (212) 445-7531
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------
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: 212-909-6000
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 only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
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(c) 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
--------------------------- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
7 1/2% Series A Convertible preferred
shares 2,300,000 $50 $115,000,000 $30,360.00
Class A common shares, par value
$0.00457 (1) 1,725,000 $13.875(3) $23,934,375 $6,318.68
Class A common shares, par value
$0.00457 (2) 5,200,000 $13.875(3) $72,150,000 (4)
Total -- -- -- $36,678.68
</TABLE>
(1) Registrant's estimate of the number of Class A common shares issuable in
connection with dividend, redemption and other payments with respect to the
Series A preferred shares.
(2) Registrant's estimate of the number of additional Class A common shares
issuable in respect of the conversion of the Series A preferred shares.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) based on the average of the high and low sales prices of the
Class A common stock on the Nasdaq National Market on April 24, 2000.
(4) Pursuant to Rule 457(i), no registration fee is payable on the Class A
common shares registered hereunder as such shares shall be issued only upon
the conversion of the Series A preferred shares and no additional
consideration is expected to be received.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant 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>
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement we
have filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS SUBJECT TO COMPLETION DATED APRIL 28, 2000
[LOGO RSL COMMUNICATIONS, LTD.
FOR
RSLCOM] 2,300,000 7 1/2% SERIES A CONVERTIBLE PREFERRED SHARES
AND
6,925,000 CLASS A COMMON SHARES
----------------------
We issued our Series A preferred shares in a private placement in February
2000. The Series A preferred shares have been subject to important transfer
restrictions described in the offering memorandum that we used in the private
placement. This prospectus is part of a registration statement that registers
the following securities under the Securities Act to make them freely tradeable:
o the Series A preferred shares of the holders named on page 40;
o the Class A common shares into which the Series A preferred shares may be
converted; and
o the Class A common shares that we may issue in connection with dividend,
redemption and other payments on the Series A preferred shares.
The holders of our Series A preferred shares named on page 40 should
deliver this prospectus when they offer or sell their shares. Buyers who
purchase from them will receive freely tradeable shares.
At the time of the private placement, we agreed with the initial purchasers
that we would use our reasonable efforts to effect this registration after the
closing and to keep it in effect as long as necessary. The named selling
stockholders may resell their shares despite any restrictive legends on the face
of their securities if they deliver this prospectus, unless we instruct them
that they may not. Buyers who purchase from them will receive unlegended, freely
tradeable shares.
Our Class A common shares trade on the Nasdaq National Market under the
symbol "RSLC". On April 27, 2000, the last reported sale price of Class A common
shares on the Nasdaq National Market was $13.75 per share. We do not intend to
list our Series A preferred shares on any exchange or on Nasdaq.
INVESTING IN OUR SERIES A PREFERRED SHARES AND CLASS A COMMON SHARES
INVOLVES RISKS, WHICH WE DESCRIBE IN THE "RISK FACTORS" SECTION BEGINNING ON
PAGE 9 OF THIS PROSPECTUS TOGETHER WITH THE RISKS DESCRIBED IN OUR ANNUAL
REPORT ON FORM 10-K INCORPORATED IN THIS PROSPECTUS BY REFERENCE.
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 , 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 for our fiscal year ended December 31,
1999, as amended; and
o our current reports on Form 8-K dated January 25, 2000, February 10,
2000, March 2, 2000 and March 16, 2000.
We also incorporate by reference in this prospectus the description of our
Class A common shares contained in our Registration Statement on Form 8-A, dated
September 26, 1997.
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 until
all of the Series A preferred shares and Class A common shares registered under
this prospectus are issued or sold, as the case may be.
Information that we file later with the SEC and that is incorporated by
reference in this prospectus will automatically update and supersede information
contained in this prospectus. You will be deemed to have notice of all
information incorporated by reference in this prospectus as if that information
was included in this prospectus.
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.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and, accordingly, file 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 also 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. Our SEC filings are also available at the offices of The
Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C. 20006.
2
<PAGE>
SUMMARY
The following summary highlights selected information from this prospectus.
It may not contain all of the information that is important to you. We encourage
you to read the entire prospectus, together with any accompanying prospectus
supplement and the documents incorporated herein by reference before making an
investment decision.
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 22 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 rapidly our customer base 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 46 points of presence in 29 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>
<S> <C> <C>
Voice Data/Internet Value-added
- ------------------------------------ ------------------------------------ ------------------------------------
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 o voice-mail
o private line Network (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>
RECENT DEVELOPMENTS
On February 22, 2000, in conjunction with our private placement of Series A
preferred shares, we completed a private placement of $100,000,000 of our
12 7/8% Senior Dollar Notes due 2010 and Euro100,000,000 of our 12 7/8% Senior
Euro Notesdue 2010. We realized net proceeds from our 12 7/8% Dollar and Euro
Notes offering of approximately $192.2 million.
In connection with our February 2000 debt offering, we executed
supplemental indentures under which one of our operating subsidiaries, RSL COM
U.S.A., Inc., unconditionally guaranteed all of our outstanding senior
indebtedness.
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).
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares Offered............................ o 2,300,000 7 1/2% Series A convertible preferred shares, liquidation
preference $50 per share,
o up to 1,725,000 Class A common shares to be issued in connection
with dividend or other payments thereon; and
o up to 5,200,000 Class A common shares to be issued upon conversion
of our Series A preferred shares;
THE SERIES A PREFERRED SHARES
Ranking................................... The Series A preferred shares rank:
o junior to all of our existing and future indebtedness and other
obligations;
o junior to each class of capital stock or series of preferred shares
we establish after February 22, 2000, terms of which expressly
provide that such class or series will rank senior to the preferred
shares as to dividend distributions and distributions upon our
liquidation, winding-up and dissolution;
o on parity with any other class of capital stock or preferred shares
we establish after February 22, 2000, the terms of which expressly
provide that such class or series will rank on a parity with the
preferred shares as to dividend distributions and distributions
upon our liquidation, winding-up and dissolution; and
o senior to all classes of our common shares and to each other class
of capital stock or series of our preferred stock established after
February 22, 2000, the terms of which do not expressly provide that
such class or series ranks senior to or on a parity with the
preferred shares as to dividend distributions and distributions
upon our liquidation, winding-up and dissolution.
Dividends................................. Dividends accrue at the rate of 7 1/2% per year and are payable
quarterly in arrears on February 1, May 1, August 1 and November 1 of
each year, beginning on August 1, 2000.
Optional Redemption of the Series A
preferred shares........................ Beginning on February 1, 2005, we will have the right to redeem some
or all of the Series A preferred shares at a redemption price equal
to a percentage of the liquidation preference plus accrued dividends
and special dividends, if any, to the date of redemption. From
February 1, 2005, until January 31, 2006, the redemption price for
each share will equal $51.875 + accrued dividends + special
dividends, if any. The premium percentage will decline each year on
February 1 from February 1, 2006 onwards until it equals $50.00 on
February 1, 2010, and will remain at $50.00 until redeemed.
Additional Amounts; Tax
Redemption.............................. We will make payments on the Series A preferred shares without
withholding or deduction for taxes unless required by law. We will
pay, subject to certain exceptions, Additional Amounts as may be
necessary so that net payments will be no
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
less than the amounts provided for in the Series A preferred shares.
In the event that we have become or will become obligated to pay any
Additional Amounts as a result of a change to current law and we are
unable to avoid such obligation to pay Additional Amounts by taking
reasonable measures available to us, then we may redeem any or all
Series A preferred shares at any time at 100% of their liquidation
preference plus accrued dividends.
Change of Control......................... If a change of control (as defined) occurs, we will be required to
make an offer to purchase the Series A preferred shares. The purchase
price will equal 100% of the liquidation preference of the Series A
preferred shares plus accrued and unpaid dividends to the date of
purchase.
Mandatory Redemption...................... We will be required to redeem any Series A preferred shares still
outstanding on February 1, 2012 at a redemption price equal to 100%
of the liquidation preference plus accrued dividends and special
dividends, if any, to that date.
Method of Dividend, Redemption
and Other Payments...................... We may make any payments due on the Series A preferred shares, such
as redemption payments and dividend payments:
o in cash,
o by delivery of our Class A common shares, generally valued at 95%
of the average market value (as defined herein), or
o through any combination of the two.
Optional Conversion by Holders............ Holders of Series A preferred shares will have the right to convert
some or all of their preferred shares at any time unless we have
already redeemed them. The initial conversion price is $22.14 per
share. At that price, holders of the preferred shares would receive
2.2584 of our Class A common shares for each $50 liquidation
preference of preferred shares (that is, $50/$22.14). Holders of
Series A preferred shares will not be entitled to any accrued
dividends upon conversion. The conversion price will be adjusted if
specified dilutive events occur.
Limited Voting Rights..................... Holders of the Series A preferred shares are generally not entitled
to any voting rights, unless we have not declared or paid dividends
for a total of six quarterly periods.
Liquidation Preference.................... Each Series A preferred share has a "liquidation preference" of $50,
which is the amount a holder of one Series A preferred share would be
entitled to receive if our company were liquidated.
Total Liquidation Preference.............. $115,000,000, that is, $50 per share times 2,300,000 Series A
preferred shares.
Trading................................... Our Class A common shares currently trade on the Nasdaq National
Market under the symbol RSLC. We have not applied and do not intend
to apply to list our Series A preferred shares on any securities
exchange or Nasdaq. The Series A preferred shares are eligible for
trading in the PORTAL System of the National Association of
Securities Dealers.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Registration Covenant..................... Pursuant to the terms of our initial sale of Series A preferred
shares, we have agreed to keep a registration statement continuously
effective to permit the prospectus forming part thereof to be usable
by holders of Series A preferred shares for resale of Series A
preferred shares and Class A common shares for a period of up to two
years from the date of original issuance.
Use of Proceeds........................... We will receive no proceeds from the sale of securities under this
prospectus.
</TABLE>
RISK FACTORS
Please see the "Risk Factors" section beginning on page 10 for a discussion
of risks that you should consider before investing in our Series A preferred
shares or Class A Common Shares together with the additional risks described in
our annual report for the year ended December 31, 1999 on Form 10-K,
incorporated in this prospectus by reference.
6
<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.
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" included in our
annual report for the year ended December 31, 1999 on Form 10-K incorporated by
reference in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1995(1) 1996 1997 1998(10) 1999
--------- ---------- ---------- ------------ ------------
($ AND SHARES IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenues................................................ $ 18,617 $ 113,257 $ 300,796 $ 885,938 $ 1,469,849
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)
Selling, general and administrative expense............. (9,639) (38,893) (94,712) (238,141) (447,883)
Non-cash compensation expense........................... -- -- -- -- (23,562)
Special charge(2)....................................... -- -- -- -- (30,143)
Depreciation and amortization........................... (849) (6,655) (21,819) (75,445) (177,865)
--------- ---------- ---------- ------------ ------------
Total operating costs and expenses...................... (27,998) (144,009) (381,852) (1,016,188) (1,713,787)
--------- ---------- ---------- ------------ ------------
Loss from operations.................................... (9,381) (30,752) (81,056) (130,250) (243,938)
Interest income......................................... 173 3,976 13,826 16,104 20,593
Interest expense........................................ (194) (11,359) (39,373) (75,431) (133,244)
Other income--net....................................... -- 470 6,595 (3) 739 764
Foreign exchange transaction (loss) gain................ -- -- -- (11,055) 17,022
Minority Interest....................................... -- (180) 210 6,079 (11,365)
Loss in equity interest of unconsolidated
subsidiaries.......................................... -- -- -- (3,276) (4,718)
Income taxes............................................ -- (395) (401) (1,334) (3,341)
--------- ---------- ---------- ------------ ------------
Loss before extraordinary item.......................... (9,402) (38,240) (100,199) (198,424) (358,227)
Extraordinary item(4)................................... -- -- -- (20,800) --
--------- ---------- ---------- ------------ ------------
Net loss................................................ $ (9,402) $ (38,240) $(100,199) $ (219,224) $ (358,227)
========= ========== ========== ============ ============
Loss per common share before extraordinary item(5)...... $ (1.67) $ (5.13) $ (5.27) $ (4.52) $ (6.63)
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)
========= ========== ========== ============ ============
Weighted average number of common shares
outstanding(5)........................................ 5,641 7,448 19,008 43,913 54,022
OTHER FINANCIAL DATA:
EBITDA (as defined)(6).................................. $ (8,532) $ (24,097) $ (59,237) $ (54,805) $ (10,411)
Ratio of combined fixed charges and preferred dividends
to earnings (7)....................................... -- -- -- -- --
Capital expenditures(8)................................. 6,074 23,880 49,417 247,665 256,000
Cash (used in) provided by operating activities......... 3,554 (10,475) (91,812) (82,752) (158,885)
Cash used in investing activities....................... (16,537) (225,000) (18,821) (509,438) (226,502)
Cash provided by financing activities................... 18,143 335,031 152,035 815,476 263,602
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 5,163 $ 104,068 $ 144,894 $ 367,823 $ 238,724
Securities available for sale........................... -- 67,828 13,858 111,548 84,154
Restricted marketable securities(9)..................... -- 104,370 68,836 20,159 --
Total assets............................................ 53,072 427,969 605,664 1,714,593 1,803,308
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
Long-term debt and capital lease obligations(11)........ 6,648 314,425 316,608 1,089,375 1,273,961
Shareholders' equity (deficit).......................... 5,705 20,843 126,699 133,484 (83,612)
</TABLE>
7
<PAGE>
- ------------------
(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.
(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 recorded in 1999. Specifically, 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
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 1999 of $1.8 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 and preferred dividend obligations.
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.
(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 December 31,1999, we had approximately $38 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.
8
<PAGE>
RISK FACTORS
An investment in our Series A preferred shares and Class A common shares
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, the risks
described in our annual report for the year ended December 31, 1999 on
Form 10-K incorporated in this prospectus by reference and the other information
in this prospectus before buying our Series A preferred shares or Class A common
shares.
RISK FACTORS RELATING TO OUR SERIES A PREFERRED SHARES.
WE ARE CURRENTLY RESTRICTED FROM PAYING CASH DIVIDENDS AND FROM REDEEMING THE
SERIES A PREFERRED SHARES. WE ALSO COULD BE PREVENTED IN SOME CIRCUMSTANCES FROM
PAYING DIVIDENDS IN OUR COMMON SHARES.
The terms of the instruments governing our indebtedness restrict our
ability to pay cash dividends and to redeem our preferred shares for cash. Our
ability to pay cash dividends and redeem our Series A preferred shares for cash
will depend on our meeting certain financial criteria, which in turn will
require significant improvements in our EBITDA. Even if the terms of the
instruments governing our indebtedness allow us to pay cash dividends and to
redeem our Series A preferred shares for cash, we can make those payments only
from our "surplus", that is the excess of the fair value of our total assets
over the sum of our liabilities plus our total paid-in share capital. In
addition, we can make cash dividends only if we would, after paying those
dividends, be able to pay our liabilities as they become due. We cannot assure
you that we will have any surplus. The same test applies before we can pay
dividends by issuing Class A common shares. In the event this test does not
permit us to pay dividends or make redemption payments by issuing Class A common
shares, we will issue from the share premium attributable to the Series A
preferred shares, additional Series A preferred shares that we will convert
immediately following issuance into the number of Class A common shares that
would otherwise be issuable directly to holders on the payment date.
THE SERIES A PREFERRED SHARES ARE SUBORDINATED TO ALL OUR EXISTING INDEBTEDNESS
AND WILL NOT LIMIT OUR ABILITY TO INCUR FUTURE INDEBTEDNESS THAT WILL RANK
SENIOR TO THE PREFERRED SHARES.
The Series A preferred shares will be subordinated to all our indebtedness
with respect to the payments of interest and amounts distributable upon our
dissolution, liquidation or winding up. The terms of the Series A preferred
shares will not limit the amount of indebtedness or other obligations that we
may incur. Further, we may incur additional indebtedness in order to finance the
construction or acquisition of additional fiber optic and telecommunications
systems and equipment. That indebtedness will rank senior to the Series A
preferred shares.
WE MAY NOT HAVE SUFFICIENT FUNDS TO PURCHASE ANY SERIES A PREFERRED SHARES UPON
A CHANGE OF CONTROL.
If we experience a change of control, each holder of Series A preferred
shares will have the right to require us to purchase all or any part of that
holder's Series A preferred shares at a purchase price in cash or our Class A
common shares, or a combination, equal to 100% of the liquidation preference of
the Series A preferred shares, plus all accumulated and unpaid dividends on such
Series A preferred shares to the date of purchase.
Our ability to purchase such Series A preferred shares in cash is currently
limited by our obligations and would be limited under Bermuda law. In addition,
while we have the right to purchase such Series A preferred shares using our
Class A common shares, it is possible that our ability to pay in Class A common
shares may also be limited by other obligations as well as by Bermuda law.
If we experience a change of control this may be an event of default under
our other debt agreements and require payment of that debt in whole or in part
as a result of acceleration or otherwise.
9
<PAGE>
In that circumstance, we may not have access to sufficient cash to purchase
Series A preferred shares tendered to us upon a change in control.
THE PREFERRED SHARES ARE STRUCTURALLY SUBORDINATED TO THE OBLIGATIONS OF OUR
SUBSIDIARIES.
Because we are a holding company and our assets consist primarily of our
equity interests in our operating subsidiaries, our obligations on the preferred
shares will be structurally subordinated to all liabilities of our operating
subsidiaries. At December 31, 1999 on a consolidated basis, we had approximately
$1.2 billion principal amount of long-term indebtedness ($1.4 billion after
giving effect to the debt offering of RSL PLC completed in February 2000) and
our subsidiaries (other than RSL PLC) had approximately $593.0 million of
liabilities (including trade payables).
OUR ABILITY TO ISSUE SENIOR PREFERRED SHARES IN THE FUTURE COULD ADVERSELY
AFFECT THE RIGHTS OF HOLDERS OF SERIES A PREFERRED SHARES AND OUR COMMON SHARES.
We may, subject to the approval of the holders of at least 66 2/3% of the
Series A preferred shares then outstanding, issue additional preferred shares in
one or more series on terms that may be determined at the time of issuance by
our board of directors. A series of preferred shares could include voting
rights, preferences as to dividends and liquidation, and conversion and
redemption rights that will rank senior to the Series A preferred shares. In
addition, any future issuance of preferred shares, regardless of their ranking
relative to the Series A preferred shares, will rank senior to our common
shares. As a result, the future issuance of preferred shares could effectively
diminish or supersede the dividends and liquidation preferences of the Series A
preferred shares and adversely affect our common shares.
SALES, OR THE AVAILABILITY FOR SALE, OF SUBSTANTIAL AMOUNTS OF CLASS A COMMON
SHARES COULD ADVERSELY AFFECT THE MARKET PRICE OF THE CLASS A COMMON SHARES.
Sales of substantial amounts of Class A common shares in the public market,
and the availability of shares for future sale (including shares of Class A
common shares issuable upon the conversion of Class B common shares or upon
exercise of outstanding options or other rights to acquire shares of Class A
common shares) could adversely affect the prevailing market price of our Class A
common shares, which in turn would adversely affect the value of the Series A
preferred shares and could impair our future ability to raise capital through an
offering of our equity securities.
NO PUBLIC MARKET EXISTS FOR THE SERIES A PREFERRED SHARES.
The Series A preferred shares will be a new issue of securities for which
there is currently no active trading market. If any of the securities are traded
after their initial issuance, they may trade at a discount from their initial
offering price, depending on the market for similar securities and various other
factors including general economic conditions and our financial condition,
performance and prospects and, in the case of the debt securities, prevailing
interest rates.
HOLDING OUR SERIES A PREFERRED SHARES COULD HAVE ADVERSE TAX CONSEQUENCES.
In the case of a distribution on the Series A preferred shares that is paid
in the form of our Class A common shares, the fair market value of the
distributed shares on the distribution date will be treated for U.S. federal
income tax purposes in the same manner as a cash distribution on the
distribution date notwithstanding that no cash will be paid with respect to such
distribution. See the section entitled "Certain U.S. Federal Income Tax
Considerations."
In addition, in the event we (or a successor) were to become organized
under the laws of a U.S. jurisdiction, non-U.S. holders would generally be
subject to U.S. withholding tax on dividends and we would not be required to pay
any additional amounts to those holders. See the section entitled "Description
of Series A Preferred Shares--Additional Amounts."
10
<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 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.
11
<PAGE>
USE OF PROCEEDS
We will receive no proceeds from sales of securities under this prospectus.
DIVIDEND POLICY
We have never paid dividends on any class of common shares and do not
anticipate paying any dividends on our Class A common shares or cash dividends
on any other class of shares in the foreseeable future. Some of our credit
facilities and the documents governing senior notes issued by our subsidiary,
RSL Communications PLC, contain restrictions on our ability and the ability of
our subsidiaries to declare and pay cash dividends. Our declaration and payment
of dividends are subject to the discretion of our board of directors. Any
determination as to the payment of dividends in the future will depend upon our
results of operations, capital requirements, restrictions in loan agreements and
other factors as our board of directors may deem relevant.
The payment of dividends in cash or shares on either Series A preferred
shares or Class A common shares is also generally limited under applicable
Bermuda law to the amount of our "surplus." This means the excess of the fair
market value of our total assets over the sum of our total liabilities and our
paid-in share capital. However, even when this limitation applies, we are
permitted to issue additional Series A preferred shares out of the share premium
account attributable to the Series A preferred shares. We have irrevocably
committed to convert these shares, effective immediately following their
issuance, into the number of Class A common shares that would be deliverable to
holders on the dividend payment date in order to satisfy the dividend
requirement of our Series A preferred shares. In no event will holders receive
additional Series A preferred shares in lieu of any dividend payment. We
currently expect that for the foreseeable future all dividends on the Series A
preferred shares will be paid by delivery of Class A common shares.
12
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents,
marketable securities, restricted marketable securities and capitalization
(a) as of December 31, 1999 and (b) as adjusted to give effect to our offerings
completed in the first quarter of 2000. You should read this table along with
the section of our annual report for the year ended December 31, 1999 on
Form 10-K entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" incorporated herein by reference.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------
AS ADJUSTED
FOR OUR
ACTUAL SECURITIES OFFERINGS
---------- --------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents....................................................... $ 238,724 $ 541,899(1)
========== ===========
Securities available for sale................................................... $ 84,154 $ 84,154
========== ===========
Short-term debt and current portion of long-term debt and
current portion of capital lease obligations.................................. $ 23,348 $ 23,348
Long-term debt and capital lease obligations:
12 1/4% Senior Notes due 2006 (net of amortized discount of $1.5 million)..... 170,954 170,954
9% Senior Notes due 2008...................................................... 200,000 200,000
10% Senior Notes due 2008..................................................... 240,031 240,031
10% Senior Discount Notes due 2008............................................ 111,372 111,372
12% Senior Notes due 2008 (net of unamortized discount of $5.2 million)....... 94,838 94,838
10 1/2% Senior Notes due 2008 (net of unamortized discount of
$1.4 million)............................................................... 198,624 198,624
9% Senior Notes due 2009 (net of unamortized discount of $3.9 million)........ 171,085 171,085
Other debt and capital leases................................................. 87,057 87,057
Notes offered in the debt offering............................................ -- 197,123
---------- -----------
Total long-term debt, short-term debt and
capital lease obligations(2)............................................. 1,297,309 1,494,432
---------- -----------
Minority Interest............................................................... 73,254 73,254
---------- -----------
Shareholders' (Deficit) Equity:
Preferred shares, $.00457 par value:
65,700,000 shares authorized; 2,300,000 Series A preferred shares, $50
liquidation preference outstanding as adjusted.............................. -- 115,000
Common Stock, $.00457 par value; 438,000,000 authorized; 30,378,772 Class A
common shares outstanding(3)................................................ 141 141
26,245,315 Class B common shares outstanding(4)............................. 111 111
Warrants--Common shares....................................................... 3,993 3,993
Additional paid-in capital.................................................... 645,336 645,336
Deferred compensation......................................................... (8,348) (8,348)
Accumulated deficit........................................................... (725,390) (725,390)
Foreign currency translation adjustment and unrealized loss on
long-term investments....................................................... 545 545
---------- -----------
Total shareholders' (deficit) equity........................................ (83,612) 31,388
---------- -----------
Total capitalization........................................................ $1,286,951 $ 1,599,074
========== ===========
</TABLE>
- ------------------
(1) Reflects the receipt of net proceeds of approximately $111.0 million from
our offering of Series A preferred shares and approximately $192.2 million
from our offering of 12 7/8% Notes due 2010.
(2) As of December 31, 1999, we had approximately $38 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.
(3) Does not include (i) 4.4 million Class A common shares issuable upon the
exercise of outstanding stock options, (ii) 26.2 million Class A common
shares issuable upon the conversion of the Class B common shares, (iii)
459,900 Class A common shares issuable upon the conversion of Class B common
shares issuable pursuant to warrants issued to Ronald S. Lauder, (iv)
730,327 Class A common shares issuable upon the exercise of unexercised
warrants (excluding the warrants described in clause (iii)) or (v) Class A
common shares issuable upon exercise of roll-up rights or incentive units.
(4) The foregoing does not include 459,900 Class B common shares issuable upon
exercise of warrants issued to Ronald S. Lauder.
13
<PAGE>
DESCRIPTION OF SERIES A PREFERRED SHARES
The following summary is not intended to be complete. For a complete
description of the Series A preferred shares, you should read the Certificate of
Designation for the Series A preferred shares, filed as exhibit hereto and
available from us upon request. We have initially authorized up to 7,000,000
Series A preferred shares and issued 2,300,000 of such shares. We may authorize
and issue additional Series A preferred shares by action of our board of
directors or a committee.
The transfer agent for the Series A preferred shares is American Stock
Transfer & Trust Company until we select a successor.
RANKING
The Series A preferred shares rank, with respect to dividend distributions
and distributions upon our liquidation, winding-up and dissolution:
o junior to all of our existing and future indebtedness and other
obligations;
o junior to each class of capital stock or series of preferred stock that
we establish after February 22, 2000 the terms of which expressly provide
that such class or series will rank senior to the Series A preferred
shares as to dividend distributions and distributions upon our
liquidation, winding-up and dissolution ("senior securities");
o on parity with each other class of capital stock or series of preferred
stock that we establish after February 22, 2000 the terms of which
expressly provide that such class or series will rank on a parity with
the Series A preferred shares as to dividend distributions and
distributions upon our liquidation, winding-up and dissolution ("parity
securities"); and
o senior to all classes of our common stock and to each other class of
capital stock or series of our preferred stock established after
February 22, 2000 the terms of which do not expressly provide that it
ranks senior to or on a parity with the Series A preferred shares as to
dividend distributions and distributions upon our liquidation, winding-up
and dissolution (together with our common stock, "junior securities").
The Series A preferred shares will be subject to the issuance of junior
securities, parity securities and senior securities, provided that we may not
issue any new class of senior securities without the approval of the holders of
at least 66 2/3% of the Series A preferred shares then outstanding, voting or
consenting, as the case may be, together as one class.
No dividend shall be declared or paid upon, and no sum will be set apart
for the payment of dividends upon, any outstanding Series A preferred shares
with respect to any dividend period unless all dividends for all preceding
dividend periods have been declared and paid, or declared and a sufficient sum
set apart for the payment of such dividends, upon all outstanding shares of
senior securities.
REGULAR DIVIDENDS
When, as and if our board of directors declares a dividend out of funds
legally available therefor, the holders of the Series A preferred shares will be
entitled to receive a dividend. Dividends:
o are cumulative from the issue date of the Series A preferred shares and
accrue at the rate per annum of 7 1/2% of the Liquidation Preference per
share (equivalent to $3.75 per share annually);
o are payable quarterly in arrears on each February 1, May 1, August 1 and
November 1, commencing on August 1, 2000 (each, a "dividend payment
date") (unless such date is not a business day, in which case such
payment shall be made on the next succeeding business day), to the
holders of record as of the next preceding January 15, April 15, July 15
and October 15 (each, a "record date");
14
<PAGE>
o are computed on the basis of a 360-day year consisting of twelve 30-day
months and are deemed to accrue on a daily basis;
o accrue whether or not we have earnings or profits, whether or not we have
funds legally available for the payment of such dividends and whether or
not we declare dividends; and
o accumulate to the extent they are not paid on the dividend payment date
for the period to which they relate.
As described below, we may make any payments required in respect of the
Series A preferred shares in the form of cash, Class A common shares or any
combination, at our option. See the section entitled "Method of Payments."
We will, in accordance with the Certificate of Designation for the Series A
preferred shares, take all actions required or permitted under The Companies Act
1981 of Bermuda (the "Companies Act") to permit the payments in respect of the
Series A preferred shares described herein.
No dividends of any kind shall be declared or paid upon, and no sum will be
set apart for the payment of dividends upon, any outstanding Series A preferred
shares with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividends, upon all outstanding
Series A preferred shares.
Unless full cumulative dividends on all outstanding Series A preferred
shares for all past dividend periods shall have been declared and paid, or
declared and a sufficient sum for the payment thereof set apart, then:
o no dividend (other than a dividend payable solely in shares of any junior
securities or parity securities or a partial cash or property dividend on
parity securities that is paid pro rata on the Series A preferred shares)
shall be declared or paid upon, or any sum set apart for the payment of
dividends upon, any shares of junior securities or parity securities,
respectively;
o no other distribution shall be declared or made upon, or any sum set
apart from the payment of any distribution upon, any shares of junior
securities or parity securities, other than a distribution consisting
solely of junior securities or parity securities, respectively;
o no shares of junior securities or parity securities or any warrants,
rights, calls or options exercisable for or convertible into any junior
securities or parity securities shall be purchased, redeemed or otherwise
acquired (excluding an exchange for shares of other junior securities or
parity securities, respectively) by us or any of our subsidiaries; and
o no monies shall be paid into or set apart or made available for a sinking
or other like fund for the purchase, redemption or other acquisition of
any shares of junior securities or parity securities or any warrants,
rights, calls or options exercisable for or convertible into any junior
securities or parity securities by us or any of our subsidiaries.
Holders of the Series A preferred shares will not be entitled to any
dividends, whether payable in cash, property or stock, in excess of the full
cumulative dividends as described above.
We are, and for the foreseeable future we are likely to be, party to credit
agreements or other agreements relating to indebtedness that contain
restrictions on our ability to pay cash dividends on the Series A preferred
shares.
ADDITIONAL AMOUNTS
We are required to pay additional amounts to the holders of Series A
preferred shares as additional dividends, to make up for any deduction or
withholding for any present or future taxes, assessments or other governmental
charges imposed by any "applicable jurisdiction" (as defined below) in respect
of any amounts that we or a successor corporation must pay with respect to the
Series A preferred shares, so that the net amounts paid to the holders of the
Series A preferred shares, after that deduction or
15
<PAGE>
withholding, will be not less than the amount specified as payable with respect
to those shares. An "applicable jurisdiction" is (a) Bermuda, (b) any
jurisdiction (excluding the United States or any political subdivision thereof)
from or through which we are, or our paying agent is, making payments on the
Series A preferred shares or (c) any other jurisdiction (excluding the United
States or any political subdivision thereof) in which we are, or a successor
corporation is, organized or any political subdivision or governmental authority
of or in that jurisdiction with the power to tax. However, we will not be
obligated to pay additional amounts to any holder that:
o resides in or is a citizen of an applicable jurisdiction; or
o is a fiduciary, partnership or limited liability company if, and to the
extent that, the payment of additional amounts would not have been
required if the Series A preferred shares were held directly by a
beneficiary or settlor with respect to that fiduciary or a member of that
partnership or limited liability company.
In addition, we will not be obligated to pay any additional amounts to a
holder on account of:
o any tax, assessment or other governmental charge that would not have been
imposed but for (a) the existence of any present or former connection
between the holder, or certain other persons, and the applicable
jurisdiction, (b) the presentation of Series A preferred shares for
payment more than 60 days after the relevant payment is due or (c) the
presentation of Series A preferred shares for payment in Bermuda or any
political subdivision of or in Bermuda, unless those shares could not
have been presented for payment elsewhere;
o any estate, inheritance, gift, sales, transfer, excise, personal property
or similar tax, assessment or other governmental charge;
o any tax, assessment or other governmental charge that is payable
otherwise than by withholding from payment of the liquidation preference
of or any dividends or redemption premium on the Series A preferred
shares;
o any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by the holder or the beneficial owner
of the Series A preferred shares to comply with a request by us to
(a) provide information, documents or other evidence concerning the
nationality, residence, identity or connection with the applicable
jurisdiction of the holder or beneficial owner or (b) make and deliver
any declaration or other similar claim, other than a claim for refund of
a tax, assessment or other governmental charge withheld by us, or satisfy
any information or reporting requirements, which, in the case of clause
(a) or (b), is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing jurisdiction as a precondition to
exemption from all or part of that tax, assessment or other governmental
charge; or
o any combination of the items above.
As a result of the foregoing provisions, if we were to become a corporation
organized under the laws of the United States (or any political subdivision
thereof), or if the Series A preferred shares were exchanged for preferred
shares of any acquiring or successor corporation that was so organized, non-
U.S. holders would generally be subject to U.S. withholding tax on dividends,
but such holders would not be entitled to receive any additional amounts from us
or from such acquiring or successor corporation in respect of any such
withholding taxes imposed by the United States (or any political subdivision
thereof).
OPTIONAL REDEMPTION; TAX REDEMPTION
Optional Redemption
At any time on or after February 1, 2005, we may at our option redeem the
Series A preferred shares, in whole or from time to time in part (the "optional
redemption"), at a redemption price equal to the percentage of the liquidation
preference set forth below, in each case together with accumulated and unpaid
dividends (including an amount equal to a prorated dividend for any partial
dividend period),
16
<PAGE>
additional amounts and "special dividends" (as defined below), if any, to the
"redemption effective date" (as defined below), upon written notice given not
less than 30 nor more than 60 days' prior to the redemption effective date, if
redeemed during the 12-month period commencing on the dates set forth below
(unless such date is not a business day, in which case such period will commence
on the next succeeding business day):
<TABLE>
<CAPTION>
REDEMPTION
DATE PRICE
- -------------------------------------------------------------------------------- ----------
<S> <C>
February 1, 2005................................................................ $ 51.875
February 1, 2006................................................................ $ 51.500
February 1, 2007................................................................ $ 51.125
February 1, 2008................................................................ $ 50.750
February 1, 2009................................................................ $ 50.375
February 1, 2010................................................................ $ 50.000
</TABLE>
We may not authorize or make any optional redemption unless, prior to
giving the required redemption notice, all accumulated and unpaid dividends on
the Series A preferred shares for periods ended prior to the date of such
redemption notice shall have been paid in cash or Class A common shares.
Tax Redemption
We will have the option to redeem any or all Series A preferred shares at
any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice to the redemption effective date sent by first-class mail to each
holder's registered address, at 100% of the liquidation preference per share
plus accumulated and unpaid dividends to the date of redemption, if there is a
"change in tax law" (as defined below) after the issue date of the Series A
preferred shares that would require us or any successor corporation to pay
additional amounts with respect to any shares of Series A preferred shares on
the next succeeding dividend payment date, and the payment of those additional
amounts cannot be avoided by the use of any reasonable measures available to us
or any successor corporation.
A "change in tax law" that would trigger the provisions of the preceding
paragraph would be (a) a change in or amendment to laws, regulations or rulings
of any applicable jurisdiction, (b) a change in the official application or
interpretation of those laws, regulations or rulings or (c) any execution of or
amendment to any treaty affecting taxation to which any applicable jurisdiction
is party.
Provisions Relating to the Optional and Tax Redemption
The "redemption effective date" will be a business day specified as such in
the notice of redemption. On the redemption effective date:
(a) all cash to be paid as part of the redemption price will become
payable,
(b) all dividends on the Series A preferred shares to be redeemed will
cease to accrue and
(c) the right to convert the Series A preferred shares to be redeemed will
cease at the close of business.
As described below, if any Class A common shares are to be delivered as
part of the redemption price, (x) the number of Class A common shares to be
delivered will be determined on the basis of the average of the closing market
prices of those shares for the ten trading days following the redemption
effective date and (y) those shares will be deliverable on the 12th trading day
following the redemption effective date.
Each notice of redemption must specify:
(a) the redemption effective date,
(b) the redemption price,
17
<PAGE>
(c) the form of consideration to be paid, and
(d) if any portion of the redemption price is to be paid by the delivery of
Class A common shares, the method for determining the applicable
average market value and the date on which the shares will be
deliverable.
In the case of any partial redemption, we will select the shares of Series
A preferred shares to be redeemed on a pro rata basis, by lot or any other
method that we, in our discretion, deem fair and appropriate, provided that we
may redeem all shares held by holders of fewer than 100 Series A preferred
shares (or by holders that would hold fewer than 100 Series A preferred shares
following such redemption) prior to our redemption of other Series A preferred
shares.
If the redemption effective date falls after a dividend payment record date
and before the related dividend payment date, the holders of Series A preferred
shares at the close of business on that dividend payment record date will be
entitled to receive the dividend payable on those shares on the corresponding
dividend payment date, even if those shares are redeemed after that dividend
payment record date.
MANDATORY REDEMPTION
Unless they have already been redeemed or converted, the Series A preferred
shares will be mandatorily redeemed by us on February 1, 2012 (the "mandatory
redemption") at a redemption price equal to 100% of the liquidation preference,
together with accumulated and unpaid dividends and special dividends, if any,
and additional amounts, if any, to the mandatory redemption date.
METHOD OF PAYMENTS
Subject to certain restrictions, we may make any payments due in respect of
the Series A preferred shares (other than payments of the liquidation
preference, which shall be made in cash except in certain circumstances)
including regular dividends, special dividends, if any, additional amounts, if
any, optional, tax and mandatory redemption payments and any payments due as a
result of a change of control,
o in cash,
o by delivery of our Class A common shares, or
o through any combination of cash and our Class A common shares.
If we elect to make any such payment, or any portion thereof, by delivery
of our Class A common shares, such shares shall be valued for such purpose at
95% of the "average market value" (as defined below). However, in the event that
in any of the foregoing situations on the date of such payment a registration
statement is required to be effective and is not effective, the Class A common
shares shall be valued for such purpose at 80% of the average market value.
We will make all payments in respect of the Series A preferred shares in
cash, except to the extent we elect to make all or any portion of such payment
in Class A common shares. In the event we are prevented by Bermuda law from
making any such payment in cash or by issuing our Class A common shares, we have
agreed that we will issue from the share premium attributable to the Series A
preferred shares that number of additional Series A preferred shares that is
convertible at the then effective conversion rate into the number of Class A
common shares deliverable to holders on such payment date. These additional
Series A preferred shares are referred to as "bonus shares." At the closing, we
will irrevocably notify the transfer agent that we will exercise our option to
convert such bonus shares, and such conversion will be effective immediately
following issuance. In no event will holders receive bonus shares in lieu of any
payment required to be made in respect of the Series A preferred shares. The
calculation of the conversion rate is described below in the section entitled
"--Conversion Rate; Conversion Price; Adjustments."
18
<PAGE>
We expect that for the foreseeable future we will make all payments in
respect of the Series A preferred shares by delivery of Class A common shares
issued upon conversion by us of bonus shares. Upon delivery of Class A common
shares (including any Class A common shares issued upon conversion by us of
bonus shares) in respect of any such payments, including any regular dividend or
special dividend, any payment of additional amounts, any optional, tax or
mandatory redemption payment or any payment due as a result of a change of
control, such payment shall be deemed to have been paid and discharged to the
extent of the value (determined as provided above) of the Class A common shares
so delivered.
No fractional Class A common shares will be delivered to the holders of the
Series A preferred shares. Instead the transfer agent will deliver a cash
adjustment to each holder that would otherwise be entitled to a fraction of a
Class A common share. The amount of such cash adjustment will be determined
based on, and such adjustments will be paid from, the proceeds received by the
transfer agent from the sale of that number of our Class A common shares, which
we will deliver to the transfer agent for such purpose, equal to the aggregate
of all such fractions (rounded up to the nearest whole share).
The transfer agent is authorized and directed in the Series A Preferred
Shares Annex to sell such shares at the best available prices and distribute the
proceeds to the holders in proportion to their respective interests therein. We
will pay the expenses of the transfer agent with respect to such sale, including
brokerage commissions. Any portion of any such payment that is declared and not
paid through the delivery of Class A common shares will be paid in cash.
We will make a public announcement (a) no later than the close of business
on the tenth business day prior to the record date for each dividend as to
whether we will make the required payment on the related dividend payment date,
and, if so, whether we will make such payment in cash or Class A common shares
or a combination, (b) no later than the close of business on the fifteenth
business day prior to the mandatory redemption date, whether we will make the
payment required on the mandatory redemption date in cash or Class A common
shares or a combination, (c) no later than the close of business on the 30th day
prior to any "redemption effective date" (as defined above), whether we will
make the payment required on such redemption effective date in cash or Class A
common shares and (d) no later than the date of the change of control offer to
purchase notice, whether we will make the required payment in cash or Class A
common shares or a combination. We will make any public announcement required by
this paragraph by a press release issued to Dow Jones News Service and Bloomberg
News Service or their respective successors. We will also deliver or mail a copy
of each announcement to each record holder of Series A preferred shares.
"Average market value" of the Class A common shares means (a) with respect
to the payment of any dividends, including regular dividends, special dividends
and additional amounts, the arithmetic average of the "current market value" (as
defined below) of the Class A common shares for the five trading days ending on
the second business day prior to the record date for such dividend, (b) with
respect to any optional redemption or tax redemption, the arithmetic average of
the current market value of the Class A common shares for the ten trading days
beginning on the trading day following the redemption effective date and
(c) with respect to mandatory redemption, change of control offer to purchase or
any other payment, the arithmetic average of the "current market value" of the
Class A common shares for the ten trading days ending on the second business day
prior to the date of such payment.
"Current market value" of Class A common shares for any particular trading
day means (a) if the shares are traded on the Nasdaq Stock Market, or its
successor, the last sale price, or if there is no last sale price, the average
of the last reported bid and asked prices, as reported by the Nasdaq Stock
Market, or its successor, as of the close of regular trading for that trading
day and (b) if the shares are traded on the New York Stock Exchange or another
national securities exchange, the closing price as reported on the NYSE
Composite Transactions Tape, or any comparable exchange reporting service, as of
the close of regular trading on such exchange for that trading day.
19
<PAGE>
PROCEDURE FOR REDEMPTION
On and after a redemption effective date or the mandatory redemption date,
unless we default in the payment of the applicable redemption price, dividends
will cease to accrue on Series A preferred shares called for redemption and all
rights of holders of such shares will terminate except for the right to receive
the redemption price, without interest. However, if we shall not have previously
given a notice of redemption and not have segregated and irrevocably set apart
an amount in cash equal to the full redemption price in trust for the benefit of
holders of the Series A preferred shares called for redemption, then at the
close of business on the day on which such funds are so segregated and set
apart, the holders of the shares to be redeemed shall cease to be and shall be
entitled, subject to their rights of conversion, to receive only the redemption
price for their shares on the redemption date.
Whenever we issue a notice of redemption, we will concurrently make a
public announcement of the terms of the redemption.
Series A preferred shares issued and reacquired will, upon compliance with
the applicable requirements of law, have the status of authorized but unissued
shares of our preferred stock undesignated as to series and may with any and all
other authorized but unissued shares of our preferred stock be designated or
redesignated and issued, as part of any series of our preferred stock.
CONVERSION RIGHTS
Conversion by Holders
Series A preferred shares will be convertible at any time prior to the
close of business on the mandatory redemption date, unless previously redeemed,
at the option of the holder thereof, into fully paid and non-assessable Class A
common shares at the then effective conversion rate. A holder's right to convert
Series A preferred shares called for redemption will terminate at the close of
business on the applicable redemption effective date and will be lost if not
exercised prior to that time, unless we default in making the payment due upon
redemption. The calculation of the conversion rate is described below in the
section entitled "--Conversion Rate; Conversion Price; Adjustments".
Conversion by Us
Each Series A preferred share will be convertible at our option at any time
within 24 hours of issuance, unless we waive our conversion right in writing,
into fully paid and non-assessable Class A common shares at the then effective
conversion rate. We may waive or exercise our conversion right with respect to
any Series A preferred share in advance of their issuance by written notice to
the transfer agent. Any such waiver or notice will be irrevocable. We have
agreed that we will deliver at closing the required written notice waiving our
conversion right with respect to the Series A preferred shares to be issued in
this offering (including any shares issued upon exercise of the initial
purchasers' overallotment option) and exercising our conversion right with
respect to all Series A preferred shares issued as bonus shares in connection
with our obligation to deliver Class A common shares under the terms of the
Series A preferred shares. The calculation of the conversion rate is described
below in the section entitled "--Conversion Rate; Conversion Price;
Adjustments."
Conversion Rate; Conversion Price; Adjustments
The number of Class A common shares deliverable upon conversion of each
Series A preferred share shall be equal to $50 (the liquidation preference per
Series A preferred share) divided by the then effective conversion price. We
refer to this as the "conversion rate".
The initial "conversion price" is $22.14 per share. At that price, holders
of the Series A preferred shares would receive 2.2584 of our Class A common
shares for each $50 liquidation preference of
20
<PAGE>
Series A preferred shares (that is, $50/$22.14). The conversion price is subject
to adjustment in certain events, including:
o the payment of dividends (and other distributions) in our Class A common
shares on any class of our capital stock;
o the issuance to all holders of our common shares of rights, warrants or
options entitling them to subscribe for or purchase our Class A common
shares at less than the current market price (as calculated pursuant to
the Certificate of Designation for the Series A preferred shares;
o subdivisions, combinations and reclassifications of our Class A common
shares; and
o distributions to all holders of our common shares of evidences of our
indebtedness, shares of any class of our capital stock, cash or other
assets (including securities, but excluding those dividends, rights,
warrants, options and distributions referred to in the three clauses
above and dividends and distributions paid in cash out of our accumulated
deficit or retained earnings, unless the sum of all such cash dividends
and distributions made and the amount of cash and the fair market value
of other consideration paid in respect of any repurchases of our Class A
common shares by us or any of our subsidiaries, in each case within the
preceding 12 months in respect of which no adjustment has been made,
exceeds 10% of the product of the arithmetic average of the current
market value of our Class A common shares for the ten trading days ending
on the second business day prior to the record date for such dividend or
distribution times the aggregate number of our Class A common shares
outstanding on the record date for such dividend or distribution).
Notwithstanding the foregoing, no adjustment will be made for payment in
our Class A common shares (or the issuance of any bonus shares in connection
therewith) in respect of the Series A preferred shares or on any other series of
preferred shares with payment provisions that are substantially the same as the
payment provisions of the Series A preferred shares.
We are not required to make any adjustment of the conversion price until
cumulative adjustments amount to 1% or more of the conversion price as last
adjusted. Notwithstanding the foregoing, no adjustment to the conversion price
shall reduce the conversion price below the then applicable par value per share
of our Class A common shares. In addition to the foregoing adjustments, we are
permitted to make such reductions in the conversion price as we consider to be
advisable in order that any event treated for federal income tax purposes as a
dividend of stock or stock rights will not be taxable to the holders of our
Class A common shares.
In the case of certain consolidations or mergers to which we are a party or
the transfer of substantially all of our assets, each Series A preferred share
then outstanding would become convertible only into the kind and amount of
securities, cash and other property receivable upon the consolidation, merger or
transfer by a holder of the number of our Class A common shares into which such
Series A preferred share might have been converted immediately prior to such
consolidation, merger or transfer (assuming such holder of Class A common shares
failed to exercise any rights of election and received per share the kind and
amount receivable per share by a plurality of non-electing shares).
No fractional Class A common shares will be issued upon conversion; in lieu
thereof, the transfer agent will deliver a cash adjustment based upon the
closing price of our Class A common shares on the business day prior to the
conversion date. The amount of such cash adjustment will be determined based on
and paid from the proceeds received by the transfer agent from the sale of that
number of our Class A common shares, which we will deliver to the transfer agent
for such purpose, equal to the aggregate of all such fractions (rounded up to
the nearest whole share).
The holder of record at the close of business on a record date with respect
to the payment of dividends on the Series A preferred shares will be entitled to
receive such dividends with respect to such shares on the corresponding dividend
payment date, notwithstanding the conversion of such shares after such record
date and prior to such dividend payment date.
21
<PAGE>
Series A preferred shares surrendered for conversion during the period from
the close of business on any record date for the payment of dividends to the
opening of business of the corresponding dividend payment date must be
accompanied by a payment in cash, our Class A common shares or a combination
thereof (depending on the method of payment that we have chosen to pay the
dividend) in an amount equal to the dividend payable on such dividend payment
date. However, this does not apply if such shares have been called for
redemption on a redemption effective date occurring during the period from the
close of business on any record date for the payment of dividends to the close
of business on the corresponding dividend payment date.
No payment or adjustment will be made upon conversion of Series A preferred
shares for accumulated and unpaid dividends or for dividends with respect to the
Class A common shares issued upon such conversion.
VOTING RIGHTS
Holders of Series A preferred shares have no voting rights, except as
required by law and except as follows:
(a) If at any time the equivalent of six quarterly dividends on the Series
A preferred shares are accrued and unpaid, then the total number of directors
constituting our entire board of directors shall be increased by two and,
whether or not consecutive and whether or not declared, the holders of a
majority of the Series A preferred shares shall have the right to elect two
directors. This right will continue until all dividends in arrears on the Series
A preferred shares are paid in full, at which time the term of office of any
such members of the board of directors so elected shall terminate and such
directors shall be deemed to have resigned.
(b) Without the approval of holders of at least 66 2/3% of the Series A
preferred shares then outstanding, voting or consenting, as the case may be, as
one class:
o we will not authorize any class of senior securities or any obligation or
security convertible or exchangeable into or evidencing a right to
purchase shares of any class or series of senior securities, and
o we may not amend the Certificate of Designation for the Series A
preferred shares or our bye-laws so as to affect adversely the specified
rights, preferences, privileges or voting rights of holders of Series A
preferred shares (provided that we may not, without the consent of each
holder of Series A preferred share affected, (i) change the Mandatory
Redemption Date or any Dividend Payment Date, (ii) reduce the liquidation
preference, the rate of dividends, the redemption prices or the change of
control purchase price, (iii) change the place of payment or the currency
of payment, (iv) adversely affect the conversion rights or (v) reduce the
voting rights of the Series A preferred shares).
The Certificate of Designation for the Series A preferred shares also
provides that:
o except as set forth above with respect to senior securities, (a) the
creation, authorization or issuance of any shares of junior securities,
parity securities or senior securities or (b) the increase or decrease in
the amount of authorized capital stock of any class, including any Series
A preferred shares, shall not require the consent of the holders of
Series A preferred shares and shall not be deemed to affect adversely the
rights, preferences, privileges, special rights or voting rights of
holders of Series A preferred shares, and
o we will not require the consent of the holders of Series A preferred
shares to authorize, create (by way of reclassification or otherwise) or
issue any parity securities or junior securities or any obligation or
security convertible or exchangeable into or evidencing a right to
purchase, shares of any class or series of parity securities or junior
securities.
22
<PAGE>
CHANGE OF CONTROL PUT RIGHT
If we experience a change of control, each holder of Series A preferred
shares will have the right to require us to purchase all or any part of that
holder's Series A preferred shares at a purchase price in cash equal to 100% of
the liquidation preference of those shares, plus all accumulated and unpaid
dividends on those shares to the date of purchase. Within 30 days following any
change of control, we will mail a notice to each holder describing the
transaction or transactions that constitute the change of control and offer to
purchase that holder's Series A preferred shares on the date specified in that
notice, which date will be no earlier than 60 days from the date the notice is
mailed. We will also advise holders in that notice of whether we will pay the
change of control purchase price in the form of cash, Class A common shares or a
combination thereof.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations to the extent those laws and
regulations are applicable in connection with the purchase of preferred stock as
a result of a change of control. To the extent that the provisions of any
securities laws or regulations conflict with any of the provisions of this
section, we will comply with the applicable securities laws and regulations and
will be deemed not to have breached our obligations under this section.
On the date scheduled for payment of the Series A preferred shares, we
will, to the extent lawful, (a) accept for payment all Series A preferred shares
properly tendered, (b) deposit with the transfer agent the purchase price of the
Series A preferred shares so tendered and (c) deliver or cause to be delivered
to the transfer agent Series A preferred shares so accepted together with an
officers' certificate stating the aggregate liquidation preference of the Series
A preferred shares being purchased by us. The transfer agent will promptly mail
or deliver to each holder of Series A preferred shares so tendered the
applicable payment for those Series A preferred shares, and the transfer agent
will promptly countersign and mail or deliver, or cause to be transferred by
book-entry, to each holder new Series A preferred shares equal in liquidation
preference to any unpurchased portion of the Series A preferred shares
surrendered, if any. We will publicly announce the results of our offer on or as
soon as practicable after the payment date for the purchase of Series A
preferred shares in connection with a change of control.
Notwithstanding the foregoing, we shall not be required to repurchase, and
shall not repurchase, any Series A preferred shares in connection with a change
of control until we have repurchased any and all indebtedness and senior
securities that are required by their terms to be repurchased in connection with
such change of control. If we are prohibited from paying cash upon a change of
control under any applicable debt instrument, we will nevertheless be required
to offer to effect a conversion of the Series A preferred shares into Class A
common shares having a value (determined as provided above under "Method of
Payment") equal to the required payment.
In addition, we will not be required to make an offer to purchase any
Series A preferred shares upon the occurrence of a change of control if a third
party makes that offer in the manner, at the times and otherwise in compliance
with the requirements described in this section and purchases all Series A
preferred shares validly tendered and not withdrawn.
A "change of control" means:
(a) 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 13-d under the Exchange Act) of more than 35% of
the total voting power of our "voting stock" on a fully diluted basis
and such ownership is greater than the amount of voting power of our
voting stock, on a fully diluted basis, held by the "existing
stockholders" and their "affiliates" on such date;
(b) individuals who on the closing of this offering constitute the board of
directors (together with any new directors whose election by the board
of directors or whose nomination for election by 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
23
<PAGE>
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;
(c) all the common stock of RSL PLC is not beneficially owned by us (other
than directors' qualifying shares) or our successor in a transaction
governed by the provisions described below under "Merger, Consolidation
and Sale of Assets;" or
(d) the "existing stockholders" as a group acquire, on a cumulative basis
after the date of this offering circular, directly or indirectly,
beneficial ownership of more than (x) three million additional Class A
common shares plus (y) 50% of the number of Class A common shares
issued by the Issuer in underwritten public offerings occurring after
the date hereof to persons other than the existing stockholders, plus
(z) the number of Class A common shares sold by the existing
stockholders in the public markets after the date hereof; this
calculation shall exclude acquisitions from the Issuer or from other
existing stockholders or from other officers and directors or Metro
Holding AG of Class A common shares owned by them on the date hereof,
including as a result of the conversion of securities held by the
existing stockholders on the date hereof; the share threshold will be
appropriately adjusted for stock splits, combinations,
reclassifications and similar transactions.
"Voting stock" means "capital stock" which ordinarily has voting power for
the election of directors (or persons performing similar functions), whether at
all times or only so long as no senior class of securities has such voting power
by reason of any contingency.
"Capital stock" means any and all shares, interests, participations or
other equivalents (however designated) or corporate stock or other equity
participants, including partnership interests, whether general or limited.
"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 of this offering, (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.
"Affiliate" means any 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 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.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Without the vote or consent of the holders of a majority of the then
outstanding Series A preferred shares, we may not consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets to, any person unless:
o the entity formed by such consolidation or merger (if other than us) or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (in any such case, the "resulting
entity") is a corporation organized and existing under the laws of
Bermuda, the United Kingdom, the United States or any State thereof or
the District of Columbia, the British Virgin Islands, Cayman Islands, The
Netherlands, Ireland or Jersey;
o if we are not the resulting entity, the Series A preferred shares, are
converted into or exchanged for and become, or receive upon liquidation
as provided below, shares ("replacement preferred shares") of such
resulting entity, having in respect of such resulting entity the same (or
more favorable) powers, preferences and relative, participating,
optional, other special rights or voting rights thereof that the Series A
preferred shares had immediately prior to such transaction; and
24
<PAGE>
o immediately after giving effect to such transaction, no event referred to
in paragraph (a) of the section entitled "Voting Rights" has occurred and
is continuing.
The resulting entity of such transaction shall thereafter be deemed to be
the "Company" for all purposes of the Certificate of Designation for the Series
A preferred shares and the predecessor shall be relieved of all obligations with
respect to the Series A preferred shares.
Except as described herein, the Certificate of Designation for the Series A
preferred shares does not provide the holders of the Series A preferred shares
with any special protection in the event of a takeover, recapitalization or
similar transaction which could adversely affect our capital structure or the
value of the Series A preferred shares or our Class A common shares.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
our business or reduction or decrease in our capital stock resulting in a
distribution of assets to the holders of any class or series of our capital
stock, each holder of Series A preferred shares will be entitled to payment out
of our assets available for distribution of an amount equal to the liquidation
preference per share of Series A preferred shares held by such holder, plus
accrued and unpaid dividends and special dividends, if any, to the date fixed
for liquidation, dissolution, winding-up or reduction or decrease in capital
stock (including an amount equal to a prorated dividend for the period from the
last dividend payment date to the date fixed for liquidation, dissolution,
winding up or reduction or decrease in capital stock), before any distribution
is made on any junior securities, including, without limitation, common stock.
After payment in full of the liquidation preference and all accrued
dividends, additional amounts and special dividends, if any, to which holders of
Series A preferred shares are entitled, such holders will not be entitled to any
further participation in any distribution of our assets. If, upon our
liquidation, dissolution or winding-up, whether voluntary or involuntary, the
amounts payable with respect to the Series A preferred shares and all other
parity securities are not paid in full, the holders of the Series A preferred
shares and the parity securities will share equally and ratably in any
distribution of our assets in proportion to the full liquidation preference and
accumulated and unpaid dividends and special dividends, if any, to which each is
entitled. However, neither the voluntary sale, conveyance, exchange or transfer
(for cash, shares of stock, securities or other consideration) of all or
substantially all of our property or assets nor our consolidation or merger with
or into one or more entities will be deemed to be a voluntary liquidation,
dissolution or winding-up or reduction or decrease in capital stock, unless such
sale, conveyance, exchange or transfer shall be in connection with a
liquidation, dissolution or winding-up of our business or reduction or decrease
in capital stock.
Notwithstanding the foregoing, in the case of liquidation, dissolution or
winding-up in connection with any transaction that is treated as a sale,
assignment, transfer, lease, conveyance or other disposition of all or
substantially all of our assets under the provisions described under "Merger,
Consolidation and Sale of Assets" in which we receive in exchange for such
assets, among other things, replacement preferred shares, the liquidation
preference of each Series A preferred share, and any other entitlement in
respect of a Series A preferred share to receive any distribution in connection
with such liquidation, dissolution or winding-up, shall be satisfied and
discharged in full, upon distribution to the holders of Series A preferred
shares of such replacement preferred shares, provided that each holder of Series
A preferred shares receives replacement preferred shares that, among other
things, are convertible into the kind and amount securities, cash and other
property that such holder would have received had such holder converted such
holder's Series A preferred shares into Class A common shares immediately prior
to such transaction.
The Certificate of Designation for the Series A preferred shares does not
contain any provision requiring funds to be set aside to protect the liquidation
preference of the Series A preferred shares, although such liquidation
preference will be substantially in excess of the par value of such Series A
preferred shares. Consequently, there will be no restriction upon our surplus
solely because the liquidation preference of the Series A preferred shares will
exceed the par value thereof and there will be no remedies available to holders
of the Series A preferred shares before or after the payment of any
25
<PAGE>
dividend or issuance of bonus shares, other than in connection with our
liquidation, solely by reason of the fact that such dividend or issuance of
bonus shares would reduce our surplus to an amount less than the difference
between the liquidation preference of the Series A preferred shares and their
par value.
COVENANT TO REPORT
We will, pursuant to the Certificate of Designation for the Series A
preferred shares, file with the transfer agent within 15 days after we file them
with the Commission, copies of the annual, quarterly and current reports and the
information, documents, and other reports that we are required to file with the
Commission pursuant to Section 13 (a) or 15 (d) of the Exchange Act ("Commission
Reports").
In the event that we shall cease to be required to file Commission Reports
pursuant to the Exchange Act, we will nevertheless continue to file such reports
with the Commission (unless the Commission will not accept such a filing) and
the transfer agent. Whether or not required by the Exchange Act to file
Commission Reports, so long as any Series A preferred shares are outstanding, we
will furnish copies of the Commission Reports to the holders of Series A
preferred shares at the time we are required to make such information available
to prospective investors who request it in writing.
In addition, we have agreed that, for so long as any Series A preferred
shares remain outstanding, if we are required pursuant to
Rule 144A(d)(4) under the Securities Act, we will furnish or cause to be
furnished to the holders and to securities analysts and prospective investors,
upon their reasonable request, the information required to be delivered pursuant
to Rule 144A(d) (4) under the Securities Act.
REGISTRATION COVENANT; SPECIAL DIVIDENDS
We have entered into a registration rights agreement pursuant to which we
agreed, for the benefit of the holders of the Series A preferred shares, (A) to
file a shelf registration statement with the Commission within 90 days of the
closing of the initial offering and of our Series A preferred shares and (B)
subject to certain "black-out" periods not to exceed 90 days in the aggregate in
any consecutive 365-day period, to use our best efforts to keep the shelf
registration statement continuously effective in order to permit the prospectus
forming part thereof to be usable by holders for resales of transfer restricted
securities for a period of two years from the last time and date of delivery of
and payment for the Series A preferred shares were originally issued (including
the Series A preferred shares issued upon exercise of the initial purchasers'
over allotment option), or such shorter period that will terminate when there
are no transfer restricted securities outstanding (other than transfer
restricted securities held by our affiliates).
In the event of a "registration default" we have agreed to pay "special
dividends" to each holder of "transfer restricted securities".
"Special dividends" means payments which shall accrue at a per annum rate
of 0.5% of the liquidation preference for any "registration default period".
Special dividends shall be payable in cash or in Class A common shares quarterly
in arrears on each dividend payment date and will be computed on the basis of a
360-day year of twelve 30-day months and the number of days actually elapsed in
any period of less than one month.
"Transfer restricted securities" means all or any portion of the Series A
preferred shares and the Class A common shares issuable upon conversion of such
Series A preferred shares or in satisfaction of any dividend or other payment on
the Series A preferred shares until (a) the date on which such security has been
effectively registered under the Securities Act and disposed of in accordance
with the shelf registration statement or (b) the date on which such security is
distributed to the public pursuant to Rule 144 under the Securities Act or may
be distributed to the public pursuant to Rule 144(k) under the Securities Act.
"Registration default" means that the shelf registration statement has not
been filed within 90 days of the closing date or has not been declared effective
within 180 days after the Closing Date or is filed and declared effective but,
prior to the time the shelf registration statement is no longer required to be
26
<PAGE>
effective pursuant to the registration rights agreement, is withdrawn by us or
becomes subject to an effective stop order issued pursuant to Section 8(d) of
the Securities Act suspending the effectiveness of the shelf registration
statement without being succeeded immediately by an additional registration
statement filed and declared effective.
"Registration default period" means each period during which a registration
default has occurred and is continuing.
We will provide or cause to be provided to each holder of Series A
preferred shares copies of the prospectus which will be a part of the shelf
registration statement, notify each holder when the shelf registration statement
(if not an existing shelf registration statement) has become effective and take
certain actions as are required to permit unrestricted resales of the Series A
preferred shares (and the Class A common shares into which the Series A
preferred shares are convertible). A holder of transfer restricted securities
selling such securities pursuant to the shelf registration statement is
generally 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 is bound by the provisions of the registration rights agreement
which are applicable to such holder (including certain indemnification
obligations).
Holders of Series A preferred shares will be required to deliver certain
information to be used in connection with the shelf registration statement
within the time periods indicated in the registration rights agreement in order
to have their Series A preferred shares or Class A common shares into which the
Series A preferred shares may be converted included in the shelf registration
statement.
FORM AND DENOMINATION
Global Shares
Series A preferred shares sold under Rule 144A will initially be
represented by one or more global certificates (the "global certificate") which
will be deposited with, or on behalf of, the Depository Trust Company ("DTC")
and registered in the name of Cede & Co., as nominee of the DTC (each, a "global
certificate holder"). Except as set forth below, record ownership of the global
certificate may be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee.
Owners of a beneficial interest in global certificates may hold their
interest in the global certificate directly through DTC if such holder is a
Participant in DTC or indirectly through organizations that are Participants in
DTC. Persons who are not Participants may beneficially own interests in the
global certificates held by DTC only through Participants or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. So long as Cede & Co., as the nominee of DTC, is the registered
owner of the global certificate, Cede & Co. for all purposes will be considered
the sole holder of the global certificate.
Global certificates are exchangeable for certificates in definitive form
(the "definitive securities") of like tenor as such global certificates if DTC
notifies us that it is unwilling or unable to continue as depositary for the
global certificate or ceases to be a clearing agency under the Exchange Act and,
in either case, a successor depositary registered as a clearing agency under the
Exchange Act is not appointed by us within 90 days or at any time if we
determine not to have all of the Series A preferred shares represented by the
global certificates. Any definitive securities will be issued in such authorized
denominations and will be registered in such names as DTC shall direct. Subject
to the foregoing, the global certificates are not exchangeable, except for
global certificates of the same aggregate denomination to be registered in the
name of DTC or its nominee or a successor of DTC or its nominee. In addition,
such certificates will bear the legend referred to under "Notice to Investors"
(unless we determine otherwise in accordance with applicable law) subject, with
respect to such Series A preferred shares, to the provisions of such legend.
27
<PAGE>
Payments of dividends on and any redemption price with respect to the
global certificates will be made to the global certificate holder or its
nominee, as registered owner of such global certificate, by wire transfer of
immediately available funds on each dividend payment date or redemption date, as
applicable. Neither we nor the transfer agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global certificates or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
Description of Book-Entry System
We have been informed by DTC that, with respect to any payment of dividends
on, or the redemption price with respect to, the global certificates, DTC's
practice is to credit Participants' accounts on the payment date therefor, with
payments in amounts proportionate to their respective beneficial interests in
the Series A preferred shares represented by the global certificate as shown on
the records of the payments by Participants to owners of beneficial interests in
the Series A preferred shares represented by the global certificate held through
such Participants will be the responsibility of such Participants, as is now the
case with securities held for accounts of customers registered in "street name".
Transfers between Participants will be effected in the ordinary way in
accordance with DTC's rules and will be settled in immediately available funds.
The laws of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer beneficial
interests in the global certificate to such persons may be limited. Because DTC
can only act on behalf of a beneficial interest in the Series A preferred shares
represented by the global certificate to pledge such interest to persons or
entities that do not participate in DTC's system, or otherwise take actions in
respect of such interest, may be affected by the lack of a physical certificate
evidencing such interest.
Neither we nor the transfer agent will have responsibility for the
performance of DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised us that it will take any action permitted to be
taken by a holder of Series A preferred shares (including, without limitation,
the presentation of depositary interests in the global certificates are
credited, and only in respect of the shares of Series A preferred shares
represented by the global certificates as to which such Participant or
Participants has or have given such direction).
DTC has also advised us that DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17a of the Exchange Act. DTC was created to hold securities for its
Participants and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations such as the Initial Purchasers of the Series A preferred shares.
Certain of such Participants (or their representatives), together with other
entities, own DTC. Indirect access to DTC system is 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.
Although we expect that DTC will agree to the foregoing procedures, we are
under no obligation to perform or to continue to perform such procedures and DTC
may discontinue such procedures at any time. Neither we nor the transfer agent
will have any responsibility for the performance by DTC or its Participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
28
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is qualified in its entirety
by reference to the provisions of our memorandum of association and bye-laws,
copies of which have been filed with the Commission.
In September 1997, in connection with our initial public offering, we
revised our capital structure to effect a 2.19-for-one stock split and to
increase the number of authorized shares of common stock and preferred shares.
As a result, we are authorized to issue 438,000,000 shares of common stock,
which may be issued as Class A common shares or Class B common shares. We are
also authorized to issue 65,700,000 shares of preferred stock. We have in the
past used and intend in the future to use shares of capital stock to pay for
acquisitions.
COMMON STOCK
CLASS A COMMON SHARES
As at December 31, 1999, 31,017,249 Class A common shares were issued and
outstanding. The holders of the Class A common shares are entitled to one vote
per share and are entitled to vote as a single class together with the holders
of the Class B common shares and the preferred shares on all matters subject to
shareholder approval, except that the holders of the Class A common shares will
vote as a separate class on any matter requiring class voting by The Companies
Act 1981 of Bermuda. The holders of the outstanding Class A common shares are
entitled to receive dividends as and when declared by the board of directors,
equally with the holders of the Class B common shares, out of funds legally
available therefor after the payment of any dividends declared but unpaid on any
shares of preferred shares then outstanding. The holders of the Class A common
shares have no preemptive or cumulative voting rights and no rights to convert
their Class A common shares into any other securities. On our liquidation,
dissolution or winding up, the holders of Class A common shares are entitled to
receive, equally and proportionally with the holders of Class B common shares,
our net assets remaining after payment of all debts and other liabilities and
after distribution in full of the preferential amounts to be distributed to
holders of preferred stock, if any. The legal documents governing our
outstanding indebtedness contain specific restrictive covenants that impose
limitations on our ability to pay dividends to our shareholders or make other
distributions.
The Class A common shares are listed on The Nasdaq National Market under
the trading symbol "RSLC."
Our transfer agent and registrar for the Class A common shares is American
Stock Transfer & Trust Company.
CLASS B COMMON SHARES
As at December 31, 1999, 24,267,283 Class B common shares were issued and
outstanding. The holders of the Class B common shares are entitled to 10 votes
per share and are entitled to vote as a single class together with the holders
of the Class A common shares and the preferred shares on all matters subject to
shareholder approval, except that the holders of the Class B common shares vote
as a separate class on any matter requiring class voting by The Companies Act
1981 of Bermuda. The holders of the outstanding Class B common shares are
entitled to receive dividends as and when declared by the board of directors,
equally with the holders of Class A common shares, out of funds legally
available therefor after the payment of any dividends declared but unpaid on any
shares of preferred shares then outstanding. The holders of the Class B common
shares have no pre-emptive or cumulative voting rights. The holders of the
Class B common shares can convert their Class B common shares on a
share-for-share basis into Class A common shares. On our liquidation,
dissolution or winding up, the holders of the Class B common shares are entitled
to receive, equal with the holders of Class A common shares on a proportional
basis, our net assets remaining after payment of all debts and other liabilities
and after distribution in full of the preferential amounts to be distributed to
the holders of preferred stock, if any.
Class B common shares may be transferred only to other original holders of
Class B common shares or to members of the family of the original holder by
gift, devise or otherwise through laws of
29
<PAGE>
inheritance, descent, distribution or to a trust established by the holder for
the holder's family members, to corporations the majority of beneficial owners
of which are or will be owned by the holders of Class B common shares and from
corporations or partnerships, which are the holders of Class B common shares, to
their shareholders or partners, as the case may be. Any other transfer of
Class B common shares is void, although the Class B common shares may be
converted at any time into Class A common shares on a one to one basis and then
sold, subject to the conditions and restrictions imposed by U.S. securities
laws.
PREFERRED SHARES
As at December 31, 1999, we had no preferred shares issued and outstanding.
In connection with our offering of Series A preferred shares, we have
amended our bye-laws to grant our board of directors the authority, without any
further action by its shareholders to issue from time to time preferred shares
in one or more series and to fix the designations, preferences, rights,
qualifications, limitations and restrictions relating to a series, including
voting rights, dividend rights, dividend rates, conversion rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series. The issuance of preferred shares with voting rights
could have an adverse effect on the voting power of holders of our common shares
by increasing the number of outstanding shares having voting rights. In
addition, if our board authorizes preferred shares with conversion rights, the
number of shares of common shares outstanding could potentially be increased up
to the authorized amount. The issuance of preferred shares could decrease the
amount of earnings and assets available for distribution to holders of common
shares. Any such issuance could also have the effect of delaying, deterring or
preventing a change in control of our company and may adversely affect the
rights of holders of common shares.
The Series A preferred shares will constitute a separate series of shares.
See the foregoing section entitled "Description of Series A Preferred Shares."
ANTI-TAKEOVER PROTECTIONS
The voting provisions of the Class B common shares and our ability to issue
preferred shares could substantially impede the ability of one or more
shareholders (acting in concert) to acquire sufficient influence over the
election of directors and other matters to effect a change in control or
management of our company. As a result, such provisions may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a shareholder might consider in such shareholder's best interest,
including attempts that might result in a premium over the market price for the
Class A common shares held by shareholders.
CERTAIN PROVISIONS OF BERMUDA LAW
We have been designated as a non-resident under the Exchange Control Act of
1972, or the Control Act, by the Bermuda Monetary Authority whose permission for
the issuance of Series A preferred shares and any Class A common shares,
including Class A common shares issued upon conversion of the Series A preferred
shares, has been obtained. This designation allows us to engage in transactions
in currencies other than the Bermuda dollar. The permission of the Bermuda
Monetary Authority does not constitute a guarantee by the Bermuda Monetary
Authority as to our performance or creditworthiness and in giving such
permission the Bermuda Monetary Authority will not be liable for the correctness
of any opinions expressed herein.
The transfer of Series A preferred shares and any Class A common shares,
including Class A common shares issued upon conversion of the Series A preferred
shares, between persons regarded as resident outside Bermuda for exchange
control purposes and the issuance of such shares after the completion of an
offering to or by such persons may be effected without specific consent under
the Control Act and regulations thereunder. Issues and transfers of shares
involving any person regarded as resident in Bermuda for exchange control
purposes require specific prior approval under the Control Act.
30
<PAGE>
Owners of Series A preferred shares and any Class A common shares,
including Class A common shares issued upon conversion of the Series A preferred
shares, who are regarded as resident outside Bermuda for exchange control
purposes are not restricted in the exercise of the rights to hold or vote their
shares. Because we have been designated as a non-resident for Bermuda exchange
control purposes there are no restrictions on our ability to transfer funds in
and out of Bermuda or to pay dividends to United States residents who are
holders of Series A preferred shares and any Class A common shares, including
Class A common shares issued upon conversion of the Series A preferred shares,
other than in respect of local Bermuda currency.
In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an applicant
acting in a special capacity (for example as a trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity we are not
bound to investigate or incur any responsibility in respect of the proper
administration of any such trust.
We will take no notice of any trust applicable to any of our shares,
whether or not we have notice of such trust.
As an "exempted company," we are exempt from Bermuda laws which restrict
the percentage of share capital that may be held by non-Bermudians but, as an
exempted company, we may not participate in certain business transactions
including: (1) the acquisition or holding of land in Bermuda (except that
required for our business and held by way of lease or tenancy for terms of not
more than 21 years); (2) the taking of mortgages on land in Bermuda to secure an
amount in excess of $50,000 without the consent of the Minister of Finance of
Bermuda; (3) the acquisition of securities created or issued by, or any interest
in, any local company or business, other than certain types of Bermuda
government securities or another "exempted" company, partnership or other
corporation resident in Bermuda but incorporated abroad; or (4) the carrying on
of business of any kind in Bermuda, except in furtherance of our business
carried on outside Bermuda or with the permission of, or under a license granted
by, the Minister of Finance of Bermuda.
OUTSTANDING WARRANTS
LAUDER WARRANTS
As consideration for, among other things, his previous guarantee of a
revolving credit facility, Ronald S. Lauder received warrants to purchase
459,900 Class B common shares. The exercise price, exercise period and other
terms of these warrants are substantially the same as the terms of the warrants
issued in the debt offering described below, other than with respect to the
class of stock which will be issued upon their exercise. The warrant issued to
Mr. Lauder was exercisable beginning on October 3, 1997.
WARRANTS ISSUED IN 1996 OFFERING
In October 1996, we issued an aggregate 300,000 warrants to purchase
Class A common shares. The warrants were issued pursuant to the warrant
agreement, dated as of October 6, 1996, between us and The Chase Manhattan Bank,
as warrant agent.
Each warrant is evidenced by a certificate and currently entitles the
holder thereof to purchase 3.97485 Class A common shares from us at an exercise
price of $.00457 per share, subject to adjustment as provided in the warrant
agreement. The warrants may be exercised at any time prior to the close of
business on October 3, 2007. Warrants that are not exercised by such date will
expire.
The warrant agreement contains provisions (to which there are certain
exceptions) adjusting the exercise price and the number of Class A common shares
or other securities issuable upon exercise of a warrant in the event of (i) a
division, consolidation or reclassification of the Class A common shares,
(ii) the issuance of rights, options, warrants or convertible or exchangeable
securities to all holders of Class A common shares entitling such holders to
subscribe for or purchase Class A common shares at a price per share which is
lower than the then current value per Class A common share, subject to certain
exceptions, (iii) the issuance of Class A common shares at a price per share
that is lower than
31
<PAGE>
the then current value of such shares, except for issuances in connection with
an acquisition, merger or similar transaction with a third party, (iv) certain
distributions to all holders of Class A common shares of evidences of
indebtedness or assets and (v) in the discretion of our board of directors, in
certain other circumstances. In addition, in accordance with the warrant
agreement, the Class A common shares issuable upon exercise of the warrants were
registered under a registration statement on Form S-1.
OTHER RIGHTS TO ACQUIRE CLASS A COMMON SHARES
We have granted to a number of minority interestholders in subsidiaries the
right to exchange their minority interests for Class A common shares. These
rights are referred to as "roll-up" rights. In addition, we have granted to a
number of minority interestholders in our subsidiaries piggyback registration
rights with respect to Class A common shares acquired pursuant to an exercise of
their roll-up rights. As at December 31, 1999, roll-up rights were held by
minority interestholders of the following subsidiaries: RSL USA, RSL Asia, RSL
Italy (and its subsidiary Comesa), RSL Spain, RSL Switzerland, Telecenter Oy,
RSL Belgium and PCM. None of these roll-up rights are currently exercisable. The
number of Class A common shares issuable upon exercise of the roll-up rights
will be based upon valuations of the minority interests and the Class A common
shares at the time of exercise and, consequently can not be determined at this
time, but would likely be in the aggregate, material.
We have also granted incentive units to certain employees of its
subsidiaries, some of which are currently exercisable and to exchange such
incentive units for Class A common shares or, in certain circumstances, at our
option, cash. All Class A common shares issuable upon exchange of incentive
units will be issued under the 1997 Stock Incentive Plan. We estimate that the
number of Class A common shares issuable upon exchange of currently exercisable
incentive units is approximately 447,000.
32
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain material U.S. federal income
tax consequences of the ownership and disposition of Series A preferred shares
(and Class A common shares obtained on conversion or redemption thereof or as
dividends thereon) by a U.S. shareholder purchasing the Series A preferred
shares offered hereby. For purposes of this discussion, the term "U.S.
shareholder" includes (i) a U.S. citizen or resident, (ii) a corporation created
or organized in or under the laws of the United States, any State thereof or the
District of Columbia, (iii) a trust if a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust, and (iv)
an estate the income of which is subject to U.S. federal income tax regardless
of its source. The discussion is based upon provisions of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), its legislative history, judicial
authority, current administrative rulings and practice, and existing and
proposed Treasury Regulations, all as in effect and existing on the date hereof.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the conclusions set forth below, possibly
on a retroactive basis, which could adversely affect a holder of Series A
preferred shares or Class A common shares. This discussion assumes that the
Series A preferred shares and Class A common shares will be held as capital
assets (as defined in Section 1221 of the Code) by the holders thereof.
The following discussion generally does not address the tax consequences to
a person who holds (or will hold), directly or indirectly, shares giving the
holder the right to exercise 10% or more of the total voting power of our
outstanding stock. Such a holder is advised to consult its own tax advisors
regarding the tax considerations incident to an investment in the Series A
preferred shares and Class A common shares. In addition, this discussion does
not purport to deal with all aspects of U.S. federal income taxation that might
be relevant to particular holders in light of their personal investment
circumstances or status, nor does it discuss the U.S. federal income tax
consequences to certain types of holders that may be subject to special rules
under the U.S. federal income tax laws, such as financial institutions,
insurance companies, dealers in securities or foreign currency, tax-exempt
organizations, foreign corporations or nonresident alien individuals or persons
whose functional currency is not the U.S. dollar. Moreover, the effect of any
applicable state, local or foreign or other tax laws is not discussed.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PURCHASER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
SUCH PURCHASER'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF
THE OWNERSHIP AND DISPOSITION OF SERIES A PREFERRED SHARES AND CLASS A COMMON
SHARES.
TAXATION OF U.S. SHAREHOLDERS
Distributions
A U.S. shareholder receiving a distribution on Series A preferred shares or
Class A common shares generally will be required to include such distribution in
gross income as a taxable dividend to the extent such distribution is paid from
our current or accumulated earnings and profits as determined under U.S. federal
income tax principles. Distributions in excess of our earnings and profits
generally will be treated, for U.S. federal income tax purposes, as a nontaxable
return of capital to the extent of the U.S. shareholder's basis (with a
corresponding reduction to such basis) in the Series A preferred shares (or
Class A common shares, as the case may be) and then as gain from the sale or
exchange of a capital asset. Distributions made by us on the Series A preferred
shares and Class A common shares (whether or not paid out of earnings and
profits) will generally not be eligible for the dividends received deduction.
In the case of a distribution on the Series A preferred shares that is paid
in the form of our Class A common shares, the fair market value of the
distributed shares on the distribution date will be treated for U.S. federal
income tax purposes in the same manner as a cash distribution on the
distribution date notwithstanding that no cash will be paid with respect to such
distribution. A U.S. shareholder will have a tax basis in such distributed Class
A common shares equal to their fair market value on the distribution date.
33
<PAGE>
Subject to generally applicable conditions and limitations, a U.S.
shareholder may be entitled to claim a foreign tax credit for certain foreign
taxes (such as withholding taxes), if any, imposed on dividends paid by us to
such U.S. shareholder, but generally not for taxes, if any, imposed on us or on
any entity in which we made an investment. It is not anticipated, however, under
current Bermuda law that any such withholding taxes would be imposed by Bermuda
on distributions we make to a U.S. shareholder. For so long as we are a "U.S.
owned foreign corporation," any distribution with respect to our Series A
preferred shares and Class A common shares that is taxable as a dividend
generally will be treated as foreign source passive income (or, for U.S.
shareholders that are "financial service entities" as defined in the Treasury
Regulations, foreign source financial services income) or U.S. source income for
U.S. foreign tax credit purposes, in proportion to our earnings and profits out
of which such distribution is made allocable to foreign sources and U.S.
sources, respectively. For this purpose, we will be treated as a U.S.-owned
foreign corporation so long as stock representing 50 percent of more of the
voting power or value of our capital stock is owned, directly or indirectly, by
"U.S. shareholders."
Conversion of Series A Preferred Shares; Receipt of Class A Common Shares on
Redemption
The Series A preferred shares will be convertible into Class A common
shares. In addition, Series A preferred shares may be redeemed by us for
Class A common shares. Except in the circumstances described below, a U.S.
shareholder will generally not recognize gain or loss on the receipt of our
Class A common shares in such conversion or redemption. A U.S. shareholder's
aggregate tax basis in the Class A common shares received in such conversion or
redemption will be equal to his aggregate tax basis in the Series A preferred
shares that were converted or redeemed (increased by any dividend income or gain
recognized by the U.S. shareholder on the conversion or redemption, as discussed
below). A U.S. shareholder's holding period for the Class A common shares
received upon such conversion or redemption would include the holding period of
the Series A preferred shares converted or redeemed (except for any Class A
common shares treated as received in a distribution by us, as discussed below,
which would have a holding period that begins on the distribution date).
A U.S. shareholder would be treated as having received a distribution from
us (potentially taxable, as described below) in connection with the conversion
or redemption if a U.S. shareholder owns Series A preferred shares with accrued
but unpaid dividends, and, as a result of the conversion or redemption, the U.S.
shareholder increases his proportionate interest in our assets or earnings and
profits (or, in certain circumstances, if the conversion or redemption is
pursuant to a plan to periodically increase such U.S. shareholder's
proportionate interest in our assets or earnings and profits). In the event that
the Series A preferred shares that are converted or redeemed have accrued but
unpaid dividends, the amount of the distribution deemed to result from the
conversion or redemption will be the lesser of (i) the amount by which the fair
market value of the Class A common stock received in the conversion or
redemption exceeds the "issue price" (generally, the fair market value at
issuance) of the Series A preferred stock surrendered or (ii) the amount of the
dividends in arrears. The amount of any such deemed distribution will be subject
to the rules discussed above under "Taxation of U.S.
Shareholders--Distributions."
Sale or Exchange
A U.S. shareholder will generally recognize gain or loss on the sale or
exchange of Class A common shares or Series A preferred shares in an amount
equal to the difference between the sum of the amount of cash and the fair
market value of other property received and the U.S. shareholder's adjusted
basis in such Class A common shares or Series A preferred shares. With certain
exceptions, such gain or loss will be treated as U.S. source capital gain or
loss. Such capital gain or loss will be long-term capital gain or loss if the
U.S. shareholder has held the Series A preferred shares (or Class A common
shares, as the case may be) for more than one year at the time of the sale or
exchange. In the case of non-corporate taxpayers, long-term capital gains will
be taxed at a maximum federal rate of 20%. The deductibility of capital losses
is subject to limitations.
34
<PAGE>
Redemption of Series A Preferred Shares for Cash
A redemption of the Series A preferred shares for cash will be treated
under section 302 of the Code as a distribution that is taxable as a dividend
(to the extent of our current and accumulated earnings and profits) unless the
redemption (i) results in a "complete termination" of the U.S. shareholder's
entire stock interest in us under section 302(b)(3) of the Code, (ii) is
"substantially disproportionate" with respect to the U.S. shareholder under
section 302(b)(2) of the Code, or (iii) is "not essentially equivalent to a
dividend" with respect to the U.S. shareholder under section 302(b)(1) of the
Code. In determining whether any of these tests has been met, shares of our
stock considered to be owned by the U.S. shareholder by reason of certain
constructive ownership rules set forth in section 318 of the Code (pursuant to
which a U.S. shareholder will be deemed to own shares owned by certain related
individuals and entities or shares subject to options), as well as shares
actually owned, generally must be taken into account.
If a redemption is not treated as a distribution that is taxable as a
dividend, it will result in taxable gain or loss equal to the difference between
the amount of cash received and the U.S. shareholder's tax basis in the Series A
preferred shares redeemed. Such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if the U.S. shareholder has held the
Series A preferred shares redeemed for more than one year at the time of the
redemption. In the case of non-corporate taxpayers, long-term capital gains will
be taxed at a maximum federal rate of 20%. The deductibility of capital losses
is subject to limitations.
If a redemption of the Series A preferred shares is treated as a
distribution that is taxable as a dividend, the U.S. shareholders' basis in the
redeemed Series A preferred shares will be transferred to the U.S. shareholder's
remaining shares of our stock (if any). If the U.S. shareholder does not retain
any shares of our stock, such basis may be entirely lost.
Preferred Stock Discount
Pursuant to section 305(c) of the Code, U.S. shareholders of the Series A
preferred shares may be required to treat a portion of the difference between
the redemption price and issue price of the Series A preferred shares as
constructive distributions that are includible in income on an economic accrual
basis. For purposes of determining whether such constructive distribution
treatment applies, the mandatory and optional redemption features of the Series
A preferred shares are tested separately. Constructive distribution treatment is
required if either (or both) of these tests is satisfied.
Section 305(c) of the Code provides that the entire amount of a redemption
premium with respect to preferred stock that may be redeemed is treated in
certain circumstances as being distributed to the holders of such preferred
stock on an economic accrual basis. Preferred stock is generally considered to
have redemption premium for this purpose if its redemption price exceeds its
issue price by more than a de minimis amount. For this purpose, such excess (the
"Preferred Stock Discount") will be treated as zero if it is less than 1/4 of 1%
of the redemption price of the preferred stock multiplied by the number of
complete years from the date of issuance of the stock until the redemption date.
Preferred Stock Discount is taxable as a constructive distribution to the holder
(treated as a dividend to the extent made out of our current or accumulated
earnings and profits and otherwise subject to the treatment described above for
distributions) over the term of the preferred stock using a constant interest
rate method similar to that required under the Code for accruing original issue
discount.
Preferred Stock Discount with respect to preferred stock that is subject to
mandatory redemption generally will arise if the price at which the preferred
stock must be redeemed exceeds its issue price by more than a de minimis amount.
We do not expect that our obligation to redeem the Series A preferred shares
acquired in connection with this offering on February 1, 2012 will result in
Preferred Stock Discount.
Preferred Stock Discount with respect to preferred stock that has an
optional redemption feature generally will arise only if, based on all of the
facts and circumstances as of the date the preferred stock is issued, redemption
pursuant to an issuer's right to redeem is more likely than not to occur. Even
if redemption is more likely than not to occur, however, constructive
distribution treatment would not result
35
<PAGE>
if the redemption premium were solely in the nature of a penalty for premature
redemption. For this purpose, a redemption premium is not a penalty for
premature redemption unless it is a premium paid as a result of changes in
economic or market conditions over which neither the issuer nor the holder has
legal or practical control, such as changes in prevailing dividend rates. In
addition, pursuant to a safe harbor contained in Treasury Regulations,
redemption pursuant to an issuer's right to redeem is not treated as more likely
than not to occur if (i) the issuer and the holder are unrelated, (ii) there are
no arrangements that effectively require or are intended to compel the issuer to
redeem the stock and (iii) exercise of the option to redeem would not reduce the
yield of the stock. We do not believe that our right to redeem Series A
preferred shares acquired in connection with this offering on or after
February 1, 2005 should be treated as more likely than not to be exercised under
these rules. Accordingly, the optional redemption features of the Series A
preferred shares acquired in connection with this offering should not result in
Preferred Stock Discount. However, it is not entirely clear how the rules
relating to Preferred Stock Discount apply to our obligation to redeem the
Series A preferred shares in the event of a change in control.
Adjustment of Conversion Price
Treasury Regulations promulgated under section 305 of the Code treat
holders of convertible stock as having received a constructive distribution
where the conversion ratio of such convertible stock is adjusted if (i) as a
result, the proportionate interest of the holders of such convertible stock in
the assets or earnings and profits of the issuer is increased and (ii) the
adjustment is not made pursuant to a bona fide, reasonable antidilution formula.
An adjustment in the conversion ratio is not considered to be made pursuant to
such a formula where the adjustment is made to compensate for certain taxable
distributions with respect to the stock into which such convertible stock is
convertible. Thus, under certain circumstances, a reduction in the conversion
price for the Series A preferred shares may be taxable to the holders thereof as
a dividend to the extent of our current and accumulated earnings and profits.
SPECIAL PROVISIONS APPLICABLE TO FOREIGN CORPORATIONS
Various provisions contained in the Code impose special taxes in certain
circumstances on U.S. or foreign corporations and their stockholders. The
following is a summary of certain provisions which could have an adverse impact
on us and our U.S. shareholders.
FOREIGN PERSONAL HOLDING COMPANIES
In general, if we or any of our foreign corporate subsidiaries were to be
classified as an FPHC the undistributed foreign personal holding company income
(generally, taxable income with certain adjustments) realized by us or such
subsidiary would be imputed to all of the U.S. shareholders who were deemed to
hold our stock or the stock of such subsidiary on the last day of its taxable
year. Such income would be taxable to such persons as a dividend, even if no
cash dividend were actually paid. U.S. shareholders who dispose of their Series
A preferred shares or Class A common shares prior to such date generally would
not be subject to U.S. federal income tax under these rules. If we were to be
classified as an FPHC, U.S. shareholders who acquire Series A preferred shares
or Class A common shares from decedents would, in certain circumstances, be
denied the step-up of the income tax basis for such Series A preferred shares or
Class A common shares to fair market value at the date of death which would
otherwise have been available and instead would have a tax basis equal to the
lower of the fair market value or the decedent's basis.
A foreign corporation will be classified as an FPHC if (i) five or fewer
individuals who are U.S. citizens or residents, directly or indirectly, own more
than 50% of the corporation's stock (measured either by voting power or value)
(the "stockholder test") and (ii) the corporation receives at least 60% of its
gross income (regardless of source), as specifically adjusted, from certain
passive sources (the "income test"). After a corporation becomes an FPHC, the
income test percentage for each subsequent taxable year is reduced to 50%.
36
<PAGE>
Five or fewer individuals who are U.S. citizens or residents currently own
a beneficial interest of more than 50% of the voting power of our outstanding
capital stock and the stock of certain of our foreign corporate subsidiaries for
purposes of the FPHC rules, and we believe that the stockholder test will likely
be met on a going forward basis. We believe, however, that neither we nor any of
our foreign corporate subsidiaries, once profitable, should be classified as an
FPHC because we and each of our subsidiaries should not then satisfy the
foregoing income test.
While we currently believe that neither we nor any of our foreign corporate
subsidiaries would be classified as an FPHC once profitable, it is possible that
we or one or more of such subsidiaries would meet the foregoing income test in a
given taxable year (for example, as a result of us receiving dividends from our
subsidiaries), and would qualify as an FPHC for that year. If we conclude that
we or any of our foreign corporate subsidiaries would be classified as an FPHC
for any profitable taxable year we intend to manage our affairs and the affairs
of our subsidiaries so as to attempt to avoid or minimize having income imputed
to the U.S. shareholders under these rules, to the extent such management of our
affairs is consistent with our other business goals.
Passive Foreign Investment Companies
If 75% or more of our gross income (taking into account under an income
"look-through" rule our pro rata share of the gross income of any company of
which we are considered to own 25% or more of the stock by value) in a taxable
year is passive income, or if at least 50% of the average percentage of our
assets (taking into account under an asset "look-through" rule our pro rata
share of the assets of any company of which we are considered to own 25% or more
of the stock by value) in a taxable year produce or are held for the production
of passive income, we would be classified as a PFIC. Passive income for purposes
of the PFIC rules generally includes dividends, interest and other types of
investment income and would include amounts derived by reason of the investment
of a portion of the funds raised in the offerings. If we were a PFIC at any time
during a U.S. shareholder's holding period, such U.S. shareholder (regardless of
the percentage of stock owned) would, upon certain distributions by us and upon
disposition of Series A preferred shares or Class A common shares at a gain, be
liable to pay tax plus an interest charge. The tax would be determined by
allocating such distribution or gain ratably to each day of the U.S.
shareholder's holding period for the Series A preferred shares or Class A common
shares. The amount allocated to years prior to the taxable year of the
distribution or disposition would be taxed at the highest marginal rates for
ordinary income for such years (if we were a PFIC during such years). The U.S.
shareholder would also be liable for interest on the amount of such additional
tax due with respect to such prior years in which we were a PFIC. The amount
allocated to the current taxable year and any non-PFIC years would be taxed in
the same manner as other ordinary income earned in the current taxable year.
Under certain circumstances, if we were to become a PFIC, distributions and
dispositions in respect of shares in one of our direct or indirect foreign
corporate subsidiaries may be attributed in whole or in part to a U.S. investor,
and such U.S. investor may be taxed under the PFIC rules with respect to such
distributions or dispositions.
If we were to become a PFIC, U.S. shareholders who acquire Series A
preferred shares or Class A common shares from decedents could be denied the
step-up of the income tax basis for such Series A preferred shares or Class A
common shares to fair market value at the date of death which would otherwise
have been available and instead could have a tax basis equal to the lower of the
fair market value or the decedent's basis.
The above results may be eliminated (at least in part) if a U.S.
shareholder permanently elects to treat us (and any of our subsidiaries that was
a PFIC) as a "qualified electing fund" ("QEF") for U.S. federal income tax
purposes. A stockholder of a QEF is required for each taxable year to include in
income a pro rata share of the ordinary income of the QEF as ordinary income and
a pro rata share of the net capital gain of the QEF as long-term capital gain.
If a U.S. shareholder in a PFIC has made a QEF election in a year subsequent to
the year in which such investor acquired an interest in the PFIC, the U.S.
shareholder must agree in the year of such election to either (1) recognize gain
equal to such U.S. shareholder's unrealized appreciation in such stock or (2)
assuming the PFIC is a controlled
37
<PAGE>
foreign corporation include in income as a dividend his pro rata share of the
PFIC's earnings and profits up to the first day of the tax year for which such
election was made (and any such gain or income would be subject to the tax
consequences discussed above for non-QEF PFICs) so that thereafter any
additional gain on the sale of such stock in the future generally will be
characterized as capital gain and the denial of basis step-up at death and the
interest charge (as well as the other PFIC tax consequences described above)
would not continue to apply.
A U.S. shareholder of a PFIC may, in lieu of making a QEF election, also
avoid the tax consequences discussed above for PFIC's for which QEF elections
are not made by electing to "mark-to-market" the PFIC stock as of the close of
each taxable year so long as such stock is "marketable". We expect that the
Class A common shares (but not the Series A preferred shares until such Series A
preferred shares become "regularly traded") will be "marketable" for this
purpose. Under this election, the U.S. shareholder will include in income each
year as ordinary income an amount equal to the excess, if any, of the fair
market value of the stock at the close of the year over such U.S. shareholder's
adjusted basis. If the stock declines in value during any year, such U.S.
shareholder will be entitled to a deduction from ordinary income equal to the
excess of such U.S. shareholder's adjusted basis over the stock's value at the
close of such year but only to the extent of the net mark-to-market gains
previously included in income. Any gain or loss on the sale of the stock of the
PFIC will be ordinary income or (to the extent of the previously included net
mark-to-market gains) ordinary loss. In the case of a U.S. shareholder who makes
this mark-to-market election for PFIC stock as to which a QEF election was not
in effect during his period of ownership, a coordination rule applies to ensure
that the shareholder does not avoid the interest charge for periods prior to
this election. An election to mark-to-market applies to the year for which the
election is made and following years unless the PFIC stock ceases to be
marketable or the Internal Revenue Service consents to the revocation of such
election.
We intend to manage our business and the business of our subsidiaries so as
to attempt to avoid PFIC status to the extent such management of affairs is
consistent with our other business goals. We will notify U.S. shareholders in
the event that we conclude that we will be treated as a PFIC for any taxable
year to enable U.S. shareholders to consider whether to elect to treat us (and
any of our subsidiaries that was a PFIC) as a QEF for U.S. federal income tax
purposes (or to make the mark-to-market election). In addition, we will, at the
request of a U.S. shareholder who elects to have us treated as a QEF, comply
with the applicable information reporting requirements. Treasury Regulations set
forth rules on the filing of a protective statement by a U.S. person who owns
stock in a foreign corporation which is reasonably believed by such person not
to be a PFIC. The purpose of this protective statement is to enable such person
to make a retroactive QEF election in the event that such foreign corporation is
subsequently determined to be PFIC and to permit the Internal Revenue Service
("IRS") to make an otherwise barred assessment of tax under the QEF rules. In
the event that we should be determined to have been a PFIC, generally, a U.S.
shareholder who has not filed a protective statement may not make a retroactive
QEF election except with the consent of the IRS, which may or may not be
granted. Accordingly, U.S. shareholders should consider with their own U.S. tax
advisors whether the filing of a protective statement with respect to our Series
A preferred shares is advisable.
PERSONAL HOLDING COMPANIES
A corporation that is a personal holding company ("PHC") is subject to a
39.6% tax on its undistributed personal holding company income (generally, U.S.
taxable income with certain adjustments, reduced by distributions to
shareholders). A foreign corporation that is neither an FPHC nor a PFIC,
discussed above, generally is a PHC if (i) more than 50% of its stock measured
by value is owned, directly or indirectly, by five or fewer individuals (without
regard to their citizenship or residence) and (ii) it receives 60% or more of
its gross income, as specifically adjusted, from certain passive sources. For
purposes of this gross income test, a foreign corporation generally only
includes taxable income derived from U.S. sources or income that is effectively
connected with a U.S. trade or business.
More than 50% of our outstanding shares and those of each of our corporate
subsidiaries, by value, is currently owned, directly or indirectly, by five or
fewer individuals. It is expected that this will remain the case on a going
forward basis. We intend to manage our affairs and the affairs of our
subsidiaries so
38
<PAGE>
as to attempt to avoid or minimize the imposition of the PHC tax, to the extent
such management of our affairs is consistent with our other business goals.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under certain circumstances, a noncorporate U.S. shareholder may be subject
to backup withholding at a 31% rate on dividends received on Series A preferred
shares or Class A common shares. This withholding generally applies only if such
U.S. shareholder (i) fails to furnish his or her taxpayer identification number
("TIN") to the U.S. financial institution or any other person responsible for
the payment of dividends on the Series A preferred shares or Class A common
shares, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that such
U.S. shareholder has failed to properly report payments of interest and
dividends and the IRS has notified us that such U.S. shareholder is subject to
backup withholding, or (iv) fails, under certain circumstances, to provide a
certified statement, signed under penalty of perjury, that the TIN provided is
such U.S. shareholder's correct number and that such U.S. shareholder is not
subject to backup withholding rules.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, any amounts withheld under the backup
withholding rules will be refunded or allowed as a credit against the U.S.
shareholder's U.S. federal income tax liability, if any, provided the required
information or appropriate claim for refund is filed with the IRS.
CERTAIN BERMUDA TAX CONSIDERATIONS
In the opinion of Conyers, Dill & Pearman, the following correctly
describes a summary of certain material anticipated tax consequences of an
investment in the Series A preferred shares and Class A common shares under
current Bermuda tax laws. This discussion does not address the tax consequences
under non-Bermuda tax laws and, accordingly, each prospective investor should
consult his or her tax advisor regarding the tax consequences of an investment
in Series A preferred shares and Class A common shares. This discussion is based
upon laws and relevant interpretation thereof in effect as of the date of this
offering circular, all of which are subject to change.
BERMUDA TAXATION
At the date hereof, there is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by us or our shareholders other than those who are
ordinarily resident in Bermuda. We are not subject to stamp or other similar
duty on the issue, transfer or redemption of our Series A preferred shares or
Class A common shares.
We have obtained an assurance from the Minister of Finance of Bermuda under
the Exempted Undertakings Tax Protection Act 1966 that, in the event there is
enacted in Bermuda any legislation imposing tax computed on profits or income or
computed on any capital assets, gain or appreciation or any tax in the nature of
estate duty or inheritance tax, such tax shall not be applicable to us or to our
operations, or to our shares or other obligations until March 2016 except
insofar as such tax applies to persons ordinarily resident in Bermuda and
holding such of our shares or other obligations or any real property or
leasehold interests in Bermuda we own. No reciprocal tax treaty affecting us
exists between Bermuda and the United States.
As an exempted company, we are liable to pay in Bermuda a registration fee
based upon our authorized share capital and the premium on our issued shares at
a rate not exceeding $27,825 per annum.
SELLING STOCKHOLDERS
We originally issued and sold the Series A preferred shares in the first
quarter of 2000 to Goldman Sachs & Co., Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated in a
private placement. The Series A preferred shares were then resold by those
initial purchasers in transactions exempt from the registration requirements of
the Securities Act in the United States to qualified institutional buyers (as
defined in Rule 144A under the Securities Act).
39
<PAGE>
The selling stockholders listed below may, pursuant to this prospectus, from
time to time offer and sell the number of Series A preferred shares listed below
and/or the number of shares of common stock into which such Series A preferred
shares have been converted (the "Conversion Shares") or that may be issued in
connection with dividend, redemption or other payments thereon (the "Payment
Shares"). The Conversion Shares are also listed below.
<TABLE>
<CAPTION>
SELLING SERIES A CONVERSION
PREFERRED STOCKHOLDERS PREFERRED SHARES SHARES
- --------------------------------------------------------------------------------- ---------------- ----------
<S> <C> <C>
</TABLE>
The information concerning the selling stockholders may change from time to
time. If required, such changes will be set forth in accompanying supplements to
this prospectus. Because the selling stockholders may offer all or some portion
of the common stock and/or preferred stock pursuant to this prospectus, and
because there are currently no agreements, arrangements or understandings with
respect to the sale of common stock or preferred stock, we cannot predict the
number of shares of common stock and preferred stock that will be held by the
selling stockholders upon termination of this offering.
PLAN OF DISTRIBUTION
The Series A preferred shares, the Conversion Shares and the Payment Shares
(collectively, the "Securities") offered pursuant to this prospectus may be sold
from time to time to purchasers directly by the selling stockholders.
Alternatively, the selling stockholders may from time to time offer the
Securities through brokers, dealers or agents who may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of the Securities for whom they may act as agent. The
selling stockholders and any such brokers, dealers or agents who participate in
the distribution of the Securities may be deemed to be "underwriters," and any
profits on the sale of the Securities by them and any discounts, commissions or
concessions received by any such brokers, dealers or agents might be deemed to
be underwriting discounts and commissions under the Securities Act. To the
extent the selling stockholders may be deemed to be underwriters, the selling
stockholders may be subject to certain statutory liabilities of the Securities
Act, including, but not limited to, Sections 11, 12 and 17 of the Securities Act
and Rule 10b-5 under the Exchange Act.
The Securities offered hereby may be sold from time to time by the selling
stockholders, or, to the extent permitted, by pledgees, donees, transferees or
other successors in interest. The Securities may be disposed of from time to
time in one or more transactions through any one or more of the following:
o a block trade, in which the broker or dealer so engaged will attempt to
sell the Securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker or
dealer for its account;
o ordinary brokerage transactions and transactions, in which the broker
solicits purchasers;
o an exchange distribution in accordance with the rules of such exchange or
transactions in the over-the-counter market;
o the writing of options on the Securities;
o by the purchasers directly;
o sales through underwriters or dealers who may receive compensation in the
form of underwriting discounts, concessions, or commissions from the
selling stockholders or such successors in interest and/or from the
purchasers of the Securities for whom they may act as agent; and
o the pledge of the Securities as security for any loan or obligation,
including pledges to brokers or dealers who may, from time to time,
themselves effect distributions of the Securities or interest therein.
40
<PAGE>
In addition, the Securities covered by this prospectus may be sold in
private transactions or under Rule 144 rather than pursuant to this prospectus.
There is no assurance that any selling stockholder will sell any or all of
the Securities offered by it hereunder or that any such selling stockholder will
not transfer, devise or gift such Securities by other means not described
herein.
Such sales may be made at prices and at terms then prevailing or at prices
related to the then current market price or at negotiated prices and terms. In
effecting sales, brokers or dealers may arrange for other brokers or dealers to
participate. The selling stockholders or such successors in interest, and any
underwriters, brokers, dealers or agents that participate in the distribution of
the Securities, may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of the Securities by them and any
discounts, commissions or concessions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting commissions or
discounts under the Securities Act.
In the event of any such offering, we will distribute a revised prospectus
or prospectus supplement, if required, which will set forth the aggregate amount
and type of Securities being offered and the terms of the offering, including
the name or names of any underwriters, dealers or agents, any discounts,
commissions and other items constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to dealers. Such prospectus supplement and, if necessary, a
post-effective amendment to the registration statement of which this prospectus
is a part, will be filed with the SEC to reflect the disclosure of additional
information with respect to the distribution of the Securities.
To the best of our knowledge, there are currently no plans, arrangements or
understandings between any selling stockholders and any broker, dealer, agent or
underwriter regarding the sale of the Securities by the selling stockholders.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which may limit the timing of purchases and sales of any of the Securities by
the selling stockholders and any other such person. Furthermore, under
Regulation M under the Exchange Act, any person engaged in the distribution of
the Securities may not simultaneously engage in market-making activities with
respect to the particular Securities being distributed for certain periods prior
to the commencement of such distribution. All of the foregoing may affect the
marketability of the Securities and the ability of any person or entity to
engage in market-making activities with respect to the Securities.
Pursuant to the terms of the registration rights agreement dated
February 22, 2000, among us and the initial purchasers (the "Registration Rights
Agreement"), holders of the Series A preferred shares covered by a shelf
registration statement, on the one hand, and us, on the other hand, have agreed
to indemnify each other against certain liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
Pursuant to the Registration Rights Agreement, we have agreed to pay
substantially all expenses of the registration, offering and sale of the
securities to the public, including, without limitation, SEC filing fees and
expenses of compliance with state securities or "blue sky" laws; provided,
however, that the selling stockholders will pay all underwriting discounts,
selling commissions and related fees, if any.
LEGAL MATTERS
The validity of the Series A preferred shares and the Class A common shares
issued in connection with dividend, redemption and other payments are being
passed upon for us by Conyers, Dill & Pearman, Hamilton, Bermuda.
41
<PAGE>
EXPERTS
The Consolidated Financial Statements and the related financial statement
schedules incorporated in this prospectus by reference from our annual report on
Form 10-K for the year ended December 31, 1999 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon its authority as experts in accounting and
auditing.
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
We are a Bermuda corporation. Certain of our 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. We have
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.
42
<PAGE>
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
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.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Incorporation Of Certain Documents By Reference................. 2
Where You Can Find More Information............................. 2
Summary......................................................... 3
Risk Factors.................................................... 9
Special Note Regarding Forward-Looking Statements............... 11
Use Of Proceeds................................................. 12
Dividend Policy................................................. 12
Capitalization.................................................. 13
Description Of Series A Preferred Shares........................ 14
Description Of Capital Stock.................................... 29
Certain United States Federal Income Tax Considerations......... 33
Certain Bermuda Tax Considerations.............................. 39
Selling Stockholders............................................ 39
Plan Of Distribution............................................ 40
Legal Matters................................................... 41
Experts......................................................... 42
Service Of Process And Enforcement Of Liabilities............... 42
</TABLE>
2,300,000
7 1/2% Series A Convertible
Preferred Shares
and
6,925,000 Class A Common Shares
RSL COMMUNICATIONS, LTD.
------------------
------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses payable by the
Registrant in connection with this offering, other than underwriting discounts
and commissions. All the amounts shown are estimates, except the SEC
registration fee:
<TABLE>
<S> <C>
SEC registration fee......................................................... $ 36,679
Printing fees................................................................ 25,000
Legal fees and expenses...................................................... 50,000
Accounting fees and expenses................................................. 20,000
Miscellaneous fees and expenses.............................................. 10,000
--------
Total.............................................................. $141,679
========
</TABLE>
ITEM 15. 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.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
4.1 -- Certificate of Designation of 7 1/2% Series A Convertible
Preferred Shares
4.2 -- Registration Rights Agreement, dated as of February 22, 2000
among RSL Communications, Ltd. and the Initial Purchasers
named therein.
**5.1 -- Opinion of Conyers, Dill & Pearman.
**12 -- Ratio of Combined Fixed Charges and Preference Dividends to
Earnings.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Conyers, Dill & Pearman (included in
Exhibit 5.1).
24.1 -- Powers of Attorney (included in the signature pages to the
Registration Statement).
*27.1 -- Financial Data Schedule.
</TABLE>
- ------------------
* Incorporated by reference to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999.
** To be filed by amendment.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement; provided, however, that information required to
be included in a post-effective amendment by paragraphs (a)(1)(i) and
(a)(1)(ii) above may be contained in periodic reports filed with or
furnished to the SEC by us pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated herein by
reference.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under item 15 above, or
otherwise, the registrant has been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act of
1933 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-2
<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 April 23, 2000.
RSL COMMUNICATIONS, LTD.
By: /s/ ITZHAK FISHER
----------------------------------
Itzhak Fisher
President and Chief Executive
Officer
POWER OF ATTORNEY
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 Securities and Exchange
Commission, 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>
/s/ RONALD S. LAUDER Director and Chairman of the April 23, 2000
- ------------------------------------------ Board of Directors
(Ronald S. Lauder)
/s/ ITZHAK FISHER Director, President and April 23, 2000
- ------------------------------------------ Chief Executive Officer
(Itzhak Fisher) (Principal Executive Officer)
/s/ DONALD R. SHASSIAN Chief Operating Officer, April 23, 2000
- ------------------------------------------ Executive Vice President,
(Donald R. Shassian) Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ JOEL BECKHOFF Global Controller (Controller and April 23, 2000
- ------------------------------------------ Principal Accounting Officer)
(Joel Beckhoff)
/s/ GUSTAVO A. CISNEROS Director April 23, 2000
- ------------------------------------------
(Gustavo A. Cisneros)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------------ ---------------
<S> <C> <C>
/s/ FRED H. LANGHAMMER Director April 23, 2000
- ------------------------------------------
(Fred H. Langhammer)
/s/ LEONARD A. LAUDER Director April 23, 2000
- ------------------------------------------
(Leonard A. Lauder)
/s/ JACOB Z. SCHUSTER Director April 23, 2000
- ------------------------------------------
(Jacob Z. Schuster)
/s/ EUGENE SEKULOW Director April 23, 2000
- ------------------------------------------
(Eugene Sekulow)
/s/ NICOLAS G. TROLLOPE Director April 23, 2000
- ------------------------------------------
(Nicolas G. Trollope)
</TABLE>
II-4
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
4.1 -- Certificate of Designation of 7 1/2% Series A Convertible Preferred Shares
4.2 -- Registration Rights Agreement, dated as of February 22, 2000 among RSL Communications, Ltd. and the
Initial Purchasers named therein.
**5.1 -- Opinion of Conyers, Dill & Pearman.
**12 -- Ratio of Combined Fixed Charges and Preference Dividends to Earnings (included on page 10).
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Conyers, Dill & Pearman (included in Exhibit 5.1).
24.1 -- Powers of Attorney (included in the signature pages to the Registration Statement).
*27.1 -- Financial Data Schedule.
</TABLE>
- ------------------
* Incorporated by reference to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999.
** To be filed by amendment.
II-5
<PAGE>
Exhibit 4.1
RSL COMMUNICATIONS, LTD.
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF 7-1/2% SERIES A CONVERTIBLE
PREFERRED SHARES AND QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS THEREOF
RSL Communications, Ltd., an exempted company organized under
the laws of Bermuda (the "Issuer"), certifies that pursuant to the authority
contained in its Memorandum of Association (the "Memorandum of Association") and
its Bye-Laws (the "Bye-Laws"), and in accordance with Bermuda law, the Board of
Directors (or a duly authorized committee thereof) of the Issuer on February 10,
2000, and February 14, 2000 duly approved and adopted the following resolution,
which resolution remains in full force and effect on the date hereof:
RESOLVED, on this 14th day of February, 2000, that pursuant to
the authority vested in the Board of Directors by the Memorandum of Association
and Bye-Laws, the Board of Directors does hereby designate, create, authorize
and provide for the issue of a series of preferred shares having the following
designation, voting powers, preferences and relative, participating, optional
and other special rights:
Certain capitalized terms used herein are defined in Section
16.
1. Number and Designation. The Issuer shall have a class of
preferred shares, which shall be designated as its 7 1/2% Series A Convertible
Preferred Shares (the "Series A Preferred Shares"), par value U.S. $0.00457 per
share, with 7,000,000 shares initially authorized and, subject to the
limitations set forth herein, such number of additional shares as are authorized
from time to time by resolution of the Board of Directors of the Issuer and as
set forth in the Bye-Laws of the Issuer. Unless otherwise specified, references
herein to any "Section" refer to the Section number specified in this
Certificate of Designation (this "Certificate").
2. Issuance; Registered Form; Registrar. The Issuer may issue
Series A Preferred Shares from time to time up to the aggregate number of shares
at the time authorized to be outstanding by action of the Board of Directors (or
any committee thereof) of the Issuer. Certificates for Series A Preferred Shares
shall be issuable only in registered form. The Issuer hereby appoints American
Stock
<PAGE>
Transfer & Trust Company as its initial Registrar and Transfer Agent (the
"Transfer Agent") for the Series A Preferred Shares.
3. Liquidation Preference. Upon any liquidation, winding up or
dissolution of the Issuer, each Series A Preferred Share shall be entitled to a
liquidation preference of U.S.$50 per share (the "liquidation preference") plus,
without duplication, an amount equal to all accrued and unpaid dividends
("Accumulated Dividends"). Such amount shall be payable as and to the extent
provided in Section 9.
4. Registration Under Securities Act; Transfer. (a) The Series
A Preferred Shares have not been registered under the United States Securities
Act of 1933 (the "Securities Act") and may not be resold, pledged or otherwise
transferred prior to the date when they no longer constitute "restricted
securities" for purposes of Rule 144 under the Securities Act other than (i) to
"qualified institutional buyers" ("QIBs") pursuant to and in compliance with
Rule 144A ("Rule 144A") under the Securities Act, (ii) to institutional
"accredited investors" as defined in Rule 501(a) under the Securities Act, (iii)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available), or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of the states of the United States and other
jurisdictions. Until such time as determined by the Issuer and the Registrar,
certificates evidencing the Series A Preferred Shares shall contain a legend
(the "Restricted Shares Legend") evidencing the foregoing restrictions in
substantially the form set forth on the form of Series A Preferred Share
attached hereto as Exhibit A.
(b) Series A Preferred Shares will initially be represented by
one or more global certificates with the global legend (the "Global Shares
Legend") and the Restricted Shares Legend (each, a "Global Certificate") each as
set forth on the form of Series A Preferred Share attached hereto as Exhibit A
which will be deposited with, or on behalf of, the Depository Trust Company
("DTC" or the "Depositary") and registered in the name of Cede & Co., as nominee
of DTC (the "Global Certificate Holder"). Except as set forth below, record
ownership of the Global Certificate may be transferred, in whole or in part,
only to another nominee of DTC or to a successor of DTC or its nominee.
2
<PAGE>
(c) Owners of a beneficial interest in the Global Certificate
may hold their interest in the Global Certificate directly through DTC if such
holder is a participant in DTC (a "Participant") or indirectly through
organizations that are Participants. Persons who are not Participants may
beneficially own interests in the Global Certificate held by DTC only through
Participants or certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
(d) Global Certificates are exchangeable for certificates in
definitive form (the "Definitive Securities") of like tenor as such Global
Certificates if DTC notifies the Issuer that it is unwilling or unable to
continue as depositary for the Global Certificates or ceases to be a clearing
agency under the United States Securities Exchange Act of 1934 (the "Exchange
Act") and, in either case, a successor depositary registered as a clearing
agency under the Exchange Act is not appointed by the Issuer within 90 days or
at any time if the Issuer determines not to have all of the Series A Preferred
Shares represented by Global Certificates. Any Definitive Securities that are
issued in exchange for Global Certificates will be issued in authorized
denominations and will be registered in such names as DTC shall direct. Subject
to the foregoing, Global Certificates are not exchangeable, except for Global
Certificates of the same aggregate denomination to be registered in the name of
DTC or its nominee or in the name of a successor of DTC or its nominee. In
addition, such certificates will bear the Restricted Shares Legend (unless the
Issuer determines otherwise in accordance with applicable law) subject, with
respect to such Series A Preferred Shares, to the provisions of such legend.
(e) No certificate evidencing Series A Preferred Shares shall
be valid unless it bears the countersignature of the Transfer Agent.
5. Paying Agent and Conversion Agent; Transfer Restrictions.
(a) The Issuer shall maintain in the Borough of Manhattan, City of New York,
State of New York (i) an office or agency where Series A Preferred Shares may be
presented for payment (the "Paying Agent") and (ii) an office or agency where
Series A Preferred Shares may be presented for conversion (the "Conversion
Agent"). The Issuer may appoint the Transfer Agent, the Paying Agent and the
Conversion Agent and may appoint one or more additional paying agents and one or
more additional conversion agents in such other locations as it shall determine.
The term "Paying Agent" includes any additional paying agent and,
3
<PAGE>
with respect to payments hereunder by delivery of Class A Common Shares, may
include the Common Share Transfer Agent, and the term "Conversion Agent"
includes any additional conversion agent. The Issuer may change any Paying Agent
or Conversion Agent without prior notice to any holder. The Issuer shall notify
the Registrar of the name and address of any Paying Agent or Conversion Agent
appointed by the Issuer. If the Issuer fails to appoint or maintain another
entity as Paying Agent or Conversion Agent, the Transfer Agent shall act as
such. The Issuer or any of its Affiliates may act as Paying Agent, Transfer
Agent, or Conversion Agent.
(b) Notwithstanding any provision to the contrary herein, so
long as a Global Certificate remains outstanding and is held by or on behalf of
the Depositary or a successor of the Depositary, transfers of a Global
Certificate, in whole or in part, or of any beneficial interest therein, shall
only be made in accordance with Section 4 and this Section 5; provided, however,
that beneficial interests in a Global Certificate may be transferred to persons
who take delivery thereof in the form of a beneficial interest in the same
Global Certificate in accordance with the transfer restrictions set forth in the
Restricted Shares Legend:
(i) Except for transfers or exchanges made in accordance with
clause (b)(ii) of this Section 5, transfers of a Global Certificate
shall be limited to transfers of such Global Certificate in whole, but
not in part, to nominees of the Depositary or to a successor of the
Depositary or such successor's nominee.
(ii) If Definitive Securities are issued and a holder of
Definitive Securities bearing a Restricted Shares Legend ("Restricted
Definitive Securities") wishes at any time to transfer all or part of
the Series A Preferred Shares represented by such Restricted Definitive
Securities to a person who is required to take delivery thereof in the
form of Restricted Definitive Securities, such holder may, subject to
the restrictions on transfer set forth herein and in the certificate
representing such Series A Preferred Shares, cause the exchange of the
certificate representing such Series A Preferred Shares for one or more
Restricted Definitive Securities evidencing such Series A Preferred
Shares. Upon receipt by the Transfer Agent, at its office in The City
of New York of (A) the certificate representing such Series A Preferred
Shares, duly endorsed as provided herein, (B) instructions from such
holder
4
<PAGE>
directing the Transfer Agent to authenticate and deliver one or more
Restricted Definitive Securities evidencing such Series A Preferred
Shares, such instructions to contain the name of the transferee and the
number of such Series A Preferred Shares to be represented by the
Restricted Definitive Securities so issued to such transferee and
appropriate delivery instructions, (C) a certificate from the holder of
the Restricted Definitive Securities to be exchanged in the form of
Exhibit B and, if applicable, Exhibit C attached hereto given by the
transferor, to the effect set forth therein and (D) such other
certifications, legal opinions or other information as the Issuer or
the Transfer Agent may reasonably require to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act, then
the Transfer Agent shall cancel or cause to be canceled such Restricted
Definitive Securities and concurrently therewith, in accordance with
the instructions referred to above, the Issuer shall execute, and the
Transfer Agent shall countersign and deliver, one or more Restricted
Definitive Securities representing in the aggregate the number of
Series A Preferred Shares represented by the Definitive Restricted
Securities so exchanged.
(c) In the case of (x) certificates representing Class A
Common Shares issued (A) as dividends on Series A Preferred Shares, (B) on
conversion of Series A Preferred Shares or (C) in redemption of Series A
Preferred Shares, and any securities into which such Series A Preferred Shares
or Class A Common Shares shall be converted or into which they shall be changed
by operation of law or otherwise, (y) certificates representing Series A
Preferred Shares issued upon the transfer, exchange or replacement of Series A
Preferred Shares bearing the Restricted Shares Legend, or (z) if a request is
made to remove such Restricted Shares Legend on certificates representing Series
A Preferred Shares, certificates representing the Class A Common Shares or
Series A Preferred Shares so issued shall bear the Restricted Shares Legend, or
the Restricted Shares Legend shall not be removed, as the case may be, unless
there is delivered to the Issuer and the Transfer Agent such satisfactory
evidence, which may include an opinion of counsel licensed to practice law in
the State of New York, as may be reasonably required by the Issuer or the
Transfer Agent, that neither the legend nor the restrictions on transfer set
forth therein are required to ensure that transfers of the Class A Common Shares
or Series A Preferred Shares represented by such certificates comply with the
5
<PAGE>
provisions of Rule 144A or Rule 144 or, with respect to Restricted Series A
Preferred Shares, that such Series A Preferred Shares are not "restricted
securities" within the meaning of Rule 144 under the Securities Act or that such
transfer is covered by an effective registration statement under the Securities
Act. Upon provision of such satisfactory evidence, the Transfer Agent, at the
direction of the Issuer, shall countersign and deliver certificates representing
Series A Preferred Shares that do not bear the Restricted Shares Legend.
(d) The Transfer Agent shall have no responsibility for any
actions taken or not taken by the Depositary.
(e) Each holder of a Series A Preferred Share agrees to
indemnify the Issuer and the Transfer Agent against any liability that may
result from the transfer, exchange or assignment of such holder's Series A
Preferred Share in violation of any provision of this Certificate and/or
applicable U.S. Federal or State securities law; provided, however, that such
indemnity shall not apply to acts of wilful misconduct or gross negligence on
the part of the Issuer or the Transfer Agent, as the case may be.
(f) Payments (whether in cash or, as permitted by Section 11,
in Class A Common Shares) due on the Series A Preferred Shares shall be payable
at the office or agency of the Issuer maintained for such purpose in The City of
New York and at any other office or agency maintained by the Issuer for such
purpose. If any such payment is in cash, it shall be payable by United States
dollar check drawn on, or wire transfer (provided that appropriate wire
instructions have been received by the Transfer Agent at least 15 days prior to
the applicable date of payment) to a United States dollar account maintained by
the holder with, a bank located in New York City; provided, however, that any
cash payments in respect of any dividends on and any redemption payment with
respect to any Global Certificate will be made to the Global Certificate Holder
or its nominee, as registered owner of the Global Certificate, by wire transfer
of immediately available funds on each Dividend Payment Date or Redemption
Effective Date, as applicable. Neither the Issuer nor the Transfer Agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in any Global
Certificate or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interest.
6
<PAGE>
6. Dividend Rights. (a) The Issuer shall pay, and the holders
of the Series A Preferred Shares shall be entitled to receive, cumulative
dividends from the date of initial issuance of such Series A Preferred Shares at
a rate of 7-1/2% per annum on the amount of the liquidation preference of the
Series A Preferred Shares. Dividends will be computed on the basis of a 360-day
year consisting of twelve 30-day months and are deemed to accrue on a daily
basis. Dividends are payable quarterly in arrears, subject to Section 11, on
February 1, May 1, August 1 and November 1 of each year (each a "Dividend
Payment Date"), commencing August 1, 2000, until the liquidation preference
thereof is paid or made available for payment; provided, however, that if such
date is not a Business Day, then the Dividend Payment Date shall be the next
Business Day. The Issuer may elect not to declare dividend payments on any
Dividend Payment Date; provided, however, that dividends on the Series A
Preferred Shares will accrue whether or not the Issuer has earnings or profits,
whether or not there are funds legally available for the payment of such
dividends and whether or not dividends are declared. Dividends will accumulate
to the extent they are not paid on the Dividend Payment Date for the period to
which they relate. Arrearages of Accumulated Dividends will not themselves bear
interest or be added to the liquidation preference of the Series A Preferred
Shares.
(b) Pursuant to the terms of the Registration Rights
Agreement, if (i) the Shelf Registration Statement has not been filed within 90
days of the Closing Date or has not been declared effective by the Commission
within 180 days after the Closing Date or (ii) the Shelf Registration Statement
has been filed and declared effective by the Commission but, prior to the time
it is no longer required to be effective under the Registration Rights
Agreement, is not available for the resale of any Transfer Restricted
Securities, because (x) the Shelf Registration Statement is withdrawn by the
Issuer or becomes subject to an effective stop order issued pursuant to Section
8(d) of the Securities Act suspending the effectiveness of the Shelf
Registration Statement (without being succeeded immediately by an additional
registration statement filed and declared effective or (y) the availability of
the Shelf Registration Statement is suspended by the Issuer pursuant to the
Registration Rights Agreement (each of the foregoing clauses (i) and (ii), a
"Registration Default"), the Issuer shall pay special dividends ("Special
Dividends") to each holder of Transfer Restricted Securities at a per annum rate
of 0.5% of the liquidation preference for any Registration Default Period.
Following the cure of all Registration Defaults relating to any Transfer
Restricted Securities, the
7
<PAGE>
accrual of Special Dividends with respect to such Transfer Restricted Securities
shall cease (without in any way limiting the effect of any subsequent
Registration Default). A Registration Default shall be cured on the date that
the Shelf Registration Statement is declared effective by the SEC or on the date
the Shelf Registration Statement is declared effective or becomes usable and
holders of Transfer Restricted Securities are provided notice thereof.
(c) The Issuer will be required to pay additional amounts
("Additional Amounts") to the holders of Series A Preferred Shares as additional
dividends to make up for any deduction or withholding for any present or future
taxes, assessments or other governmental charges imposed by (i) Bermuda, (ii)
any jurisdiction (excluding the United States or any political subdivision
thereof) from or through which the Issuer, or its paying agent, is making
payments on the Series A Preferred Shares or (iii) any other jurisdiction
(excluding the United States or any political subdivision thereof) in which the
Issuer, or a successor corporation, is organized or any political subdivision or
governmental authority of or in that jurisdiction with the power to tax (each an
"Applicable Jurisdiction"), in respect of any amounts that the Issuer or a
successor corporation must pay with respect to the Series A Preferred Shares, so
that the net amounts paid to the holders of the Series A Preferred Shares, after
that deduction or withholding, will be not less than the amount specified as
payable with respect to those shares. However, the Issuer will not be obligated
to pay additional amounts to any holder of Series A Preferred Shares that: (i)
resides in or is a citizen of an Applicable Jurisdiction; or (ii) is a
fiduciary, partnership or limited liability company if, and to the extent that,
the payment of Additional Amounts would not have been required if the Series A
Preferred Shares were held directly by a beneficiary or settlor with respect to
that fiduciary or a member of that partnership or limited liability company. In
addition, the Issuer will not be obligated to pay any Additional Amounts to a
holder of Series A Preferred Shares on account of: (i) any tax, assessment or
other governmental charge that would not have been imposed but for (a) the
existence of any present or former connection between such holder, or certain
other persons, and the Applicable Jurisdiction, (b) the presentation of Series A
Preferred Shares for payment more than 60 days after the relevant payment is due
or (c) the presentation of Series A Preferred Shares for payment in Bermuda or
any political subdivision of or in Bermuda, unless those shares could not have
been presented for payment elsewhere; (ii) any estate, inheritance, gift, sales,
transfer, excise, personal property or similar tax,
8
<PAGE>
assessment or other governmental charge; (iii) any tax, assessment or other
governmental charge that is payable otherwise than by withholding from payment
of the liquidation preference of or any dividends or redemption premium on the
Series A Preferred Shares; (iv) any tax, assessment or other governmental charge
that is imposed or withheld by reason of the failure by the holder or the
beneficial owner of the Series A Preferred Shares to comply with a request by
the Issuer to (a) provide information, documents or other evidence concerning
the nationality, residence, identity or connection with the Applicable
Jurisdiction of the holder or beneficial owner or (b) make and deliver any
declaration or other similar claim, other than a claim for refund of a tax,
assessment or other government charge withheld by the Issuer, or satisfy any
information or reporting requirements, which, in the case of clause (a) or (b),
is required or imposed by a statute, treaty, regulation or administrative
practice of the taxing jurisdiction as a precondition to exemption from all or
part of that tax, assessment or other governmental charge; or (v) any
combination of the items above.
7. Payment of Dividends; Mechanics of Payment; Dividend Rights
Preserved. (a) Dividends on any Series A Preferred Share which are payable, and
are punctually paid or duly provided for, on any Dividend Payment Date shall be
paid in arrears to the person in whose name such Series A Preferred Share (or
one or more predecessor Series A Preferred Shares) is registered at the close of
business on the next preceding January 15, April 15, July 15 and October 15
(each, together with any record date established for the payment of Accumulated
Dividends, a "Dividend Record Date").
(b) No dividend whatsoever shall be declared or paid upon, or
any sum set apart for the payment of dividends upon, any outstanding share of
the Series A Preferred Shares with respect to any dividend period unless all
dividends for all preceding dividend periods have been declared and paid, or
declared and a sufficient sum set apart for the payment of such dividends, upon
all outstanding Series A Preferred Shares. Unless full cumulative dividends on
all outstanding Series A Preferred Shares for all past dividend periods shall
have been declared and paid, or declared and a sufficient sum for the payment
thereof set apart, then:
(i) no dividend (other than a dividend payable solely in any
Junior Shares or Parity Shares or partial cash or property dividend on
Parity Shares that is paid pro rata on the Series A Preferred Shares)
shall be declared or paid upon, or any sum set apart for the
9
<PAGE>
payment of dividends upon, any Junior Shares or Parity Shares,
respectively;
(ii) no other distribution shall be declared or made upon, or
any sum set apart for the payment of any distribution upon, any Junior
Shares or Parity Shares, other than a distribution consisting solely of
Junior Shares or Parity Shares, respectively;
(iii) no Junior Shares or Parity Shares or any warrants,
rights, calls or options exercisable for or convertible into any Parity
Share or Junior Share shall be purchased, redeemed or otherwise
acquired (other than in exchange for other Junior Shares or Parity
Shares, respectively) by the Issuer or any of its subsidiaries; and
(iv) no monies shall be paid into or set apart or made
available for a sinking or other like fund for the purchase, redemption
or other acquisition of any Junior Shares or Parity Shares or any
warrants, rights, calls or options exercisable for or convertible into
any Parity Share or Junior Share by the Issuer or any of its
subsidiaries.
(c) Holders of the Series A Preferred Shares will not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of the full cumulative dividends as herein described. In the event that the
Issuer fails to pay the dividends due for an aggregate of six quarterly payments
(whether or not consecutive), the holders will have the rights and remedies set
forth in Section 8.
(d) Subject to the requirements of Section 11, any Accumulated
Dividends on any Series A Preferred Share may be paid, subject to Section 11, by
the Issuer in any lawful manner (which shall include the establishment of a
record date not more then 45 days prior to the payment thereof) not inconsistent
with the requirements of any securities exchange on which the Series A Preferred
Shares may be listed, and upon such notice (which shall precede the record date
by at least ten Business Days) as may be required by such exchange, if, after
notice given by the Issuer to the Transfer Agent of the proposed payment
pursuant to this clause (d), such manner of payment shall be deemed practicable
by the Transfer Agent.
(e) Subject to the foregoing provisions of this Section 7,
each Series A Preferred Share delivered under this Certificate upon registration
of transfer of or in exchange for or in lieu of any other Series A Preferred
10
<PAGE>
Share shall carry the rights to dividends accumulated and unpaid, and to accrue,
which were carried by such other Series A Preferred Share.
(f) The holder of record of a Series A Preferred Share at the
close of business on a Dividend Record Date with respect to the payment of
dividends on the Series A Preferred Shares will be entitled to receive such
dividends with respect to such Series A Preferred Share on the corresponding
Dividend Payment Date, notwithstanding the conversion of such shares after such
Dividend Record Date and prior to such Dividend Payment Date. A Series A
Preferred Share surrendered for conversion during the period from the close of
business on any Dividend Record Date to the opening of business of the
corresponding Dividend Payment Date must be accompanied by a payment in cash,
Class A Common Shares or a combination thereof, depending on the method of
payment that the Issuer has chosen to pay such dividend, in an amount equal to
such dividend payable on such Dividend Payment Date, unless such Series A
Preferred Shares have been called for redemption on a redemption date occurring
during the period from the close of business on any Dividend Record Date to the
close of business on the corresponding Dividend Payment Date. The dividend
payment with respect to a Series A Preferred Share called for redemption on a
date during the period from the close of business on any Dividend Record Date to
the close of business on the corresponding Dividend Payment Date will be payable
on such Dividend Payment Date to the record holder of such share on such
Dividend Record Date if such share has been converted after such Dividend Record
Date and prior to such Dividend Payment Date. Notwithstanding the immediately
preceding three sentences of this Section 7(f), no payment shall be owed or
payable to or by any converting holder if the Board of Directors of the Issuer
shall have elected to defer the dividend payment to be made on such Dividend
Payment Date pursuant to Section 6(a). Fractional Class A Common Shares will not
be issued upon conversion, but in lieu thereof the Transfer Agent will pay a
cash adjustment in the manner set forth in Section 11(c).
(g) No payment or adjustment will be made upon conversion of
Series A Preferred Shares for accumulated and unpaid dividends or for dividends
with respect to the Class A Common Shares issued upon such conversion.
8. Voting Rights. (a) Holders of Series A Preferred Shares
will not be entitled to any voting rights (i) except as required by law and (ii)
except as follows: If at any time the equivalent of six quarterly dividends on
the Series A Preferred Shares are accrued and unpaid, then
11
<PAGE>
the total number of Directors constituting the entire Board of Directors of the
Issuer shall be increased by two and, whether or not consecutive and whether or
not declared, the holders of a majority of the Series A Preferred Shares shall
have the right to elect two Directors. This right will continue until all
dividends in arrears on the Series A Preferred Shares are paid in full, at which
time the term of office of any such members of the Board of Directors so elected
shall terminate and such directors shall be deemed to have resigned. At any time
after voting power to elect Directors shall have become vested and be continuing
in the holders of the Series A Preferred Shares pursuant to the second preceding
sentence, or if a vacancy shall exist in the offices of Series A Preferred Share
Directors, the Board of Directors may, and upon written request of the holders
of record of at least 25% of the Outstanding Series A Preferred Shares addressed
to the Board of Directors of the Issuer, shall, call a special meeting of the
holders of the Series A Preferred Shares for the purpose of electing the Series
A Preferred Share Directors that such holders are entitled to elect. At any
meeting held for the purpose of electing Series A Preferred Share Directors, the
presence in person or by proxy of the holders of at least a majority of the
Outstanding Series A Preferred Shares shall be required to constitute a quorum
of such Series A Preferred Shares. Any vacancy occurring in the office of a
Series A Preferred Share Director may be filled by the remaining Series A
Preferred Share Director unless and until such vacancy shall be filled by the
holders of the Series A Preferred Shares.
(b) In addition to the voting rights set forth above, the
approval of the holders of at least 66-2/3% of the then-Outstanding Series A
Preferred Shares voting or consenting, as the case may be, as one class, will be
required for the Issuer to amend this Certificate, so as to affect adversely the
specified rights, preferences, privileges or voting rights of holders of the
Series A Preferred Shares; provided, however, that no such modification or
amendment may, without the consent of the holders of each Outstanding Series A
Preferred Share affected thereby, (i) change the Mandatory Redemption Date, the
dates on which payments are to be made pursuant to Optional Redemption, or any
Dividend Payment Date, (ii) reduce the liquidation preference, the rate of
dividends, the redemption prices or the purchase price thereof pursuant to
Section 13, (iii) change the place of payment where, or the coin or currency in
which, any Series A Preferred Share or any payment thereon is payable, (iv)
adversely affect the rights to convert any Series A Preferred Share as provided
in Section 12, (v) alter the voting rights with respect to the Series A
Preferred Shares
12
<PAGE>
or reduce the percentage of the Outstanding Series A Preferred Shares the
consent of whose holders is required for any such modification, or the consent
of whose holders is required for any waiver of compliance with provisions of
this Certificate or (vi) modify any of the provisions of this Section 8 except
to increase any such percentage or to provide that certain other provisions of
this Certificate cannot be modified or waived without the consent of the holder
of each Outstanding Series A Preferred Share affected thereby.
(c) The Issuer will not authorize any new class of Senior
Shares or any obligation or security convertible or exchangeable into or
evidencing a right to purchase shares of any class or series of Senior Shares,
without the approval of the holders of at least 66-2/3% of the then-Outstanding
Series A Preferred Shares, voting or consenting, as the case may be, as one
class.
(d) Except as set forth in Section 8(c) with respect to Senior
Shares, neither (i) the creation, authorization or issuance of any Junior
Shares, Parity Shares or Senior Shares or (ii) the increase or decrease in the
amount of authorized capital stock of any class, including any Series A
Preferred Shares, shall require the consent of the holders of the Series A
Preferred Shares or shall be deemed to affect adversely the rights, preferences,
privileges, special rights or voting rights of holders of Series A Preferred
Shares. Furthermore, the consent of the holders of Series A Preferred Shares
will not be required for the Issuer to authorize, create (by way of
reclassification or otherwise) or issue any Parity Shares or Junior Shares or
any obligation or security convertible or exchangeable into, or evidencing a
right to purchase, shares of any class or series of Parity Shares or Junior
Shares.
9. Ranking. (a) The Series A Preferred Shares will, with
respect to dividend rights and rights on liquidation, winding-up and
dissolution, rank (i) junior to all of the Issuer's existing and future
indebtedness and other obligations; (ii) junior to each class of capital stock
or series of preferred shares that the Issuer establishes after February 22,
2000 the terms of which expressly provide that such class or series will rank
senior to the Series A Preferred Shares as to dividend distributions and
distributions upon the Issuer's liquidation, winding-up and dissolution ("Senior
Shares"); (iii) on parity with each other class of capital stock or series of
preferred shares that the Issuer establishes after February 22, 2000 the terms
of which expressly provide that
13
<PAGE>
such class or series will rank on a parity with the Series A Preferred Stock as
to dividend distributions and distributions upon the Issuer's liquidation,
winding-up and dissolution ("Parity Shares"); and (iv) senior to all classes of
the Issuer's Class A Common Shares and to each other class of capital stock or
series of the Issuer's preferred shares established after February 22, 2000 the
terms of which do not expressly provide that it ranks senior to or on a parity
with the Series A Preferred Shares as to dividend distributions and
distributions upon the Issuer's liquidation, winding-up and dissolution
(together with the Issuer's Class A Common Shares,"Junior Shares").
(b) No dividend whatsoever shall be declared or paid upon, or
any sum set apart for the payment of dividends upon, any outstanding Series A
Preferred Share with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividends, upon all outstanding
Senior Shares.
(c) In the event of any liquidation, dissolution or winding-up
of the Issuer, whether voluntary or involuntary, the holders of the Series A
Preferred Shares then Outstanding shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Issuer to the holders
of Class A Common Shares or Junior Shares by reason of their ownership thereof,
the liquidation preference of $50 per share for each Outstanding Series A
Preferred Share, plus, without duplication, an amount equal to all Accumulated
Dividends (including Special Dividends and Additional Amounts, if any) thereon
to the date fixed for liquidation, dissolution or winding-up (including an
amount equal to a pro rata dividend for the period from the last Dividend
Payment Date to the date fixed for liquidation, dissolution or winding-up). If
upon the occurrence of such event the assets thus distributed among the holders
of Series A Preferred Shares shall be insufficient to permit the payment to such
holders of the full preferential amount, the entire assets of the Issuer legally
available for distribution shall be distributed ratably based upon their
respective liquidation preference among the holders of the Series A Preferred
Shares pari passu with the holders of all Parity Shares. Except as provided in
Section 9(d), all amounts payable in respect of the Series A Preferred Shares in
the event of any liquidation, dissolution or winding up of the Issuer shall be
paid in cash. After payment of the full preferential amount (and, if applicable,
an amount equal to a pro rata dividend to the holders of Outstanding Series A
Preferred
14
<PAGE>
Shares), such holders shall not be entitled to any further participation in any
distribution of assets of the Issuer.
(d) Notwithstanding the foregoing, in the case of liquidation,
dissolution or winding-up in connection with any transaction that is treated as
a sale, assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the Issuer's assets under Section 14 in which the Issuer
receives in exchange for such assets, among other things, Replacement Preferred
Shares, the liquidation preference of each Series A Preferred Share, and any
other entitlement in respect of a Series A Preferred Share to receive any
distribution in connection with such liquidation, dissolution or winding-up,
shall be satisfied and discharged in full, upon distribution to the holders of
Series A Preferred Shares of such Replacement Preferred Shares, provided that
each holder of Series A Preferred Shares receives Replacement Preferred Shares
that, among other things, are convertible into the kind and amount securities,
cash and other property that such holder would have received had such holder
converted such holder's Series A Preferred Shares into Class A Common Shares
immediately prior to such transaction.
10. Redemption. (a) The Series A Preferred Shares may be
redeemed at any time commencing on or after February 1, 2005, in whole or from
time to time in part, at the election of the Issuer (the "Optional Redemption"),
at the redemption price per share set forth below plus accumulated and unpaid
dividends (including an amount equal to a prorated dividend for any partial
dividend period) and Additional Amounts and Special Dividends, if any, to the
Business Day specified as the date of redemption in the notice to the holders of
Series A Preferred Shares described below (the "Redemption Effective Date"), if
redeemed in the 12-month period commencing on the dates set forth below (unless
such date is not a Business Day in which case such period will commence on the
next succeeding Business Day):
Date Redemption Price
- ---- ----------------
February 1, 2005 $51.875
February 1, 2006 $51.500
February 1, 2007 $51.125
February 1, 2008 $50.750
February 1, 2009 $50.375
February 1, 2010 and thereafter $50.000
15
<PAGE>
(b) The Series A Preferred Shares may be redeemed at any time in whole
or from time to time in part, at the election of the Issuer (the "Tax
Redemption"), at 100% of the liquidation preference per share plus accumulated
and unpaid dividends (including an amount equal to a prorated dividend for any
partial dividend period) and Additional Amounts and Special Dividends, if any,
to the Redemption Effective Date, if after the issue date of the Series A
Preferred Shares there is (i) a change in or amendment to laws, regulations or
rulings of any Applicable Jurisdiction, (ii) a change in the official
application or interpretation of those laws, regulations or rulings or (iii) any
execution of or amendment to any treaty affecting taxation to which any
Applicable Jurisdiction is party, in each case that would require the Issuer or
any successor corporation to pay Additional Amounts with respect to any shares
of Series A Preferred Shares on the next succeeding Dividend Payment Date, and
the payment of those Additional Amounts cannot be avoided by the use of any
reasonable measures available to the Issuer or any successor corporation.
(c) With regards to the Optional Redemption and the Tax Redemption, on
the Redemption Effective Date (i) all cash to be paid as part of the redemption
price will become payable, (ii) all dividends on the Series A Preferred Shares
to be redeemed will cease to accrue, and (iii) the right to convert the Series A
Preferred Shares to be redeemed will cease at the close of business.
If any Class A Common Shares are to be delivered as part of the
redemption price, (x) the number of Class A Common Shares to be delivered will
be determined on the basis of the average of the closing market prices of those
shares for the 10 Trading Days following the Redemption Effective Date and (y)
those shares will be deliverable on the 12th Trading Day following the
Redemption Effective Date.
In the case of any partial redemption, the Issuer will select the
Series A Preferred Shares to be redeemed on a pro rata basis, by lot or any
other method that the Issuer, in its sole discretion, deems fair and
appropriate; provided that the Issuer may redeem all shares held by holders of
fewer than 100 Series A Preferred Shares (or by holders that would hold fewer
than 100 Series A Preferred Shares following such redemption) prior to the
Issuer's redemption of other Series A Preferred Shares.
If the Redemption Effective Date falls after a Dividend Record Date and
before the related Dividend Payment Date, the holders of Series A Preferred
Shares at the close
16
<PAGE>
of business on that Dividend Record Date will be entitled to receive the
dividend payable on those shares on the corresponding Dividend Payment Date,
even if those shares are redeemed after that Dividend Record Date.
(d) The Series A Preferred Shares (if not earlier redeemed or
converted) shall be mandatorily redeemed (the "Mandatory Redemption") by the
Issuer on February 1, 2012, 2012 (the "Mandatory Redemption Date") (unless such
date is not a Business Day, in which case the Mandatory Redemption Date shall be
the next Business Day), at a redemption price of 100% of the liquidation
preference per share plus accumulated and unpaid dividends and Special
Dividends, if any, to the Mandatory Redemption Date.
(e) No Optional Redemption may be authorized or made unless, prior to
giving the applicable redemption notice, all Accumulated Dividends and unpaid
dividends for periods ended prior to the date of such redemption notice shall
have been paid in cash or, subject to Section 11, in Class A Common Shares.
(f) In the event the Issuer elects to effect an Optional Redemption or
a Tax Redemption, the Issuer shall give a redemption notice (the "Redemption
Notice") to the holders of Series A Preferred Shares not fewer than 30 days nor
more than 60 days before the Redemption Effective Date. Whenever a Redemption
Notice is required to be delivered to the holders, such notice shall provide the
information set forth below and be given by first class mail, postage prepaid to
each holder of Series A Preferred Shares to be redeemed, at such holder's
address appearing in the Series A Preferred Share Register. All Redemption
Notices shall identify the Series A Preferred Shares to be redeemed (including
CUSIP number) and shall state:
(i) the Redemption Effective Date;
(ii) the redemption price (the "Redemption Price");
(iii) the form of consideration the Issuer will use to satisfy
the Redemption Price;
(iv) if any portion of the redemption price is to be paid by
the delivery of Class A Common Shares, the method for determining the
applicable Average Market Value and the date on which the Class A
Common Shares will be deliverable;
17
<PAGE>
(v) if fewer than all the outstanding Series A
Preferred Shares are to be redeemed, the identification (and,
in the case of partial redemption, the certificate number, the
total number of shares represented thereby and the number of
such shares being redeemed on the Redemption Date) of the
particular Series A Preferred Shares to be redeemed;
(vi) that on the Redemption Date the Redemption
Price, together with (subject to Section 10(j)) dividends
accumulated and unpaid to the Redemption Date (including an
amount equal to a prorated dividend for any partial dividend
period), will become due and payable upon each such Series A
Preferred Share to be redeemed and that dividends thereon will
cease to accrue on and after said date;
(vii) the conversion price (and, if applicable, the
amount of cash payable on conversion pursuant to Section
12(d)(x)), the date on which the right to convert Series A
Preferred Shares to be redeemed will terminate and the place
or places where such Series A Preferred Shares may be
surrendered for conversion; and
(viii) the place or places where such Series A
Preferred Shares are to be surrendered for payment of the
Redemption Price.
The Redemption Notice shall be given by the Issuer or, at the Issuer's
request, by the Transfer Agent in the name and at the expense of the Issuer;
provided that if the Issuer so requests, it shall provide the Transfer Agent
adequate time, as reasonably determined by the Transfer Agent, to deliver such
notices in a timely fashion.
(g) Prior to any Redemption Date, the Issuer shall deposit with the
Transfer Agent or with a Paying Agent (or, if the Issuer is acting as its own
Paying Agent, segregate and hold in trust) an amount of consideration sufficient
to pay the Redemption Price of and (except to the extent payable to a holder of
Series A Preferred Shares on a Dividend Record Date prior to the Redemption
Effective Date) accrued but unpaid dividends (including an amount equal to a
prorated dividend for any partial dividend period) on all the Series A Preferred
Shares which are to be redeemed on that date other than any Series A Preferred
Shares called for redemption on that date which have been converted into Class A
Common Shares prior to the date of such deposit. If
18
<PAGE>
any Series A Preferred Share called for redemption is converted, any
consideration deposited with the Transfer Agent or with any Paying Agent or so
segregated and held in trust for the redemption of such Series A Preferred Share
shall (subject to any right of the holder of such Series A Preferred Share or
any predecessor Series A Preferred Share to receive accrued but unpaid dividends
thereon as provided in Section 7(f)) be paid or delivered to the Issuer upon
Issuer Order or, if then held by the Issuer, shall be discharged from such
trust.
(h) Notice of redemption having been given as aforesaid, the Series A
Preferred Shares so to be redeemed shall, on the Redemption Effective Date,
become due and payable at the Redemption Price therein specified, and from and
after such date (unless the Issuer shall default in the payment of the
Redemption Price and accrued but unpaid dividends) dividends on such Series A
Preferred Shares shall cease to accrue and such shares shall cease to be
convertible into Class A Common Shares. Upon surrender of any such Series A
Preferred Shares for redemption in accordance with said notice, such Series A
Preferred Shares shall be redeemed, subject to Section 7(f), by the Issuer at
the Redemption Price, together with (except to the extent payable to a holder of
Series A Preferred Shares on a Dividend Record Date prior to the Redemption
Effective Date) accrued but unpaid dividends and Special Dividends, if any, to
the Redemption Date. If any Series A Preferred Share called for redemption shall
not be so paid upon surrender thereof for redemption, the Redemption Price
thereof, exclusive of accrued but unpaid dividends, shall, until paid, bear
interest from the Redemption Date at the dividend rate payable on the Series A
Preferred Shares.
(i) Any certificate that represents more than one Series A Preferred
Share and is to be redeemed only in part shall be surrendered at any office or
agency of the Issuer designated for that purpose (with, if the Issuer or the
Transfer Agent so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Issuer and the Transfer Agent duly executed
by, the holder thereof or his attorney duly authorized in writing), and the
Issuer shall execute, and the Transfer Agent shall countersign and deliver to
the holder of such Series A Preferred Share without service charge, a new Series
A Preferred Share certificate or certificates, representing any number of Series
A Preferred Shares as requested by such holder, in aggregate amount equal to and
in exchange for the number of shares not redeemed and represented by the Series
A Preferred Share certificate so surrendered.
19
<PAGE>
(j) If a Series A Preferred Share is redeemed subsequent to a Dividend
Record Date with respect to any Dividend Payment Date specified above and on or
prior to such Dividend Payment Date, then any accumulated but unpaid dividends
will be paid to the person in whose name such Series A Preferred Share is
registered at the close of business on such Dividend Record Date.
11. Method of Payments and Public Announcement. (a) The Issuer may make
any payments due on the Series A Preferred Shares (other than, except as
provided in Section 9(d), payments of the liquidation preference and any
Accumulated Dividends pursuant to Section 9, which shall be made in cash),
including each regular dividend payment, Special Dividend payment, if any,
Additional Amount payment, if any, Optional Redemption payment, Tax Redemption
payment and Mandatory Redemption payment and any payments due under Section 13
as a result of a Change of Control, (i) in cash, (ii) by delivery of Class A
Common Shares or (iii) a combination thereof, as provided in this Section 11.
The Issuer will take all actions required or permitted under The Companies Act
1981 of Bermuda (the "Companies Act") to permit the payments on the Series A
Preferred Shares provided in this Certificate.
(b) The Issuer will make each regular dividend payment, Special
Dividend payment, if any, Additional Amount payment, if any, Optional Redemption
payment, Tax Redemption payment and Mandatory Redemption payment on the Series A
Preferred Shares and any payment due under Section 13 as a result of a Change of
Control, in cash, except to the extent it has elected to make all or any portion
of such payment in Class A Common Shares. If the Issuer elects to make any such
payment, or any portion thereof, by delivery of Class A Common Shares, such
shares shall be valued for such purpose at 95% of the Average Market Value.
However, in the event that in any of the foregoing situations on the date of
such payment a Shelf Registration Statement is required to be effective under
the Registration Rights Agreement and is not effective the Class A Common Shares
shall be valued for such purpose at 80% of the Average Market Value.
If the Issuer is prevented by Bermuda law from making any such payment
in cash or by issuing Class A Common Shares, the Issuer will issue from the
share premium attributable to the Series A Preferred Shares that number of
additional Series A Preferred Shares that is convertible at the then effective
Conversion Rate into the number of Class A Common Shares deliverable to holders
on such payment date ("Bonus Shares"). Upon delivery of Class A Common Shares
(including any Class A Common Shares issued upon
20
<PAGE>
conversion by the Issuer of Bonus Shares) in respect of any such payments,
including any regular dividend, Special Dividend, if any, Additional Amount
payment, if any, Optional Redemption payment, Tax Redemption payment or
Mandatory Redemption payment or any payment due under Section 13 as a result of
a Change of Control, such payment shall be deemed to have been paid and
discharged to the extent of the value (determined as provided above) of the
Class A Common Shares so delivered.
(c) No fractional Class A Common Shares will be delivered to the
holders of Series A Preferred Shares, but the Transfer Agent will instead
deliver a cash adjustment to each holder of Series A Preferred Shares that would
otherwise be entitled to a fraction of a Class A Common Share. The amount of
such cash adjustment will be determined based on, and such adjustments will be
paid from, the proceeds received by the Transfer Agent from the sale of that
number of Class A Common Shares, which the Issuer will deliver to the Transfer
Agent for such purpose, equal to the aggregate of all such fractions (round up
to the nearest whole share). The Transfer Agent is authorized and directed to
sell such shares at the best available prices and distribute the proceeds to the
holders in proportion to their respective interests therein. The Issuer will pay
the expenses of the Transfer Agent with respect to such sale, including
brokerage commissions.
(d) Any portion of any payment on or in respect of the Series A
Preferred Shares that is declared and not paid through the delivery of Class A
Common Shares will be paid in cash.
(e) The Issuer will notify the Transfer Agent and make a public
announcement (i) no later than the close of business on the tenth Business Day
prior to the Dividend Record Date for each regular dividend or Special Dividend
as to whether the Issuer will make the required payment on the related Dividend
Payment Date, and, if so, whether the Issuer will make such payment in cash, by
delivery of Class A Common Shares or a combination thereof, (ii) no later than
the close of business on the fifteenth Business Day prior to the Mandatory
Redemption Date, whether the Issuer will make the payment required on the
Mandatory Redemption Date in cash, by delivery of Class A Common Shares or a
combination thereof, (iii) no later than the close of business on the 30th day
prior to any Redemption Effective Date, whether the Issuer will make the
required payment in cash, by delivery of Class A Common Shares or a combination
thereof. The Issuer will make any public announcement required by this Section
by a press release
21
<PAGE>
issued to Dow Jones News Service and Bloomberg News Service or their respective
successors. The Issuer will also deliver or mail a copy of each announcement to
each record holder of Series A Preferred Shares.
(f) Prior to the issuance of any Class A Common Shares pursuant to this
Section 11, the Issuer shall have provided for the listing or quotation of such
Class A Common Shares on the Nasdaq National Market or any other securities
exchange in the United States upon which the Class A Common Shares are then
listed or quoted.
12. Conversion. (a) Subject to and upon compliance with the provisions
of this Certificate, at the option of the holder thereof, any Series A Preferred
Share may be converted at any time prior to the close of business on the
Mandatory Redemption Date, unless previously redeemed, at the option of the
holder thereof, into fully paid and non-assessable Class A Common Shares at the
then effective Conversion Rate per Series A Preferred Share. A holder's right to
convert Series A Preferred Shares called for redemption will terminate at the
close of business on the applicable Redemption Effective Date and will be lost
if not exercised prior to that time, unless the Issuer defaults in making the
payment due upon redemption under Section 10(d).
Subject to and upon compliance with the provisions of this Certificate,
each Series Preferred Share will be convertible at the Issuer's option at any
time within 24 hours of issuance, unless the Issuer waives its conversion right
in writing, into fully paid and non-assessable Class A Common Shares at the then
effective conversion rate. The Issuer may waive or exercise its conversion right
with respect to any Series A Preferred Share in advance of their issuance by
written notice to the transfer agent. Any such waiver or notice will be
irrevocable.
The "Conversion Rate" shall be equal to $50 per Series A Preferred
Share divided by the Conversion Price. The "Conversion Price" shall be initially
$22.14 per share. The Conversion Price shall be adjusted in certain instances as
provided in Section 12(d) and Section 12(e).
(b) In order to exercise the conversion privilege, the holder of any
Series A Preferred Share to be converted shall surrender the certificate for
such share, duly endorsed or assigned to the Issuer or in blank, at any office
or agency of the Issuer maintained for that purpose, accompanied by written
notice to the Issuer at such office
22
<PAGE>
or agency that the holder elects to convert such share or, if fewer than all the
Series A Preferred Shares represented by a single share certificate are to be
converted, the number of shares represented thereby to be converted. Except as
provided in Section 10(a) or 7(f), no payment or adjustment shall be made upon
any conversion on account of any dividends accrued on the Series A Preferred
Shares surrendered for conversion or on account of any dividends on the Class A
Common Shares issued upon conversion. In no event shall the Issuer be obligated
to pay any converting holder any unpaid Accumulated Dividends upon conversion.
Series A Preferred Shares shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of such
shares for conversion in accordance with the foregoing provisions, and at such
time the rights of the holders of such shares as holders shall cease, and the
person or persons entitled to receive the Class A Common Shares issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such Class A Common Shares at such time. As promptly as practicable on or after
the conversion date, the Issuer shall issue and shall deliver at such office or
agency a certificate or certificates for the number of full Class A Common
Shares issuable upon conversion, together with payment in lieu of any fraction
of a share, as provided in Section 12(c).
In the case of any conversion of fewer than all the Series A Preferred
Shares evidenced by a certificate, upon such conversion the Issuer shall execute
and the Transfer Agent shall countersign and deliver to the holder thereof, at
the expense of the Issuer, a new certificate or certificates representing the
number of unconverted Series A Preferred Shares.
(c) No fractional Class A Common Shares shall be issued upon the
conversion of a Series A Preferred Share; in lieu thereof, the Transfer Agent
will deliver a cash adjustment based upon the Closing Price of the Class A
Common Shares on the Business Day prior to the conversion date. The amount of
such cash adjustment will be determined based on and paid from the proceeds
received by the Transfer Agent from the sale of that number of Class A Common
Shares, which the Issuer will deliver to the Transfer Agent for such purpose,
equal to the aggregate of all such fractions (rounded up to the nearest whole
share).
23
<PAGE>
(d) The conversion price shall be adjusted from time to time by the
Issuer as follows:
(i) if the Issuer shall hereafter pay a dividend or make a
distribution to holders of any class of its capital stock in Class A
Common Shares, the Conversion Price in effect at the opening of
business on the date following the date fixed for the determination of
shareholders entitled to receive such dividend or other distribution
shall be reduced by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of Class A Common Shares
outstanding at the close of business on the Common Share Record Date
(as defined in Section 12(d)(vi)) fixed for such determination and the
denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, such
reduction to become effective immediately after the opening of business
on the day following the Common Share Record Date. If any dividend or
distribution of the type described in this Section 12(d)(i) is declared
but not so paid or made, the Conversion Price shall again be adjusted
to the Conversion Price which would then be in effect if such dividend
or distribution had not been declared. Not- withstanding the foregoing,
no adjustment shall be made for the payment in Class A Common Shares
(or the issuance of any Bonus Shares in connection therewith) in
respect of the Series A Preferred Shares or in any other series of
preferred shares with payment provisions that are substantially the
same as the payment provisions of the Series A Preferred Shares.
(ii) if the Issuer shall offer or issue rights or warrants to
holders of its outstanding Class A Common Shares entitling them to
subscribe for or purchase Class A Common Shares at a price per share
less than the Current Market Price (as defined in Section 12(d)(vi)) on
the Common Share Record Date fixed for the determination of
shareholders entitled to receive such rights or warrants, the
Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect at the
opening of business on the date after such Common Share Record Date by
a fraction of which the numerator shall be the number of Class A Common
Shares outstanding at the close of business on the Common Share Record
Date plus the number of Class A Common Shares which the aggregate
offering price of the total number of Class A Common Shares subject to
such rights or warrants would purchase at such Current
24
<PAGE>
Market Price and of which the denominator shall be the number of Class
A Common Shares outstanding at the close of business on the Common
Share Record Date plus the total number of additional Class A Common
Shares subject to such rights or warrants for subscription or purchase.
Such adjustment shall become effective immediately after the opening of
business on the day following the Common Share Record Date fixed for
determination of shareholders entitled to purchase or receive such
rights or warrants. To the extent that Class A Common Shares are not
delivered pursuant to such rights or warrants, upon the expiration or
termination of such rights or warrants the Conversion Price shall again
be adjusted to be the Conversion Price which would then be in effect
had the adjustments made upon the issuance of such rights or warrants
been made on the basis of delivery of only the number of Class A Common
Shares actually delivered. If such rights or warrants are not so
issued, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such date fixed for
the determination of shareholders entitled to receive such rights or
warrants had not been fixed. In determining whether any rights or
warrants entitle the holders to subscribe for or purchase Class A
Common Shares at less than such Current Market Price, and in
determining the aggregate offering price of such Class A Common Shares,
there shall be taken into account any consideration received for such
rights or warrants, with the value of such consideration, if other than
cash, to be determined by the Board of Directors;
(iii) if the outstanding Class A Common Shares shall be
subdivided into a greater number of Class A Common Shares, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and, conversely, if the outstanding Class A
Common Shares shall be combined into a smaller number of Class A Common
Shares, the Conversion Price in effect at the opening of business on
the day following the day upon which such combination becomes effective
shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of
business on the day following the day upon which such subdivision or
combination becomes effective;
(iv) if the Issuer shall, by dividend or otherwise, distribute
to holders of its Class A Common Shares any
25
<PAGE>
class of capital stock of the Issuer (other than any dividends or
distributions to which Section 12(d)(i) applies) or evidences of its
indebtedness, cash or other assets (including securities, but excluding
any rights or warrants of a type referred to in Section 12(d)(ii) and
dividends and distributions paid exclusively in cash and excluding any
capital stock, evidences of indebtedness, cash or assets distributed
upon a merger or consolidation to which Section 12(e) applies) (the
foregoing hereinafter in this Section 12(d)(iv) called the "Distributed
Securities"), then, in each such case, the Conversion Price shall be
reduced so that the same shall be equal to the price determined by
multiplying the Conversion Price in effect immediately prior to the
close of business on the Common Share Record Date (as defined in
Section 12(d)(vi)) with respect to such distribution by a fraction of
which the numerator shall be the Current Market Price (determined as
provided in Section 12(d)(vi)) on such date less the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) on
such date of the portion of the Distributed Securities so distributed
applicable to one Class A Common Share and the denominator shall be
such Current Market Price, such reduction to become effective
immediately prior to the opening of business on the day following the
Common Share Record Date; provided, however, that, in the event the
then fair market value (as so determined) of the portion of the
Distributed Securities so distributed applicable to one Class A Common
Share is equal to or greater than the Current Market Price on the
Common Share Record Date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each holder of Series A Preferred
Shares shall have the right to receive upon conversion of a Series A
Preferred Share (or any portion thereof) the amount of Distributed
Securities such holder would have received had such holder converted
such Series A Preferred Share (or portion thereof) immediately prior to
such Common Share Record Date. If such dividend or distribution is not
so paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared. If the Board of Directors
determines the fair market value of any distribution for purposes of
this Section 12(d)(iv) by reference to the actual or when issued
trading market for any securities constituting all or part of such
distribution, it must in doing so consider the prices in such market
over the
26
<PAGE>
same period used in computing the Current Market Price pursuant to
Section 12(d)(vi) to the extent possible.
Rights or warrants distributed by the Issuer to holders of
Class A Common Shares entitling the holders thereof to subscribe for or
purchase shares of the Issuer's capital stock (either initially or
under certain circumstances), which rights or warrants, until the
occurrence of a specified event or events ("Dilution Trigger Event"):
(A) are deemed to be transferred with such Class A Common Shares; (B)
are not exercisable; and (C) are also issued in respect of future
issuances of Class A Common Shares, shall be deemed not to have been
distributed for purposes of this Section 12(d)(iv) (and no adjustment
to the Conversion Price under this Section 12(d)(iv) shall be required)
until the occurrence of the earliest Dilution Trigger Event, whereupon
such rights and warrants shall be deemed to have been distributed and
an appropriate adjustment to the Conversion Price under this Section
12(d)(iv) shall be made. If any such rights or warrants, including any
such existing rights or warrants distributed prior to the first
issuance of Series A Preferred Shares, are subject to subsequent
events, upon the occurrence of each of which such rights or warrants
shall become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the occurrence of each such event
shall be deemed to be such date of issuance and record date with
respect to new rights or warrants (and a termination or expiration of
the existing rights or warrants, without exercise by the holder
thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Dilution Trigger Event with
respect thereto, that was counted for purposes of calculating a
distribution amount for which an adjustment to the Conversion Price
under this Section 12(d) was made, (1) in the case of any such rights
or warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be
readjusted upon such final redemption or repurchase to give effect to
such distribution or Dilution Trigger Event, as the case may be, as
though it were a cash distribution, equal to the per share redemption
or repurchase price received by a holder or holders of Class A Common
Shares with respect to such rights or warrants (assuming such holder
had retained such rights or warrants), made to all holders of Class A
Common Shares as of the date of such redemption or repurchase, and (2)
in the case of such rights or warrants which shall have expired or been
27
<PAGE>
terminated without exercise by any holders thereof, the Conversion
Price shall be readjusted as if such rights and warrants had not been
issued.
Notwithstanding any other provision of this Section 12(d)(iv)
to the contrary, rights, warrants, evidences of indebtedness, other
securities, cash or other assets (including, without limitation, any
rights distributed pursuant to any shareholder rights plan) shall be
deemed not to have been distributed for purposes of this Section
12(d)(iv) if the Issuer makes proper provision so that each holder of
Series A Preferred Shares who converts a Series A Preferred Share (or
any portion thereof) after the date fixed for determination of
shareholders entitled to receive such distribution shall be entitled to
receive upon such conversion, in addition to the Class A Common Shares
issuable upon such conversion, the amount and kind of such
distributions that such holder would have been entitled to receive if
such holder had, immediately prior to such determination date,
converted such Series A Preferred Share (or portion thereof).
For purposes of this Section 12(d)(iv) and Sections 12(d)(i)
and (ii), any dividend or distribution to which this Section 12(d)(iv)
is applicable that also includes Class A Common Shares, or rights or
warrants to subscribe for or purchase Class A Common Shares to which
Section 12(d)(ii) applies (or both), shall be deemed instead to be (A)
a dividend or distribution of the evidences of indebtedness, assets,
shares of capital stock, rights or warrants other than such Class A
Common Shares or rights or warrants to which Section 12(d)(ii) applies
(and any Conversion Price reduction required by this Section 12(d)(iv)
with respect to such dividend or distribution shall then be made)
immediately followed by (B) a dividend or distribution of such Class A
Common Shares or such rights or warrants (and any further Conversion
Price reduction required by Sections 12(d)(i) or 12(d)(ii) with respect
to such dividend or distribution shall then be made), except that (1)
the Common Share Record Date of such dividend or distribution shall be
substituted as "the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution", "the Common
Share Record Date fixed for such determination" and "the Common Share
Record Date" within the meaning of Section 12(d)(i) and as "the date
fixed for the determination of shareholders entitled to receive such
rights or warrants", "the Common Share Record Date fixed for the
determination of the
28
<PAGE>
shareholders entitled to receive such rights or warrants" and "such
Common Share Record Date" for purposes of Section 12(d)(ii), and (2)
any Class A Common Shares included in such dividend or distribution
shall not be deemed "outstanding at the close of business on the date
fixed for such determination" for the purposes of Section 12(d)(i).
(v) If the Issuer shall, by dividend, repurchase or otherwise,
distribute to holders of its Class A Common Shares cash (excluding any
cash that is distributed upon a merger or consolidation to which
Section 12(e) applies or as part of a distribution referred to in
Section 12(d)(iv)) in an aggregate amount that, combined together with
(A) the aggregate amount of any other such distributions to holders of
its Class A Common Shares made exclusively in cash within the 12 months
preceding the date of payment of such distribution, and in respect of
which no adjustment pursuant to this Section 12(d)(v) has been made,
and (B) the aggregate of any cash plus the fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) of
consideration payable in respect of any repurchases by the Issuer for
all or any portion of the Class A Common Shares concluded within the 12
months preceding the date of payment of such distribution, and in
respect of which no adjustment pursuant to this Section 12(d)(v) has
been made, exceeds 10% of the product of the Current Market Price
(determined as provided in Section 12(d)(v)) times the number of Class
A Common Shares outstanding on such date, then, and in each such case,
immediately after the close of business on such date, the Conversion
Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the close of business on such date by a fraction (1) the
numerator of which shall be equal to the Current Market Price on the
Common Share Record Date for such distribution less an amount equal to
the quotient of (x) the excess of such combined amount over such 10%
and (y) the number of Class A Common Shares outstanding on such Common
Share Record Date and (2) the denominator of which shall be equal to
the Current Market Price on such Common Share Record Date; provided,
however, that, if the portion of the cash so distributed applicable to
one Class A Common Share is equal to or greater than the Current Market
Price of the Class A Common Shares on such Common Share Record Date, in
lieu of the foregoing adjustment, adequate
29
<PAGE>
provision shall be made so that each holder of Series A Preferred
Shares shall have the right to receive upon conversion of a Series A
Preferred Share (or any portion thereof) the amount of cash such holder
would have received had such holder converted such Series A Preferred
Share (or portion thereof) immediately prior to such Common Share
Record Date. If such dividend or distribution is not so paid or made,
the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not
been declared. Any cash distribution to holders of Class A Common
Shares as to which the Issuer makes the election permitted by Section
12(d)(x) and as to which the Issuer has complied with the requirements
of such Section 12(d)(x) shall be treated as not having been made for
all purposes of this Section 12(d)(v).
(vi) For purposes of this Section 12(d), the following terms
shall have the meaning indicated:
"Closing Price" with respect to any securities on any
day means the closing price on such day or, if no such sale
takes place on such day, the average of the reported high and
low prices on such day, in each case on the Nasdaq National
Market or the New York Stock Exchange, as applicable, or, if
such security is not listed or admitted to trading on such
national market or exchange, on the principal national
securities exchange or quotation system in the United States
on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on
any national securities exchange or quotation system in the
United States, the average of the high and low prices of such
security on the over-the-counter market on the day in question
as reported by the National Quotation Bureau Incorporated or a
similar generally accepted reporting service in the United
States, or, if not so available, in such manner as furnished
by any New York Stock Exchange member firm selected from time
to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a
resolution of the Board of Directors.
"Common Share Record Date" shall mean, with respect
to any dividend, distribution or other transaction or event in
which the holders of
30
<PAGE>
Class A Common Shares have the right to receive any cash,
securities or other property or in which the Class A Common
Shares (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other
property, the date fixed for determination of shareholders
entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
"Current Market Price" means, as of any date, the
arithmetic average of the Current Market Value of the Class A
Common Shares for the ten Trading Days ending on the second
Business Day prior to such date. Notwithstanding the
foregoing, whenever successive adjustments to the Conversion
Price are called for pursuant to this Section 12(d), such
adjustments shall be made to the Current Market Price as may
be necessary or appropriate to effectuate the intent of this
Section 12(d) and to avoid unjust or inequitable results,
including such adjustments as may be necessary as a result of
the occurrence of one or more "ex" dates during such 10
Trading Day period, as determined in good faith by the Board
of Directors.
"fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's-length
transaction.
(vii) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments which
by reason of this Section 12(d)(vii) are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 12 shall be made by the Issuer and
shall be made to the nearest cent. No adjustment need be made for a
change in the par value or no par value of the Class A Common Shares.
(viii) Whenever the Conversion Price is adjusted as herein
provided, the Issuer shall promptly file with the Transfer Agent an
Officers' Certificate setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring
such adjustment. Promptly after delivery of such certificate, the
Issuer shall prepare a notice of such
31
<PAGE>
adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Price to each holder of Series A Preferred Shares at such
holder's last address appearing on the register of holders maintained
for that purpose within 20 days of the effective date of such
adjustment. Failure to deliver such notice shall not affect the
legality or validity of any such adjustment.
(ix) In any case in which this Section 12(d) provides that an
adjustment shall become effective immediately after a Common Share
Record Date for an event, the Issuer may defer until the occurrence of
such event issuing to the holder of any Series A Preferred Share
converted after such Common Share Record Date and before the occurrence
of such event the additional Class A Common Shares issuable upon such
conversion by reason of the adjustment required by such event over and
above the Class A Common Shares issuable upon such conversion before
giving effect to such adjustment.
(x) In lieu of making any adjustment to the Conversion Price
pursuant to Section 12(d)(v), the Issuer may elect to reserve an amount
of cash for distribution to the holders of Series A Preferred Shares
upon the conversion of the Series A Preferred Shares so that any such
holder converting Series A Preferred Shares will receive upon such
conversion, in addition to the Class A Common Shares and other items to
which such holder is entitled, the full amount of cash which such
holder would have received if such holder had, immediately prior to the
Common Share Record Date for such distribution of cash, converted its
Series A Preferred Shares into Class A Common Shares, together with any
interest accrued with respect to such amount, in accordance with this
Section 12(d)(x). The Issuer may make such election by providing an
Officers' Certificate to the Transfer Agent to such effect on or prior
to the payment date for any such distribution and depositing with the
Transfer Agent on or prior to such date an amount of cash equal to the
aggregate amount that the holders of Series A Preferred Shares would
have received if such holders had, immediately prior to the Common
Share Record Date for such distribution, converted all the Series A
Preferred Shares into Class A Common Shares. Any such funds so
deposited by the Issuer with the Transfer Agent shall be invested by
the Transfer Agent
32
<PAGE>
in unconditional U.S. Government obligations with a maturity not more
than three months from the date of issuance. Upon conversion of Series
A Preferred Shares by a holder thereof, such holder shall be entitled
to receive, in addition to the Class A Common Shares issuable upon
conversion, an amount of cash equal to the amount such holder would
have received if such holder had, immediately prior to the Common Share
Record Date for such distribution, converted its Series A Preferred
Shares into Class A Common Shares, along with such holder's pro rata
share of any accrued interest earned as a consequence of the investment
of such funds. Promptly after making an election pursuant to this
Section 12(d)(xi), the Issuer shall give or shall cause to be given
notice to all holders of Series A Preferred Shares of such election,
which notice shall state the amount of cash per Series A Preferred
Share such holders shall be entitled to receive (excluding interest)
upon conversion of the Series A Preferred Shares as a consequence of
the Issuer having made such election.
(e) Subject to Section 13, in case of any consolidation of the Issuer
with, or merger of the Issuer into, any other corporation, or in case of any
merger of another corporation into the Issuer (other than a merger which does
not result in any reclassification, conversion, exchange or cancelation of
outstanding shares of Class A Common Shares of the Issuer), or in case of any
sale, conveyance or transfer of all or substantially all the assets of the
Issuer, the holder of each Series A Preferred Share then outstanding shall have
the right thereafter, during the period such Series A Preferred Share shall be
convertible as specified in Section 12(a), to convert such Series A Preferred
Share only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer by a holder
of the number of shares of Class A Common Shares of the Issuer into which such
Series A Preferred Share might have been converted immediately prior to such
consolidation, merger, conveyance or transfer, assuming such holder of Class A
Common Shares of the Issuer failed to exercise his rights of election, if any,
as to the kind or amount of securities, cash and other property receivable upon
such consolidation, merger, conveyance or transfer (provided that, if the kind
or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer is not the same for each Class A
Common Share of the Issuer in respect of which such rights of election shall not
have been exercised ("Nonelecting Share"), then for the purpose of this Section
12 the kind and amount of securities, cash and
33
<PAGE>
other property receivable upon such consolidation, merger, conveyance or
transfer by each Nonelecting Share shall be deemed to be the kind and amount so
receivable per share by a plurality of the Nonelecting Shares). Such securities
shall provide for adjustments which, for events subsequent to the effective date
of the triggering event, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 12. The above provisions of this
Section 12 shall similarly apply to successive consolidations, mergers,
conveyances or transfers.
(f) In case:
(i) the Issuer shall declare a dividend (or any other
distribution) on its Class A Common Shares payable otherwise
than in cash out of its earned surplus; or
(ii) the Issuer shall authorize the granting to all
holders of its Class A Common Shares of rights or warrants to
subscribe for or purchase any shares of capital stock of any
class or of any other rights; or
(iii) of any reclassification of the Class A Common
Shares of the Issuer (other than a subdivision or combination
of its outstanding Class A Common Shares), or of any
consolidation or merger to which the Issuer is a party and for
which approval of any shareholders of the Issuer is required,
or the sale, conveyance or transfer of all or substantially
all the assets of the Issuer; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Issuer (other than in
connection with a sale of all or substantially all of the
assets of the Issuer governed by Section 14);
then the Issuer shall cause to be filed with the Transfer Agent and at each
office or agency maintained for the purpose of conversion of Series A Preferred
Shares, and shall cause to be mailed to all holders at their last addresses as
they shall appear in the Series A Preferred Shares Register, at least 20
Business Days (or 10 Business Days in any case specified in clause (i) or (ii)
above) prior to the applicable date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the date
as of
34
<PAGE>
which the holders of Class A Common Shares of record to be entitled to
such dividend, distribution, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Class A Common Shares of record
shall be entitled to exchange their Class A Common Shares for securities, cash
or other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding-up. Failure to give the
notice required by this Section 12(f) or any defect therein shall not affect the
legality or validity of any dividend, distribution, right, warrant,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up, or the vote upon any such action.
(g) In addition to the conversion right specified in Section 12(a),
subject to and upon compliance with the provisions of this Certificate, at the
option of the holder thereof a Series A Preferred share may be converted into
Class A Common Shares on the Change of Control Conversion Date specified below
in the circumstances described in the next two paragraphs.
If the Issuer is prevented under the terms of any applicable debt
instrument from effecting a Change of Control Purchase Offer pursuant to Section
13, the Issuer shall within 30 days following any Change of Control, mail a
notice to each holder of Series A Preferred Shares describing the transaction or
transactions that constitute the Change of Control and offering to convert that
holder's Series A Preferred Shares on the date (the "Change of Control
Conversion Date") specified in that notice (the "Change of Control Conversion
Notice"), which date will be no earlier than 60 days from the date the Change of
Control Conversion Notice is mailed.
On the Change of Control Conversion Date, the Issuer will convert each
Series A Preferred Share submitted for conversion into that number of Class A
Common Shares which is equal to the number of Class A Common Shares that would
have been payable had a Change of Control Purchase been effected using entirely
Class A Common Shares. To the extent applicable the Issuer will comply with Rule
14e-1 under the Exchange Act and any other applicable securities laws. The
requirements of such laws shall supersede any inconsistent provisions of this
Section 12(g).
(h) The Issuer shall at all times reserve and keep available, free from
preemptive rights, out of its
35
<PAGE>
authorized but unissued Class A Common Shares, for the purpose of effecting the
conversion of Series A Preferred Shares, the full number of Class A Common
Shares then issuable upon the conversion of all outstanding Series A Preferred
Shares.
13. Change of Control. (a) If the Issuer experiences a Change of
Control, each holder of Series A Preferred Shares will have the right to require
the Issuer to purchase (a "Change of Control Purchase") all or any part of that
holder's Series A Preferred Shares at a purchase price equal to 100% of the
liquidation preference of those shares, plus all Accumulated Dividends and
unpaid dividends on those shares to the date of purchase. Within 30 days
following any Change of Control, the Issuer will mail a notice to each holder of
Series A Preferred Shares describing the transaction or transactions that
constitute the Change of Control and offer to purchase that holder's Series A
Preferred Shares on the date (the "Change of Control Purchase Date") specified
in that notice (the "Change of Control Offer to Purchase Notice"), which date
will be no earlier than 60 days from the date the Change of Control Purchase
Notice is mailed. The Issuer will also advise holders in each notice of whether
it will pay the change of control purchase price in the form of cash, Class A
Common Shares or a combination thereof.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations to the extent those
laws and regulations are applicable in connection with the purchase of preferred
stock as a result of a Change of Control. To the extent that the provisions of
any securities laws or regulations conflict with any of the provisions of this
Section, the Issuer will comply with the applicable securities laws and
regulations and will be deemed not to have breached its obligations under this
section.
(b) On the date scheduled for payment for the purchase of the Series A
Preferred Shares under this Section, the Issuer will, to the extent lawful, (a)
accept for payment all Series A Preferred Shares properly tendered, (b) deposit
with the Transfer Agent the purchase price of the Series A Preferred Shares so
tendered and (c) deliver or cause to be delivered to the Transfer Agent Series A
Preferred Shares so accepted together with an Officers' Certificate stating the
aggregate liquidation preference of the Series A Preferred Shares being
purchased by the Issuer. The Transfer Agent will promptly mail or deliver to
each holder of Series A Preferred Shares so tendered the applicable payment for
those Series A Preferred Shares, and
36
<PAGE>
the Transfer Agent will promptly countersign and mail or deliver, or cause to be
transferred by book-entry, to each such holder new Series A Preferred Shares
equal in liquidation preference to any unpurchased portion of the Series A
Preferred Shares surrendered, if any. The Issuer will publicly announce the
results of this offer on or as soon as practicable after the payment date for
the purchase of Series A Preferred Shares in connection with a Change of
Control.
(c) Notwithstanding the foregoing, the Issuer shall not be required to
repurchase any Series A Preferred Shares in connection with a Change of Control
until it has repurchased any and all indebtedness and senior securities that are
required by their terms to be repurchased in connection with such Change of
Control. In addition, the Issuer will not be required to make an offer to
purchase any Series A Preferred Shares upon the occurrence of a Change of
Control if a third party makes that offer in the manner, at the times and
otherwise in compliance with the requirements described in this Section 13 and
purchases all Series A Preferred Shares validly tendered and not withdrawn.
(d) If the Issuer is prohibited from paying cash upon a Change of
Control under any applicable debt instrument, then, notwithstanding the
provisions of this Section 13, the Issuer shall not be required to effect a
Change of Control Purchase Offer pursuant to this Section 13, but instead shall
be required to offer to effect a Change of Control conversion after pursuant to
Section 12g.
(e) For purposes of this Section 13, the following terms shall have the
meaning indicated:
A "Change of Control" means: (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the ultimate
"beneficial owner" (as defined in Rule 13-d under the Exchange Act) of more than
35% of the total voting power of the Issuer's Voting Stock on a fully diluted
basis and such ownership is greater than the amount of voting power of the
Issuer's Voting Stock, on a fully diluted basis, held by the Existing
Stockholders and their Affiliates on such date; (ii) individuals who on the
Closing Date constitute the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination for election by
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
37
<PAGE>
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office; (iii) all the
common stock of RSL Communications PLC is not beneficially owned by the Issuer
(other than directors' qualifying shares) or the Issuer's successor in a
transaction governed by the provisions described in Section 14 or (iv) the
Existing Stockholders as a group acquire, on a cumulative basis after the
Closing Date, directly or indirectly, beneficial ownership of more than (x)
three million additional Class A Common Shares plus (y) 50% of the number of
Class A Common Shares issued by the Issuer in underwritten public offerings
occurring after the Closing Date to persons other than the existing
stockholders, plus (z) the number of Class A Common Shares sold by the Existing
Stockholders in the public markets after the date hereof; this calculation shall
exclude acquisitions from the Issuer or from other Existing Stockholders or from
other officers and directors or Metro Holdings AG of Class A Common Shares owned
by them on the date hereof, including as a result of the conversion of
securities held by the Existing Stockholders on the date hereof; the share
threshold will be appropriately adjusted for stock splits, combinations,
reclassifications and similar transactions.
"Voting Stock" means Capital Stock which ordinarily has voting power
for the election of directors (or persons performing similar functions), whether
at all times or only so long as no senior class of securities has such voting
power by reason of any contingency.
"Capital Stock" means any and all shares, interests, participants or
other equivalents (however designated) or corporate stock or other equity
participants, including partnership interests, whether general or limited.
"Existing Stockholders" means (i) R.S. Lauder, Gaspar & Co., L.P.,
("RSLAG"), (ii) partners in RSLAG and Lauder Gaspar Ventures LLC and their
affiliates, in each case as of the closing of this offering, (iii) Itzhak
Fisher, Ronald S. Lauder, Leonard A. Lauder, Jacob Z. Schuster, Nir Tarlovsky,
Nesim N. Bildirici, and Eugene Sekulow, (iv) family members of any of the
foregoing, (v) trusts, the only beneficiaries of which are persons or entities
described in clauses (i) through (iv) above and (vi) partnerships which are
controlled by the persons or entities described in clauses (i) through (iv)
above.
"Affiliate" means any persons directly or indirectly controlling or
controlled by or under direct or indirect common control with such person. For
the purposes
38
<PAGE>
of this definition, "control" when used with respect to any person means 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.
14. Consolidation, Merger, Conveyance or Transfer. Without the vote or
consent of the holders of a majority of the then Outstanding Series A Preferred
Shares, the Issuer may not consolidate or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets to, any person unless (a) the entity formed by such consolidation or
merger (if other than the Issuer) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (in any such case,
the "resulting entity") is a corporation organized and existing under the laws
of Bermuda, the United Kingdom, the United States or any State thereof or the
District of Columbia, the British Virgin Islands, Cayman Islands, the
Netherlands, Ireland or Jersey; (b) if the Issuer is not the resulting entity,
the Series A Preferred Shares are converted into or exchanged for and become
shares of such resulting entity ("Replacement Preferred Shares"), having in
respect of such resulting entity the same (or more favorable) powers,
preferences and relative, participating, optional or other special rights that
the Series A Preferred Shares had immediately prior to such transaction; (c)
immediately after giving effect to such transaction, no Voting Rights Triggering
Event has occurred and is continuing and (d) the Issuer shall have delivered to
the Transfer Agent an Officers' Certificate and an opinion of counsel, each
stating that such consolidation, merger, conveyance or transfer complies with
this Section 13 and that all conditions precedent herein provided for relating
to such transaction have been complied with.
The resulting entity of such transaction shall thereafter be deemed to
be the "Issuer" for all purposes of this Certificate and the predecessor shall
be relieved of all obligations with respect to the Series A Preferred Shares.
15. SEC Reports; Reports by Issuer. So long as any Series A Preferred
Shares are outstanding, the Issuer shall file with the SEC and, within 15 days
after it files them with the SEC, with the Transfer Agent and, if requested,
furnish to the holders of Series A Preferred Shares all annual and quarterly
reports and the information, documents, and other reports that the Issuer is
required to file with the SEC pursuant to Section 13(a) or 15(d) of the
39
<PAGE>
Exchange Act ("SEC Reports"). In the event the Issuer is not required or shall
cease to be required to file SEC Reports, pursuant to the Exchange Act, the
Issuer will nevertheless file such reports with the SEC (unless the SEC will not
accept such a filing). Whether or not required by the Exchange Act to file SEC
Reports with the SEC, so long as any Series A Preferred Shares are Outstanding,
the Issuer will furnish or cause to be furnished copies of the SEC Reports to
the Transfer Agent at the time the Issuer is required to make such information
available to the Transfer Agent, to holders of Series A Preferred Shares and to
prospective investors who request it in writing. In addition, the Issuer has
agreed that, for so long as any Series A Preferred Shares remain outstanding, if
the Issuer is required pursuant to Rule 144A(d)(4) under the Securities Act, it
will furnish to the holders and to securities analysts and prospective
investors, upon their reasonable request, the information required to be
delivered pursuant to Rule 144A(d)(4) under Securities Act.
40
<PAGE>
16. Definitions. For purposes of this Certificate, the following terms
shall have the meaning set forth below:
"Accumulated Dividends" has the meaning set forth in Section 3.
"Additional Amounts" has the meaning set forth in Section 6(c).
"Agent Members" has the meaning set forth in Section 4(c).
"Applicable Jurisdiction" has the meaning set forth in Section 6(c).
"Affiliate" has the meaning set forth in Section 13(d).
"Average Market Value" of the Class A Common Shares means (a) with
respect to the payment of any dividends, including regular dividends, Special
Dividends and Additional Amounts, the arithmetic average of the Current Market
Value (as defined below) of the Class A Common Shares for the five Trading Days
ending on the second Business Day prior to the Dividend Record Date for such
dividend, (b) with respect to any Optional Redemption or Tax Redemption, the
arithmetic average of the Current Market Value of the Class A Common Shares for
the ten Trading Days beginning on the Trading Day following the Redemption
Effective Date and (c) with respect to Mandatory Redemption, offers to purchase
pursuant to Section 13 or any other payment, the arithmetic average of the
Current Market Value of the Class A Common Shares for the ten Trading Days
ending on the second Business Day prior to the date of such payment.
"Bonus Shares" has the meaning set forth in Section 11.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to be closed.
"Bye-Laws" has the meaning set forth in the Recitals.
"Capital Stock" has the meaning set forth in 13(d).
41
<PAGE>
"Change of Control" has the meaning set forth in Section 13(d).
"Change of Control Conversion Date" has the meaning set forth in
Section 12(g).
"Change of Control Conversion Notice" has the meaning set forth in
Section 12(g).
"Change of Control Purchase" has the meaning set forth in Section
13(a).
"Change of Control Purchase Date" has the meaning set forth in Section
13(a).
"Change of Control Offer to Purchase Notice" has the meaning set forth
in Section 13(a).
"Class A Common Shares" means the Class A Common shares, par value
U.S.$.00457 per share.
"Closing Date" means any Closing Date under the Purchase Agreement.
"Closing Price" has the meaning set forth in Section 12(d)(vi).
"Common Share Record Date" has the meaning set forth in Section
12(d)(vi).
"Companies Act" has the meaning set forth in Section 11(a).
"Conversion Agent" has the meaning set forth in Section 5(a).
"Conversion Price" has the meaning set forth in Section 12(a).
"Conversion Rate" has the meaning set forth in Section 12(a).
"Current Market Value" of the Class A Common Shares means (a) if the
shares are traded on the Nasdaq Stock Market, or its successor, the last sale
price, or if there is no last sale price, the average of the last reported bid
and asked prices, as reported by the Nasdaq Stock Market, or its successor, as
of the close of regular trading for that Trading Day and (b) if the shares are
traded on the New York Stock Exchange or another national securities exchange,
the Closing Price as reported on the
42
<PAGE>
NYSE Composite Transactions Tape, or any comparable exchange reporting service,
as of the close of regular trading on such exchange for that Trading Day.
"Current Market Price" has the meaning set forth in Section 12(d)(vii).
"Depositary" has the meaning set forth in Section 4(b).
"Dilution Trigger Event" has the meaning set forth in Section
12(d)(iv).
"Distributed Securities" has the meaning set forth in Section
12(d)(iv).
"Dividend Payment Date" means each February 1, May 1, August 1 and
November 1; provided, however, that if such date shall not be a Business Day,
then such date shall be the next Business Day.
"Dividend Record Date" has the meaning set forth in Section 7(a).
"DTC" has the meaning set forth in Section 4(b).
"Exchange Act" has the meaning set forth in Section 4(d).
"Existing Stockholders" has the meaning set forth in Section 13(d).
"Expiration Time" has the meaning set forth in Section 12(d)(vi).
"fair market value" has the meaning set forth in Section 12(d)(vii).
"Global Series A Preferred Share" has the meaning set forth in Section
4(b).
"Global Shares Legend" has the meaning set forth in Section 4(b).
"Initial Purchasers" means Goldman, Sachs & Co.; Lehman Brothers Inc.;
Merrill Lynch, Pierce, Fenner & Smith; and Morgan Stanley & Co. Incorporated.
"Issuer" means the Person named as the "Issuer" in the Recitals until a
successor Person shall have become such
43
<PAGE>
pursuant to Section 14 and thereafter "Issuer" shall mean such successor Person.
"Issuer Order" means a written request or order signed in the name of
the Issuer by its Chairman of the Board, its President or a Vice President and
by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary.
"Junior Shares" has the meaning set forth in Section 9(a).
"liquidation preference" has the meaning set forth in Section 3.
"Mandatory Redemption Date" has the meaning set forth in Section 10(d);
provided, however, that if such date shall not be a Business Day, then such date
shall be the next Business Day.
"Memorandum of Association" has the meaning set forth in the Recitals.
"Nonelecting Share" has the meaning set forth in Section 12(e).
"Officers' Certificate" means a certificate of the Issuer signed in the
name of the Issuer by its Chairman of the Board, its Chief Executive Officer,
its President, its Chief Operating Officer, its Chief Financial Officer or a
Vice President and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary.
"Optional Redemption" has the meaning set forth in Section 10(a).
"Optional Redemption Date" has the meaning set forth in Section 10(a).
"Outstanding" means when used with respect to Series A Preferred Shares
means, as of the date of determination, all Series A Preferred Shares
theretofore authenticated and delivered under this Certificate, except (a)
Series A Preferred Shares theretofore converted into Class A Common Shares in
accordance with Section 12 and Series A Preferred Shares theretofore canceled by
the Transfer Agent or delivered to the Transfer Agent for cancelation; (b)
Series A Preferred Shares for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Transfer Agent or any Paying
Agent (other than the Issuer) in trust or set aside and
44
<PAGE>
segregated in trust by the Issuer (if the Issuer shall act as its own Paying
Agent) for the holders of such Series A Preferred Shares; provided that, if such
Series A Preferred Shares are to be redeemed, notice of such redemption has been
duly given pursuant to this Certificate or provision therefor satisfactory to
the Transfer Agent has been made; and (c) Series A Preferred Shares (x) that are
mutilated, destroyed, lost or stolen which the Issuer has decided to pay or (y)
in exchange for or in lieu of which other Series A Preferred Shares have been
authenticated and delivered pursuant to this Certificate; provided, however,
that, in determining whether the holders of the Series A Preferred Shares have
given any request, demand, authorization, direction, notice, consent or waiver
or taken any other action hereunder, Series A Preferred Shares owned by the
Issuer or any other obligor upon the Series A Preferred Shares or any Affiliate
of the Issuer or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Transfer Agent shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only Series A Preferred Shares which
the Transfer Agent has actual knowledge of being so owned shall be so
disregarded. Series A Preferred Shares so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Transfer Agent the pledgee's right so to act with respect to
such Series A Preferred Shares and that the pledgee is not the Issuer or any
other obligor upon the Series A Preferred Shares or any Affiliate of the Issuer
or of such other obligor.
"Parity Shares" has the meaning set forth in Section 9(a).
"Paying Agent" has the meaning set forth in Section 5(a).
"Persons" means, etc.
"Purchase Agreement" means the Purchase Agreement dated February 14,
2000, between the Issuer, and the Initial Purchasers.
"Purchased Shares" has the meaning set forth in Section 12(d)(vi).
"QIBs" has the meaning set forth in Section 4(a).
"Redemption Date" means (a) with respect to any Mandatory Redemption,
the Mandatory Redemption Date,
45
<PAGE>
(b) with respect to any Optional Redemption or Tax Redemptions, (x) to the
extent the Redemption Price is to be paid in cash, the Redemption Effective Date
with respect thereto, and (y) to the extent the Redemption Price is to be paid
in Class A Common Shares, the 12th Trading Day after such Redemption Effective
Date.
"Redemption Effective Date" has the meaning set forth in Section 10(a).
"Redemption Notice" has the meaning set forth in Section 10(g).
"Redemption Price" has the meaning set forth in Section 10(g).
"Registrable Securities" has the meaning set forth in Section 5(c).
"Registration Default" has the meaning set forth in Section 6(b).
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of February 22, 2000, between the Issuer and the Initial Purchasers.
"Replacement Preferred Shares" has the meaning set forth in Section 14.
"Restricted Definitive Securities" has the meaning set forth in Section
4(f).
"Restricted Shares Legend" has the meaning set forth in Section 4(a).
"resulting entity" has the meaning set forth in Section 14.
"Rule 144A" has the meaning set forth in Section 4(a).
"SEC" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or, if at
any time after the adoption of this Certificate such commission is not existing
and performing the duties now assigned to it, then the body performing such
duties at such time.
"SEC Reports" has the meaning set forth in Section 15.
46
<PAGE>
"Securities Act" has the meaning set forth in Section 4(a).
"Senior Shares" has the meaning set forth in Section 9(a).
"Series A Preferred Share Directors" has the meaning set forth in
Section 8(a).
"Series A Preferred Shares" has the meaning set forth in Section 1.
"Shelf Registration Statement" means the shelf registration statement
in respect of the Transfer Restricted Securities required pursuant to the
Registration Rights Agreement to be filed with the SEC with respect to resales
of the Transfer Restricted Securities.
"Special Dividends" has the meaning set forth in Section 6(b).
"Tax Redemption" has the meaning set forth in Section 10(b).
"Trading Day" means a day when the principal securities market on which
the relevant securities trade is open for business.
"Transfer Agent" has the meaning set forth in Section 3.
"Transfer Restricted Securities" means each Series A Preferred Share
and Class A Common Share issuable upon conversion of Series A Preferred Shares
or in satisfaction of any dividend or other payment on Series A Preferred Shares
until (a) the date on which such security has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf Registration
Statement or (b) the date on which such security is distributed to the public
pursuant to Rule 144 under the Securities Act or may be distributed to the
public pursuant to Rule 144(k) under the Securities Act.
"Voting Stock" has the meaning set forth in Section 13(d).
47
<PAGE>
[CERTIFICATE OF DESIGNATION]
IN WITNESS WHEREOF, the Issuer has caused this Certificate to be duly
executed as of the date hereof.
RSL COMMUNICATIONS, LTD.
by: /s/ Itzhak Fisher
-------------------------------
Name:
Title:
ATTEST:
by: /s/ Avery S.Fischer
----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
FACE OF SECURITY
[Restricted Shares Legend (include if Security is not registered under the U.S.
Securities Act of 1933): THE SERIES A PREFERRED SHARES EVIDENCED HEREBY (AND (1)
THE CLASS A COMMON SHARES ISSUABLE UPON CONVERSION OF THE SERIES A PREFERRED
SHARES AND (2) THE CLASS A COMMON SHARES ISSUABLE IN PAYMENT OF DIVIDENDS OR OF
THE REDEMPTION OR PURCHASE PRICE) HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) IN THE CASE OF THE SERIES
A PREFERRED SHARES, TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2)
TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH ABOVE.
[Global Shares Legend (include if Security is issued as a global certificate):
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE CERTIFICATE OF DESIGNATION REFERRED TO BELOW.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND
TRANSFER AGENT MAY
<PAGE>
REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.]
2
<PAGE>
Number of Shares
Number: ____ ____ Shares
144A CUSIP NO.:
IAI CUSIP NO.:
Series A 7-1/2% Convertible Preferred Shares
of
RSL COMMUNICATIONS, LTD.
RSL COMMUNICATIONS, LTD., an exempted company organized under
the laws of Bermuda (the "Issuer", which term includes any successor Person
under the Certificate of Designation hereinafter referred to) hereby certifies
that [HOLDER] (the "Holder") is the registered owner of fully paid and
non-assessable preferred securities of the Issuer designated the Series A 7 1/2%
Convertible Preferred Shares, par value U.S.$0.00457 and liquidation preference
U.S.$50.00 per share (the "Preferred Shares"). The Preferred Shares are
transferable on the books and records of the Transfer Agent, in person or by a
duly authorized attorney, upon surrender of this certificate duly endorsed and
in proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Shares represented
hereby are issued and shall in all respects be subject to the provisions of the
Certificate of Designation dated February 14, 2000, as the same may be amended
from time to time in accordance with its terms (the "Certificate of
Designation"). Capitalized terms used herein but not defined shall have the
meaning given them in the Certificate of Designation. The Issuer will provide a
copy of the Certificate of Designation to a Holder without charge upon written
request to the Issuer at its principal place of business.
Reference is hereby made to select provisions of the Preferred
Shares set forth on the reverse hereof, and to the Certificate of Designation,
which select provisions and the Certificate of Designation shall for all
purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the
Certificate of Designation and is entitled to the benefits thereunder.
3
<PAGE>
Unless the Transfer Agent's valid countersignature appears
hereon, the Preferred Shares evidenced hereby shall not be entitled to any
benefit under the Certificate of Designation or be valid or obligatory for any
purpose.
4
<PAGE>
IN WITNESS WHEREOF, the Issuer has executed this certificate
as of the date set forth below.
RSL COMMUNICATIONS, LTD.,
By:_____________________________
Name:
Title:
[Seal]
By:______________________________
Name:
Title:
Dated:
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Registrar and Transfer Agent,
By: ________________________________
Authorized Signatory
Dated:
5
<PAGE>
REVERSE OF SECURITY
RSL COMMUNICATIONS, LTD.
Series A 7-1/2% Convertible Preferred Shares
Dividends on each Preferred Share shall be payable at a rate
per annum set forth in the face hereof or as provided in the Certificate of
Designation (including Special Dividends). Dividends may be paid, at the option
of the Issuer, in cash, or, subject to certain limitations, in Class A Common
Shares of the Issuer or a combination of cash and Class A Common Shares of the
Issuer.
The Preferred Shares shall be redeemable as provided in the
Certificate of Designation. The Preferred Shares shall be convertible into the
Issuer's Class A Common Shares in the manner and according to the terms set
forth in the Certificate of Designation.
Generally, when a successor Person issues replacement
preferred shares upon conversion of, or in exchange for, the Series A Preferred
Shares in a transaction governed by Section 14 of the Certificate of
Designation, the predecessor Person will be released from any obligation on the
Series A Preferred Shares, except as provided in Section 9(d) of the Certificate
of Designation.
6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers the Preferred
Shares evidenced hereby to:-----------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer the Preferred Shares evidenced hereby on the books of the
Registrar and Transfer Agent. The agent may substitute another to act for him or
her.
Date:---------------------------------------------------------------------------
Signature: ______________________________
(Sign exactly as your name appears on the other side of this Convertible
Preferred Share Certificate)
Signature Guarantee:______________________________
- --------
*Signature must be guaranteed by an "eligible guarantor institution" (i.e., a
bank, stockbroker, savings and loan association or credit union) meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934.
7
<PAGE>
NOTICE OF CONVERSION]
(To be Executed by the Registered Holder
in order to Convert the Preferred Stock)
The undersigned hereby irrevocably elects to convert (the "Conversion")
_________ Series A 7-1/2% Convertible Preferred Shares (the "Preferred Shares"),
represented by stock certificate No(s). (the "Preferred Share Certificates")
into shares of common stock, par value U.S.$0.00457 per share ("Class A Common
Shares"), of RSL Communications, Ltd. (the "Issuer") according to the conditions
of the Certificate of Designation establishing the terms of the Preferred Stock
(the "Certificate of Designation"). If shares are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the holder for any conversion, except for transfer taxes,
if any. Each Preferred Share Certificate is attached hereto (or evidence of
loss, theft or destruction thereof).*
The undersigned represents and warrants that all offers and sales by the
undersigned of Class A Common Shares issuable to the undersigned upon conversion
of the Preferred Shares shall be made pursuant to registration of the Class A
Common Shares under the Securities Act of 1933 (the "Act"), or pursuant to any
exemption from registration under the Act.
Any holder, upon the exercise of its conversion rights in accordance with the
terms of the Certificate of Designation and the Preferred Shares, agrees to be
bound by the terms of the Registration Rights Agreement.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in or pursuant to the Certificate of Designation.
Date:___________________________________
Applicable Conversion Price:____________
Number of Preferred Shares
to be Converted:________________________
Number of Class A Common Shares
to be Issued:___________________________
<PAGE>
Signature:______________________________
Name:___________________________________
Address:**______________________________
Fax No.:________________________________
*The Issuer is not required to issue Class A Common Shares until the original
Preferred Share Certificate(s) (or evidence of loss, theft or destruction
thereof) to be converted are received by the Issuer or its Transfer Agent. The
Issuer shall issue and deliver Class A Common Shares to an overnight courier not
later than three Business Days following receipt of the original Preferred Share
Certificate(s) to be converted.
**Address where Class A Common Shares and any other payments or certificates
shall be sent by the Issuer.
2
<PAGE>
[Global Share Schedule: (include if Security is issued as a global certificate)]
SCHEDULE A
SCHEDULE OF EXCHANGES FOR GLOBAL SECURITY
The initial number of Series A Preferred Shares represented by
this Global Series A Preferred Share shall be _______. The following exchanges
of a part of this Global Series A Preferred Share have been made:
<TABLE>
<CAPTION>
- ----------------------- -------------------- -------------------- -------------------- --------------------
Number of shares
Amount of decrease Amount of increase represented by
in number of in number of this Global Series
shares represented shares represented A Preferred Share
by this Global by this Global following such Signature of
Series A Preferred Series A Preferred decrease or authorized officer
Date of Exchange Share Share increase of Registrar
- ----------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
- ----------------------- -------------------- -------------------- -------------------- --------------------
</TABLE>
3
<PAGE>
EXHIBIT B
FORM OF TRANSFER CERTIFICATE
(Transfers pursuant toss. 5(b)(ii) of the Certificate of
Designation of the Series A Preferred Shares)
American Stock Transfer & Trust Company, as Transfer Agent
40 Wall Street
New York, New York 10005
Att: Stock Transfer
Administration
Re: RSL Communications, Ltd.
7-1/2% Series A Convertible Preferred Shares due 2012 (the
"Series A Preferred Shares")
Reference is hereby made to the Certificate of Designation of
the Series A Preferred Shares. Capitalized terms used but not defined herein
shall have the meanings given them in the Schedule.
This letter relates to __________ Series A Preferred Shares
(the "Securities") which are represented by Restricted Definitive Securities
(CUSIP No. __) held in the name of [name of transferor] (the "Transferor") to
effect the transfer of the Securities.
In connection with such request, and in respect of the
Securities, the Transferor does hereby certify the Securities are being
transferred (i) in accordance with applicable securities laws of any state of
the United States or any other jurisdiction and (ii) in accordance with their
terms:
CHECK ONE BOX BELOW:
(1) [ ] to a transferee that the Transferor reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A
under the Securities Act purchasing for its own account or for
the account of a qualified institutional buyer in a
transaction meeting the requirements of Rule 144A;
(2) [ ] to a transferee that the Transferor reasonably believes is
an institutional "accredited investor" as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is
acquiring such Securities for investment purposes and not for
distribution and is acquiring at least $250,000 aggregate
liquidation preference of
<PAGE>
Series A Preferred Shares for its own account or for one or
more accounts (each of which is acquiring at least $250,000
aggregate liquidation preference) as to which the transferee
exercises sole investment discretion; or
(3) [ ] pursuant to an exemption from registration under the
Securities Act provided by Rule 144 thereunder (if available).
[Name of Transferor]
by: ________________________
Name:
Title:
Dated:
cc: RSL Communications, Ltd.
767 Fifth Avenue
Suite 4300
New York, NY 10153
2
<PAGE>
EXHIBIT C
FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
(Transfers pursuant toss. 5(b)(ii) of the Certificate)
American Stock Transfer & Trust Company, as Transfer Agent
40 Wall Street
New York, NY 10005
Att: Stock Transfer
Administration
Re: RSL Communications, Ltd.
7-1/2% Series A Convertible Preferred Shares due 2012
(the "Series A Preferred Shares")
Reference is hereby made to the Certificate of Designation of
the Series A Preferred Shares. Capitalized terms used but not defined herein
shall have the meanings given them in the Certificate.
This letter relates to ________ Series A Preferred Shares (the
"Securities") which are represented by the Restricted Definitive Securities
(CUSIP No. ___) held in the name of [name of transferor] (the "Transferor"), and
is given in connection with the transfer of the Securities to the undersigned.
In connection with such request, and in respect of the
Securities, we confirm that:
1. We understand that the Securities have not been registered
under the U.S. Securities Act of 1933 (the "Securities Act"), and are being sold
to us in a transaction that is exempt from the registration requirements of the
Securities Act.
2. We are a corporation, partnership or other entity (other
than a natural person) having such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Securities, and we are (or any account for which we are
purchasing under paragraph 4 below is) an accredited investor as defined in Rule
501(a) under the Securities Act, able to bear the economic risk of the proposed
investment in the Securities.
<PAGE>
3. We are acquiring the Securities for our own account (or for
accounts as to which we exercise sole investment discretion and have authority
to make, and do make, the statements contained in this letter) and not with a
view to any distribution of the Securities, subject, nevertheless, to the
understanding that the disposition of our property shall at all times be and
remain within our control.
4. We are, and each account (if any) for which we are
purchasing Securities is, purchasing Securities having an aggregate liquidation
preference of not less than $250,000.
5. We understand that (a) the Securities will be delivered to
us in registered form only and that the certificate delivered with respect to
the Securities will bear a legend substantially to the following effect:
THE SERIES A PREFERRED SHARES EVIDENCED HEREBY (AND (1) THE CLASS A
COMMON SHARES ISSUABLE UPON CONVERSION OF THE SERIES A PREFERRED SHARES
AND (2) THE CLASS A COMMON SHARES ISSUABLE IN PAYMENT OF DIVIDENDS OR
OF THE REDEMPTION OR PURCHASE PRICE) HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) IN
THE CASE OF THE SERIES A PREFERRED SHARES, TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) TO AN
INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE
144 THEREUNDER (IF AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE
WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES
AND OTHER JURISDICTIONS. THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH ABOVE. THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF
THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH
ABOVE.
2
<PAGE>
and (b) such certificates will be reissued without the
foregoing legend only in accordance with the terms of the Certificate.
6. We agree that in the event that at some future time we wish
to dispose of any of the Securities, we will not do so unless:
(a) the Securities are sold to the Issuer;
(b) the Securities are sold to a qualified institutional buyer
in compliance with Rule 144A under the Securities Act;
(c) the Securities are sold to an institutional accredited
investor, as defined in Rule 501(a) under the Securities Act, acquiring
at least $250,000 liquidation preference of the Securities that, prior
to such transfer, furnishes to the Transfer Agent a signed letter
containing certain representations and agreements relating to the
restrictions on transfer of the Securities (the form of which letter
can be obtained from such Transfer Agent);
(d) the Securities are sold by us pursuant to Rule 144 under
the Securities Act; or
3
<PAGE>
(e) the Securities are sold pursuant to an effective
registration statement under the Securities Act.
Very truly yours,
[PURCHASER]
by: __________________________
Name:
Title:
Dated:
cc: RSL Communications, Ltd.
767 Fifth Avenue
Suite 4300
New York, NY 10153
4
<PAGE>
EXHIBIT 4.2
EXECUTION COPY
RSL COMMUNICATIONS, LTD.
7 1/2% Series A Convertible Preferred Shares
Registration Rights Agreement
February 22, 2000
Goldman, Sachs & Co.,
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Lehman Brothers Inc.
As representatives of the several Purchasers
named in Schedule I to the Purchase Agreement
c/o Goldman Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
RSL Communications, Ltd., a Bermuda corporation (the "Issuer"),
proposes to issue and sell to the Purchasers (as defined herein) upon the terms
set forth in the Purchase Agreement (as defined herein) its 7 1/2% Series A
Convertible Preferred Shares (the "Securities"). As an inducement to the
Purchasers to enter into the Purchase Agreement and in satisfaction of a
condition to the obligations of the Purchasers thereunder, the Issuer agrees
with the Purchasers for the benefit of holders (as defined herein) from time to
time of the Transfer Restricted Securities (as defined herein) as follows:
1. Definitions.
(a) Capitalized terms used herein without definition shall have the
meanings ascribed thereto in the Purchase Agreement. As used in this Agreement,
the following defined terms shall have the following meanings:
"Act" or "Securities Act" means the United States Securities Act of
1933, as amended.
"Affiliate" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with such specified person. For purposes of this definition, control of
a person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such person whether by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Certificate of Designation" means the certificate of designation with
respect to the Securities as adopted by the Issuer and as amended, modified or
supplemented from time to time in accordance with its terms.
<PAGE>
"Commission" means the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Exchange
Act or the Securities Act, whichever is the relevant statute for the particular
purpose.
"Common Stock" means the Issuer's Class A common shares, par value
$0.00457 per share.
"Dividend Payment Date" has the meaning assigned thereto in the
Certificate of Designation.
"DTC" means The Depository Trust Company.
"Effectiveness Period" has the meaning assigned thereto in Section
2(b)(i) hereof.
"Effective Time" means the date on which the Commission declares the
Shelf Registration Statement effective or on which the Shelf Registration
Statement otherwise becomes effective.
"Electing Holder" has the meaning assigned thereto in Section 3(a)(iii)
hereof.
"Exchange Act" means the United States Securities Exchange Act of 1934,
as amended.
"First Time of Delivery" has the meaning assigned thereto in the
Purchase Agreement.
The term "holder" means, when used with respect to any Security, the
record holder of such Security and, with respect to any Common Stock, the record
holder of such Common Stock.
"Incorporated Document" means any filing made by the Issuer with the
Commission pursuant to Section 13, 14, or 15 of the Exchange Act and
incorporated by reference into the Shelf Registration Statement.
"Managing Underwriters" means the investment banker or investment
bankers and manger or managers that shall administer an underwritten offering,
if any, conducted pursuant to Section 6(a) hereof.
"NASD Rules" means the Rules of the National Association of Securities
Dealers, Inc., as amended from time to time.
"Notice and Questionnaire" means a Notice of Registration Statement and
Selling Securityholder Questionnaire substantially in the form of Exhibit A
hereto.
The term "person" means an individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or political
subdivision thereof.
"Prospectus" means the prospectus (including, without limitation, any
preliminary prospectus, any final prospectus and any prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement
2
<PAGE>
in reliance upon Rule 430A under the Act) included in the Shelf Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Transfer Restricted
Securities covered by the Shelf Registration Statement and by all other
amendments and supplements to such prospectus, including all material
incorporated by reference in such prospectus and all documents filed after the
date of such prospectus by the Issuer under the Exchange Act and incorporated by
reference therein.
"Purchase Agreement" means the purchase agreement dated February 14,
2000, between the Purchasers and the Issuer relating to the Securities.
"Purchasers" means the purchasers named in Schedule I to the Purchase
Agreement.
"Registration Default" has the meaning assigned thereto in Section 6(a)
hereof.
"Registration Default Period" means each period during which a
Registration Default has occurred and is continuing.
"Rules and Regulations" means the published rules and regulations of
the Commission promulgated under the Securities Act or the Exchange Act, as in
effect at any relevant time.
"Shelf Registration" means a registration effected pursuant to Section
2 hereof.
"Shelf Registration Statement" means a "shelf" registration statement
filed under the Securities Act providing for the registration of, and the sale
on a continuous or delayed basis by the holders of, all of the Transfer
Restricted Securities pursuant to Rule 415 under the Securities Act and/or any
similar rule that may be adopted by the Commission, filed by the Issuer pursuant
to the provisions of Section 2 of this Agreement, including the Prospectus
contained therein, any amendments and supplements to such registration
statement, including post-effective amendments, and all exhibits and all
material incorporated by reference in such registration statement.
"Special Dividends" has the meaning assigned thereto in Section 7(a)
hereof.
"Time of Delivery" has the meaning assigned thereto in the Purchase
Agreement.
"Transfer Restricted Securities" means all or any portion of the
Securities and the shares of Common Stock issuable upon conversion of such
Securities or in satisfaction of any dividend or other payment on the Securities
until (a) the date on which such security has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf Registration
Statement or (b) the date on which such security is distributed to the public
pursuant to Rule 144 under the Securities Act or may be distributed to the
public pursuant to Rule 144(k) under the Securities Act.
"Trust Indenture Act" means the Trust Indenture Act of 1939, or any
successor thereto, and the rules, regulations and forms promulgated thereunder,
as the same shall be amended from time to time.
3
<PAGE>
The term "underwriter" means any underwriter of Transfer Restricted
Securities in connection with an offering thereof under a Shelf Registration
Statement.
2. Shelf Registration.
(a) The Issuer shall, within 90 calendar days following the First Time
of Delivery, file with the Commission a Shelf Registration Statement relating to
the offer and sale of the Transfer Restricted Securities and, thereafter, shall
use its reasonable best efforts to cause such Shelf Registration Statement to be
declared effective under the Act within 180 calendar days following the First
Time of Delivery; provided, however, that no holder shall be entitled to be
named as a selling securityholder in the Shelf Registration Statement or to use
the Prospectus forming a part thereof for resales of Transfer Restricted
Securities unless such holder is an Electing Holder.
(b) The Issuer shall use its reasonable best efforts:
(i) Subject to Section 3(j), to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by holders for resales of Transfer
Restricted Securities for a period of two years from the last Time of
Delivery, or such shorter period that will terminate when there are no
Transfer Restricted Securities outstanding other than Transfer
Restricted Securities held by Affiliates of the Issuer (in either case,
such period being referred to herein as the "Effectiveness Period") ;
(ii) After the Effective Time of the Shelf Registration
Statement, promptly upon the request of any holder of Transfer
Restricted Securities that is not then an Electing Holder, to take any
action reasonably necessary to enable such holder to use the Prospectus
forming a part thereof for resales of Transfer Restricted Securities,
including, without limitation, any action necessary to identify such
holder as a selling securityholder in the Shelf Registration Statement;
provided, however, that nothing in this subparagraph shall relieve such
holder of the obligation to return a completed and signed Notice and
Questionnaire to the Issuer in accordance with Section 3(a)(2) hereof;
and
(iii) If at any time the Securities, pursuant to Section 7 of
the Certificate of Designation, are convertible into securities other
than Common Stock, the Issuer shall, or shall cause any successor under
the Certificate of Designation to, cause such securities to be included
in the Shelf Registration Statement no later than the date on which the
Securities may then be convertible.
The Issuer shall be deemed not to have used its best efforts to keep the Shelf
Registration Statement effective during the Effectiveness Period if the Issuer
voluntarily takes any action that would result in Electing Holders not being
able to offer and sell any of their Transfer Restricted Securities during such
period, unless (i) such action is required by applicable law, or (ii) the Issuer
determines based upon the advice of counsel that it is advisable to disclose in
the Shelf Registration Statement a financing, acquisition or other corporate
transaction, and the Board of Directors of the Issuer shall have determined in
good faith that such disclosure is not in the best interests of the Issuer and
its shareholders, and, in the case of clause (i) above, the Issuer thereafter
promptly complies with the requirements of paragraph 3(j) below.
4
<PAGE>
3. Registration Procedures. In connection with the Shelf Registration
Statement, the following provisions shall apply:
(a) (i) Not less than 30 calendar days prior to the Effective Time of
the Shelf Registration Statement, the Issuer shall mail the Notice and
Questionnaire to the holders of Transfer Restricted Securities. No holder shall
be entitled to be named as a selling securityholder in the Shelf Registration
Statement as of the Effective Time, and no holder shall be entitled to use the
Prospectus forming a part thereof for resales of Transfer Restricted Securities
at any time, unless such holder has returned a completed and signed Notice and
Questionnaire to the Issuer by the deadline for response set forth therein;
provided, however, holders of Transfer Restricted Securities shall have at least
28 calendar days from the date on which the Notice and Questionnaire is first
mailed to such holders to return a completed and signed Notice and Questionnaire
to the Issuer.
(ii) After the Effective Time of the Shelf Registration Statement,
the Issuer shall, upon the request of any holder of Transfer
Restricted Securities that is not then an Electing Holder,
promptly send a Notice and Questionnaire to such holder. The
Issuer shall not be required to take any action to name such
holder as a selling securityholder in the Shelf Registration
Statement or to enable such holder to use the Prospectus
forming a part thereof for resales of Transfer Restricted
Securities until such holder has returned a completed and
signed Notice and Questionnaire to the Issuer.
(iii) term "Electing Holder" shall mean any holder of Transfer
Restricted Securities that has returned a completed and signed
Notice and Questionnaire to the Issuer in accordance with
Section 3(a)(i) or 3(a)(ii) hereof, but only so long as such
holder holds any Transfer Restricted Securities that such
holder has elected pursuant to such Notice and Questionnaire
to include in the Shelf Registration Statement.
(b) The Issuer shall furnish to each Electing Holder, prior to the
Effective Time, a copy of the Shelf Registration Statement initially filed with
the Commission, and shall furnish to such holders, prior to the filing thereof
with the Commission, copies of each amendment thereto and each amendment or
supplement, if any, to the Prospectus included therein, and shall use its best
efforts to reflect in each such document, at the Effective Time or when so filed
with the Commission, as the case may be, such comments as such holders and their
respective counsel reasonably may propose; provided, however, that the Issuer
shall be required to furnish an Incorporated Document only as promptly as
practicable following its filing with the Commission.
(c) The Issuer shall promptly take such action as may be necessary so
that (i) each of the Shelf Registration Statement and any amendment thereto and
the Prospectus forming part thereof and any amendment or supplement thereto (and
each report or other document incorporated therein by reference in each case)
complies in all material respects with the Securities Act and the Exchange Act
and the respective rules and regulations thereunder, (ii) each of the Shelf
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) each of the Prospectus forming part of the
Shelf Registration Statement, and any amendment or
5
<PAGE>
supplement to such Prospectus, does not at any time during the Effectiveness
Period include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(d) The Issuer shall notify the Purchasers and their counsel when the
Shelf Registration Statement and any amendment thereto has been filed with the
Commission and of any request by the Commission for amendments or supplements to
the Shelf Registration Statement or the Prospectus included therein or for
additional information.
The Issuer also shall promptly advise each Electing Holder, and shall confirm
such advice in writing if so requested by any such holder:
(i) when the Shelf Registration Statement or any
post-effective amendment thereto has become effective;
(ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Shelf Registration Statement or any
post-effective amendment thereto has become effective;
(iii) of the receipt by the Issuer of any notification with
respect to the suspension of the qualification of the shares included
in the Shelf Registration Statement for sale in any jurisdiction or the
initiation of any proceeding for such purpose; and
(iv) of the suspension of the use of the Prospectus pursuant
to Section 3(j) or of the happening of any event or the existence of
any state of facts that requires the making of any changes in the Shelf
Registration Statement or the Prospectus included therein so that, as
of such date, such Shelf Registration Statement and Prospectus do not
contain an untrue statement of a material fact and do not omit to state
a material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading (which advice
shall be accompanied by an instruction to such holders to suspend the
use of the Prospectus until the requisite changes have been made);
provided that such notice shall not be required to specify the nature
of the event or circumstances giving rise to such notice requirement.
(e) The Issuer shall use its best efforts to prevent the issuance, and
if issued to obtain the withdrawal, of any order suspending the effectiveness of
the Shelf Registration Statement at the earliest possible time.
(f) The Issuer shall furnish to each Electing Holder at the request of
such Holder, without charge, at least one copy of the Shelf Registration
Statement and all post-effective amendments thereto, including financial
statements and schedules, and all reports, other documents and exhibits that are
filed with or incorporated by reference in the Shelf Registration Statement.
(g) The Issuer shall, during the Effectiveness Period, deliver to each
Electing Holder, without charge, as many copies of the Prospectus (including
each preliminary Prospectus) included in the Shelf Registration Statement and
any amendment or
6
<PAGE>
supplement thereto as such Electing Holder may reasonably request; and the
Issuer consents (except during the continuance of any event described in Section
3(d)(v) above) to the use of the Prospectus and any amendment or supplement
thereto by each of the Electing Holders in connection with the offering and sale
of the Transfer Restricted Securities covered by the Prospectus and any
amendment or supplement thereto during the Effectiveness Period.
(h) Prior to any offering of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, the Issuer shall (i) register or qualify or
cooperate with the Electing Holders and their respective counsel in connection
with the registration or qualification of such Transfer Restricted Securities
for offer and sale under the securities or "blue sky" laws of such jurisdictions
within the United States as any Electing Holders may reasonably request, (ii)
keep such registrations or qualifications in effect and comply with such laws so
as to permit the continuance of offers and sales in such jurisdictions for so
long as may be necessary to enable any Electing Holder or underwriter, if any,
to complete its distribution of Transfer Restricted Securities pursuant to the
Shelf Registration Statement, and (iii) take any and all other actions necessary
or advisable to enable the disposition in such jurisdictions of such Transfer
Restricted Securities; provided, however, that in no event shall the Issuer be
obligated to (A) qualify as a foreign corporation or as a dealer in securities
in any jurisdiction where it would not otherwise be required to so qualify but
for this Section 3(h) or (B) file any general consent to service of process or
subject itself to taxation in any jurisdiction where as of the date hereof it
has not filed or is not so subject.
(i) Unless any Transfer Restricted Securities shall be in book-entry
only form, the Issuer shall cooperate with the Electing Holders to facilitate
the timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold pursuant to the Shelf Registration Statement,
which certificates, if so required by any securities exchange upon which any
Transfer Restricted Securities are listed, shall be penned, lithographed or
engraved, or produced by any combination of such methods, on steel engraved
borders, and which certificates shall be free of any restrictive legends and in
such permitted denominations and registered in such names as Electing Holders
may request in connection with the sale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement.
(j) Upon the occurrence of any fact or event contemplated by paragraph
3(d)(v) above, the Issuer shall promptly prepare a post-effective amendment or
supplement to the Shelf Registration Statement or the Prospectus, or any
document incorporated therein by reference, or file any other required document
so that, as thereafter delivered to purchasers of the Transfer Restricted
Securities included therein, the Prospectus will not include an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, if the Issuer determines that it is
advisable to disclose in the Shelf Registration Statement a financing,
acquisition or other corporate transaction, and the Board of Directors of the
Issuer shall have determined in good faith that such disclosure would not be in
the best interests of the Issuer and its stockholders, the Issuer shall not be
required to prepare and file such amendment, supplement or document for such
period or periods as the Board of Directors of the Issuer shall have determined
in good faith is in the best interests of the Issuer and shall be entitled to
suspend the availability of the Shelf Registration Statement, provided further,
however that such period or periods of
7
<PAGE>
suspension shall not exceed 90 days in the aggregate in any consecutive 365-day
period. If the Issuer notifies the Electing Holders of the occurrence of any
event contemplated by paragraph 3(d)(v) above, each Electing Holder agrees, as a
consequence of the inclusion of any of such holder's Transfer Restricted
Securities in the Shelf Registration Statement, to suspend the use of the
Prospectus until the requisite changes to the Prospectus have been made. The
Issuer shall promptly notify each Electing Holder of the cessation of any
suspension hereunder.
(k) The Issuer shall use its best efforts to comply with all applicable
Rules and Regulations, and to make generally available to its shareholders as
soon as practicable, but in any event not later than eighteen months after (i)
the effective date (as defined in Rule 158(c) under the Securities Act) of the
Shelf Registration Statement, (ii) the effective date of each post-effective
amendment to the Shelf Registration Statement, and (iii) the date of each filing
by the Issuer with the Commission of an Annual Report on Form 10-K that is
incorporated by reference in the Shelf Registration Statement, an earning
statement of the Issuer and its subsidiaries complying with Section 11(a) of the
Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Issuer, Rule 158).
(l) In the event of an underwritten offering conducted pursuant to
Section 6 hereof, the Issuer shall, if requested, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the Shelf
Registration Statement such information as the Managing Underwriters reasonably
agree should be included therein and to which the Issuer does not reasonably
object and shall make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after it is notified of the
matters to be included or incorporated in such Prospectus supplement or
post-effective amendment.
(m) The Issuer shall enter into such customary agreements (including an
underwriting agreement in customary form in the event of an underwritten
offering conducted pursuant to Section 6 hereof) and take all other appropriate
action in order to expedite and facilitate the registration and disposition of
the Transfer Restricted Securities, and in connection therewith, if an
underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures substantially identical to those set
forth in Section 5 hereof with respect to all parties to be indemnified pursuant
to Section 5 hereof.
(n) The Issuer shall:
(i) (A) make reasonably available for inspection by Electing
Holders, any underwriter participating in any disposition pursuant to
the Shelf Registration Statement, and any attorney or accountant
retained by such holders or any such underwriter all relevant financial
and other records, pertinent corporate documents and properties of the
Issuer and its subsidiaries, and (B) cause the Issuer's officers,
directors and employees to supply all information reasonably requested
by such holders or any such underwriter, attorney or accountant in
connection with the Shelf Registration Statement, in each case, as is
customary for similar due diligence examinations; provided, however,
that all records, information and documents that are designated in
writing by the Issuer, in good faith, as confidential shall be kept
confidential by such holders and any such underwriter, attorney or
accountant, unless such disclosure is made in
8
<PAGE>
connection with a court proceeding or required by law, or such records,
information or documents become available to the public generally
(other than in violation of this Agreement) or through a third party
without an accompanying obligation of confidentiality; and provided
further that, if the foregoing inspection and information gathering
would otherwise disrupt the Issuer's conduct of its business, such
inspection and information gathering shall, to the greatest extent
possible, be coordinated on behalf of the Electing Holders and the
other parties entitled thereto by one counsel designated by and on
behalf of Electing Holders and other parties;
(ii) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, make such representations and warranties
to the holders participating in such underwritten offering and to the
Managing Underwriters, in form, substance and scope as are customarily
made by the Issuer to underwriters in primary underwritten offerings of
equity and covering matters including, but not limited to, those set
forth in the Purchase Agreement;
(iii) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, obtain opinions of counsel to the Issuer
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the Managing Underwriters) addressed to each
holder participating in such underwritten offering and the
underwriters, covering such matters as are customarily covered in
opinions requested in primary underwritten offerings of equity and such
other matters as may be reasonably requested by such holders and
underwriters (it being agreed that in addition to the matters to be
covered by such opinions there shall be included a statement of counsel
to the effect that, as of the date of the opinion and as of the
Effective Time of the Shelf Registration Statement or most recent
post-effective amendment thereto, as the case may be, while such
counsel is not passing upon, and shall nave no responsibility for, the
accuracy or completeness of the Shelf Registration Statement or the
Prospectus, such counsel has no reason to believe that, the Shelf
Registration Statement, the Prospectus or such amendment thereto
contains an untrue statement of material fact or omits to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading ;
(iv) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, obtain "cold comfort" letters and updates
thereof from the independent public accountants of the Issuer (and, if
necessary, from the independent public accountants of any subsidiary of
the Issuer or of any business acquired by the Issuer for which
financial statements and financial data are, or are required to be,
included in the Shelf Registration Statement), addressed to each holder
participating in such underwritten offering (if such holder has
provided such letter, representations or documentation, if any,
required for such cold comfort letter to be so addressed) and the
underwriters, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
primary underwritten offerings; and
(v) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, obtain "cold comfort" letters and updates
thereof from the independent public accountants of the Issuer (and, if
necessary, from the
9
<PAGE>
independent public accountants of any subsidiary of the Issuer or of
any business acquired by the Issuer for which financial statements and
financial data are, or are required to be, included in the Shelf
Registration Statement), addressed to each holder participating in such
underwritten offering (if such holder has provided such letter,
representations or documentation, if any, required for such cold
comfort letter to be so addressed) and the underwriters, in customary
form and covering matters of the type customarily covered in "cold
comfort" letters in connection with primary underwritten offerings.
(o) The Issuer will use its reasonable best efforts to cause the Common
Stock issuable upon conversion of the Securities to be listed for quotation on
the National Association of Securities Dealers Automated Quotations National
Market System or other stock exchange or trading system on which the Common
Stock primarily trades on or prior to the Effective Time of the Shelf
Registration Statement hereunder.
(p) In the event that any broker-dealer registered under the Exchange
Act shall be an "affiliate" (as defined in Rule 2720(b)(1) of the NASD Rules (or
any successor provision thereto)) of the Issuer or has a "conflict of interest"
(as defined in Rule 2720(b)(7) of the NASD Rules (or any successor provision
thereto)) and such broker-dealer shall underwrite, participate as a member of an
underwriting syndicate or selling group or assist in the distribution of any
Transfer Restricted Securities covered by the Shelf Registration Statement,
whether as a holder of such Transfer Restricted Securities or as an underwriter,
a placement or sales agent or a broker or dealer in respect thereof, or
otherwise, the Issuer shall assist such broker-dealer in complying with the
requirements of the NASD Rules, including, without limitation, by (A) engaging a
"qualified independent underwriter" (as defined in Rule 2720(b)(15) of the NASD
Rules (or any successor provision thereto)) to participate in the preparation of
the registration statement relating to such Transfer Restricted Securities, to
exercise usual standards of due diligence in respect thereto and to recommend
the public offering price of such Transfer Restricted Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
(q) The Issuer shall use its best efforts to take all other steps
necessary to effect the registration, offering and sale of the Transfer
Restricted Securities covered by the Shelf Registration Statement contemplated
hereby.
4. Registration Expenses. The Issuer shall bear all fees and expenses
incurred in connection with the performance of its obligations under Sections 2,
3 and 6 hereof. In addition, in the event of an underwritten offering of
Transfer Restricted Securities conducted pursuant to Section 6 hereof, or if in
any other event the Issuer requires that inspection and information gathering be
coordinated by counsel for the Electing Holders as provided in Section 3(n)(i)
hereof, the Issuer shall pay the fees and expenses of a single counsel, which
shall be Cravath, Swaine & Moore, unless another counsel shall be selected by
the Electing Holders of more than 50% of the Transfer Restricted Securities to
be included in such underwritten offering (or, in any such other event, included
in the Shelf Registration Statement) to represent them.
10
<PAGE>
5. Indemnification and Contribution.
(a) Indemnification by the Issuer. Upon the registration of the
Transfer Restricted Securities pursuant to Section 2 hereof, the Issuer shall
indemnify and hold harmless each Electing Holder and each underwriter, selling
agent or other securities professional, if any, which facilitates the
disposition of Transfer Restricted Securities, and each of their respective
officers and directors and each person who controls such Electing Holder,
underwriter, selling agent or other securities professional within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act (each such
person being sometimes referred to as an "Indemnified Person") against any
losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Shelf Registration Statement under
which such Transfer Restricted Securities are to be registered under the
Securities Act, or any Prospectus contained therein or furnished by the Issuer
to any Indemnified Person, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Issuer hereby agrees to reimburse such
Indemnified Person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Issuer shall not be liable to
any such Indemnified Person in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such Shelf
Registration Statement or Prospectus, or amendment or supplement, in reliance
upon and in conformity with written information furnished to the Issuer by such
Indemnified Person expressly for use therein.
(b) Indemnification by the Holders and any Agents and Underwriters.
Each Electing Holder agrees, as a consequence of the inclusion of any of such
holder's Transfer Restricted Securities in such Shelf Registration Statement,
and each underwriter, selling agent or other securities professional, if any,
which facilitates the disposition of Transfer Restricted Securities shall agree,
as a consequence of facilitating such disposition of Transfer Restricted
Securities, severally and not jointly, to (i) indemnify and hold harmless the
Issuer, its directors, officers who sign any Shelf Registration Statement and
each person, if any, who controls the Issuer within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, against any
losses, claims, damages or liabilities to which the Issuer or such other persons
may become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in such Shelf Registration Statement or Prospectus, or
any amendment or supplement, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Issuer by such holder,
underwriter, selling agent or other securities professional expressly for use
therein, and (ii) reimburse the Issuer for any legal or other expenses
11
<PAGE>
reasonably incurred by the Issuer in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party under this Section 5, notify such
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party otherwise than under this Section 5. In
case any such action shall be brought against any indemnified party and it shall
notify an indemnifying party of the commencement thereof, such indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, such
indemnifying party shall not be liable to such indemnified party under this
Section 5 for any legal expenses of other counsel or any other expenses, in each
case subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to, or an admission of, fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) Contribution. If the indemnification provided for in this Section 5
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or by such indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 5(d) were determined by
pro rata allocation (even if the Electing Holders or any underwriters, selling
agents or other securities professionals or all of them were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 5(d).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or
12
<PAGE>
other fees or expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The obligations of the Electing
Holders and any underwriters, selling agents or other securities professionals
in this Section 5(d) to contribute shall be several in proportion to the
percentage of principal amount of Transfer Restricted Securities registered or
underwritten, as the case may be, by them and not joint.
(e) Notwithstanding any other provision of this Section 5, in no event
will any (i) Electing Holder be required to undertake liability to any person
under this Section 5 for any amounts in excess of the dollar amount of the
proceeds to be received by such holder from the sale of such holder's Transfer
Restricted Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Shelf Registration Statement under which
such Transfer Restricted Securities are to be registered under the Securities
Act and (ii) underwriter, selling agent or other securities professional be
required to undertake liability to any person hereunder for any amounts in
excess of the discount, commission or other compensation payable to such
underwriter, selling agent or other securities professional with respect to the
Transfer Restricted Securities underwritten by it and distributed to the public.
(f) The obligations of the Issuer under this Section 5 shall be in
addition to any liability which the Issuer may otherwise have to any Indemnified
Person and the obligations of any Indemnified Person under this Section 5 shall
be in addition to any liability which such Indemnified Person may otherwise have
to the Issuer. The remedies provided in this Section 5 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to an
indemnified party at law or in equity.
6. Underwritten Offering. Any holder of Transfer Restricted Securities
who desires to do so may sell Transfer Restricted Securities (in whole or in
part) in an underwritten offering; provided that (i) the Electing Holders of at
least a majority in aggregate principal amount of the Transfer Restricted
Securities then covered by the Shelf Registration Statement shall request such
an offering and (ii) at least such aggregate principal amount of such Transfer
Restricted Securities shall be included in such offering; and provided further
that the Issuer shall not be obligated to cooperate with more than one
underwritten offering during the Effectiveness Period. Upon receipt of such a
request, the Issuer shall provide all holders of Transfer Restricted Securities
written notice of the request, which notice shall inform such holders that they
have the opportunity to participate in the offering. In any such underwritten
offering, the investment banker or bankers and manager or managers that will
administer the offering will be selected by, and the underwriting arrangements
with respect thereto (including the size of the offering) will be approved by,
the holders of a majority of the Transfer Restricted Securities to be included
in such offering; provided, however, that such investment bankers and managers
and underwriting arrangements must be reasonably satisfactory to the Issuer. No
holder may participate in any underwritten offering contemplated hereby unless
(a) such holder agrees to sell such holder's Transfer Restricted Securities to
be included in the underwritten offering in accordance with any approved
underwriting arrangements, (b) such holder completes and executes all reasonable
questionnaires, powers of attorney, indemnities, underwriting agreements,
lock-up letters and other documents required under the terms of such approved
underwriting arrangements, and (c) if such holder is not then an Electing
13
<PAGE>
Holder, such holder returns a completed and signed Notice and Questionnaire to
the Issuer in accordance with Section 3(a)(ii) hereof within a reasonable amount
of time before such underwritten offering. The holders participating in any
underwritten offering shall be responsible for any underwriting discounts and
commissions and fees and, subject to Section 4 hereof, expenses of their own
counsel. The Issuer shall pay all expenses customarily borne by issuers,
including but not limited to filing fees, the fees and disbursements of its
counsel and independent public accountants and any printing expenses incurred in
connection with such underwritten offering. Notwithstanding the foregoing or the
provisions of Section 3(l) hereof, upon receipt of a request from the Managing
Underwriter or a representative of holders of a majority of the Transfer
Restricted Securities to be included in an underwritten offering to prepare and
file an amendment or supplement to the Shelf Registration Statement and
Prospectus in connection with an underwritten offering, the Issuer may delay the
filing of any such amendment or supplement for up to 90 days if the Board of
Directors of the Issuer shall have determined in good faith that the Issuer has
a bona fide business reason for such delay.
7. Special Dividends.
(a) The Issuer and the Purchasers agree that the Electing Holders shall
suffer damages if the Issuer fails to fulfill its obligations pursuant to
Section 2 hereof and that it would not be possible to ascertain the extent of
such damages. Accordingly, the Issuer hereby agrees to pay special dividends
("Special Dividends") to each Electing Holder under the circumstances and to the
extent set forth below:
(i) if the Shelf Registration Statement has not been filed
within 90 days of the First Time of Delivery or has not been declared
effective by the Commission within 180 days after the First Time of
Delivery; or
(ii) if the Shelf Registration Statement has been declared
effective by the Commission but, during the Effectiveness Period, is
withdrawn by the Issuer or becomes subject to an effective stop order
issued pursuant to Section 8(d) of the Securities Act suspending the
effectiveness of the Shelf Registration Statement (without being
succeeded by an additional registration statement filed and declared
effective or by a post-effective amendment to such Shelf Registration
Statement that cures such failure and that is itself immediately
declared effective) for any period of ten consecutive trading days that
are also business days or for any 20 trading days that are also
business days in any 180-day period in connection with resales of
Transfer Restricted Securities or if the availability of the Shelf
Registration Statement is suspended by the Issuer pursuant to Section
3(j) hereof (each of the foregoing clauses (i) and (ii), a
"Registration Default").
(b) In the event of each such Registration Default, the Issuer shall
pay Special Dividends to each holder of Transfer Restricted Securities at a per
annum rate of 0.5% of the liquidation preference for any Registration Default
Period. Following the cure of all Registration Defaults relating to any Transfer
Restricted Securities, the accrual of Special Dividends with respect to such
Transfer Restricted Securities shall cease (without in any way limiting the
effect of any subsequent Registration Default). A Registration Default
14
<PAGE>
under clause 7(a)(i) above shall be cured on the date that the Shelf
Registration Statement is declared effective by the Commission. A Registration
Default under clause 7(a)(ii) above shall be cured on the date the Shelf
Registration Statement is declared effective or becomes usable and the Electing
Holders are provided notice thereof.
(c) Special Dividends, if paid in cash, shall be paid by the Issuer to
the record holders of Transfer Restricted Securities on each Dividend Payment
Date by mailing checks to their registered addresses as they appear in the
Securities register if no such accounts have been specified on or before the
Dividend Payment Date; provided that any Special Dividends accrued with respect
to any Securities or portion thereof called for redemption on a redemption date
or converted into Common Stock on a conversion date prior to the Dividend
Payment Date, shall, in any such event, be paid instead to the holder that
submitted such Securities for redemption or conversion on the applicable
redemption date or conversion date, as the case may be, on such date (promptly
following the conversion date, in the case of conversion of Securities). Each
obligation to pay Special Dividends shall be deemed to commence accruing on the
date of the applicable Registration Default and to cease accruing when all
Registration Defaults have been cured.
(d) All Special Dividends with respect to any of Transfer Restricted
Securities, that remain unpaid when such Securities cease to be Transfer
Restricted Securities or cease to be outstanding, shall remain unpaid
obligations of the Issuer until they have been paid in full.
7. Miscellaneous.
(a) Other Registration Rights. The Issuer may grant registration rights
that would permit any Person that is a third party the right to piggy-back on
any Shelf Registration Statement, provided that if the Managing Underwriter of
any underwritten offering conducted pursuant to Section 6 hereof notifies the
Issuer and the Electing Holders that the total amount of securities which the
Electing Holders and the holders of such piggy-back rights intend to include in
any Shelf Registration Statement is so large as to materially threaten the
success of such offering (including the price at which such securities can be
sold), then the amount, number or kind of securities to be offered for the
account of holders of such piggy-back rights will be reduced to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount, number and kind recommended by the Managing Underwriter
prior to any reduction in the amount of Registrable Securities to be included in
such Shelf Registration Statement.
(b) Amendments and Waivers. This Agreement, including this Section
7(a), may be amended, and waivers or consents to departures from the provisions
hereof may be given, only by a written instrument duly executed by the Issuer
and the holders of a majority in aggregate liquidation preference of Transfer
Restricted Securities then outstanding. Each holder of Transfer Restricted
Securities outstanding at the time of any such amendment, waiver or consent or
thereafter shall be bound by any amendment, waiver or consent effected pursuant
to this Section 7(b), whether or not any notice, writing or marking indicating
such amendment, waiver or consent appears on the Transfer Restricted Securities
or is delivered to such holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be given as provided in the Purchase Agreement.
15
<PAGE>
(d) Parties in Interest. The parties to this Agreement intend that all holders
of Transfer Restricted Securities shall be entitled to receive the benefits of
this Agreement and that any holder of Transfer Restricted Securities shall be
bound by the terms and provisions of this Agreement by reason of such election
with respect to the Transfer Restricted Securities which are included in a Shelf
Registration Statement. All the terms and provisions of this Agreement shall be
binding upon, shall inure to the benefit of and shall be enforceable by the
respective successors and assigns of the parties hereto and any holder from time
to time of the Transfer Restricted Securities to the aforesaid extent. In the
event that any transferee of any holder of Transfer Restricted Securities shall
acquire Transfer Restricted Securities, in any manner, whether by gift, bequest,
purchase, operation of law or otherwise, such transferee shall, without any
further writing or action of any kind, be entitled to receive the benefits of
and be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement to the aforesaid extent.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
(i) Survival. The respective indemnities, agreements, representations,
warranties and other provisions set forth in this Agreement or made pursuant
hereto shall remain in full force and effect, regardless of any investigation
(or any statement as to the results thereof) made by or on behalf of any
Electing Holder, any director, officer or partner of such holder, any agent or
underwriter, any director, officer or partner of such agent or underwriter, or
any controlling person of any of the foregoing, and shall survive the transfer
and registration of the Transfer Restricted Securities of such holder.
16
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Issuer and you.
Very truly yours,
RSL Communications, Ltd.
By: /s/ Donald R. Shassian
--------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Lehman Brothers Inc.
By: /s/ Goldman Sachs & Co.
---------------------------
(Goldman, Sachs & Co.)
On Behalf of Each of the Purchasers
<PAGE>
Exhibit A
RSL Communications, Ltd.
INSTRUCTION TO DTC PARTICIPANTS
(Date of Mailing)
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE:
The Depository Trust Company ("DTC") has identified you as a
DTC Participant through which beneficial interests in RSL Communications, Ltd.
(the "Issuer") Series A Convertible Preferred Shares (the "Securities") are
held.
The Issuer is in the process of registering the Securities
under the Securities Act of 1933 for resale by the beneficial owners thereof. In
order to have their Securities included in the registration statement,
beneficial owners must complete and return the enclosed Notice of Registration
Statement and Selling Securityholder Questionnaire.
It is important that beneficial owners of the Securities
receive a copy of the enclosed materials as soon as possible as their rights to
have the Securities included in the registration statement depend upon their
returning the Notice and Questionnaire by [ ]. Please forward a copy of the
enclosed documents to each beneficial owner that holds interests in the
Securities through you. If you require more copies of the enclosed materials or
have any questions pertaining to this matter, please contact [Name, address and
telephone number of contact at the Issuer].
18
<PAGE>
RSL Communications, Ltd.
Notice of Registration Statement
and
Selling Securityholder Questionnaire
(Date)
Reference is hereby made to the Registration Rights Agreement
(the "Registration Rights Agreement") between RSL Communications, Ltd. (the
"Issuer") and the Purchasers named therein. Pursuant to the Registration Rights
Agreement, the Issuer has filed with the United States Securities and Exchange
Commission (the "Commission") a registration statement on Form [S-3] (the "Shelf
Registration Statement") for the registration and resale under Rule 415 of the
Securities Act of 1933, as amended (the "Securities Act"), of the Issuer's 7
1/2% Series A Convertible Preferred Shares (the "Securities") and the Class A
common shares, par value $0.01 per share (the "Common Stock"), issuable upon
conversion thereof. A copy of the Registration Rights Agreement is attached
hereto. All capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Registration Rights Agreement.
Each beneficial owner of Transfer Restricted Securities (as
defined below) is entitled to have the Transfer Restricted Securities
beneficially owned by it included in the Shelf Registration Statement. In order
to have Transfer Restricted Securities included in the Shelf Registration
Statement, this Notice of Registration Statement and Selling Securityholder
Questionnaire ("Notice and Questionnaire") must be completed, executed and
delivered to the Issuer's counsel at the address set forth herein for receipt ON
OR BEFORE . Beneficial owners of Transfer Restricted
Securities who do not complete, execute and return this Notice and Questionnaire
by such date (i) will not be named as selling securityholders in the Shelf
Registration Statement and (ii) may not use the Prospectus forming a part
thereof for resales of Transfer Restricted Securities.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and related Prospectus.
Accordingly, holders and beneficial owners of Transfer Restricted Securities are
advised to consult their own securities law counsel regarding the consequences
of being named or not being named as a selling securityholder in the Shelf
Registration Statement and related Prospectus.
The term "Transfer Restricted Securities" is defined in the
Registration Rights Agreement to mean all or any portion of the Securities and
the shares of Common Stock issuable upon conversion of such Securities or in
satisfaction of any dividend or other payment on the securities until (a) the
date on which such security has been effectively registered under the Securities
Act and disposed of in accordance with the shelf registration statement or (b)
the date on which such security is distributed to the public pursuant to Rule
144 under the Securities Act or may be distributed to the public pursuant to
Rule 144(k) under the Securities Act.
19
<PAGE>
ELECTION
The undersigned holder (the "Selling Securityholder") of
Transfer Restricted Securities hereby elects to include in the Shelf
Registration Statement the Transfer Restricted Securities beneficially owned by
it and listed below in Item (3). The undersigned, by signing and returning this
Notice and Questionnaire, agrees to be bound with respect to such Transfer
Restricted Securities by the terms and conditions of this Notice and
Questionnaire and the Registration Rights Agreement, including, without
limitation, Section 5 of the Registration Rights Agreement, as if the
undersigned Selling Securityholder were an original party thereto.
Upon any sale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, the Selling Securityholder will be required to
deliver to the Issuer and Trustee the Notice of Transfer set forth in Appendix A
to the Prospectus. This Notice of Transfer is set forth as Exhibit A to the
Prospectus and as Exhibit B to the Registration Rights Agreement.
The Selling Securityholder hereby provides the following
information to the Issuer and represents and warrants that such information is
accurate and complete:
20
<PAGE>
QUESTIONNAIRE
(1) (a) Full Legal Name of Selling Securityholder:
--------------------------------------------------------------
(b) Full Legal Name of Registered holder (if not the same as in
(a) above) of Transfer Restricted Securities Listed in Item
(3) below:
--------------------------------------------------------------
(c) Full Legal Name of DTC Participant (if applicable and if not
the same as (b) above) Through Which Transfer Restricted
Securities Listed in Item (3) below are Held:
--------------------------------------------------------------
(2) Address for Notices to Selling Securityholder:
--------------------------------------------------------------
Telephone:-------------------------------
Fax:-------------------------------------
Contact Person:--------------------------
(3) Beneficial Ownership of Securities:
Except as set forth below in this Item (3), the undersigned
does not beneficially own any Securities or shares of Common
Stock issued upon conversion of any Securities.
(a) Principal amount of Transfer Restricted Securities (as defined
in the Registration Rights Agreement) beneficially owned:-----
CUSIP No(s). of such Transfer Restricted Securities:----------
Number of shares of Common Stock (if any) issued upon
conversion of such Transfer Restricted Securities:------------
(b) Principal amount of Securities other than Transfer Restricted
Securities beneficially owned:
--------------------------------------------------------------
CUSIP No(s). of such other Securities:------------------------
Number of shares of Common Stock (if any) issued upon
conversion of such other Securities:--------------------------
(c) Principal amount of Transfer Restricted Securities which the
undersigned wishes to be included in the Shelf Registration
Statement:----------------------------------------------------
CUSIP No(s). of such Transfer Restricted Securities
to be included in the Shelf Registration Statement:-----------
21
<PAGE>
Number of shares of Common Stock (if any) issued upon
conversion of Transfer Restricted Securities which are to be
included in the Shelf Registration Statement:-----------------
(4) Beneficial Ownership of Other Securities of the Issuer:
Except as set forth below in this Item (4), the undersigned
Selling Securityholder is not the beneficial or registered
owner of any shares of Common Stock or any other securities of
the Issuer, other than the Securities and shares of Common
Stock listed above in Item (3).
State any exceptions here:
(5) Relationships with the Issuer:
Except as set forth below, neither the Selling Securityholder
nor any of its affiliates, officers, directors or principal
equity holders (5% or more) has held any position or office or
has had any other material relationship with the Issuer (or
its predecessors or affiliates) during the past three years.
State any exceptions here:
(6) Plan of Distribution:
Except as set forth below, the undersigned Selling
Securityholder intends to distribute the Transfer Restricted
Securities listed above in Item (3) only as follows (if at
all): Such Transfer Restricted Securities may be sold from
time to time directly by the undersigned Selling
Securityholder or, alternatively, through underwriters,
broker-dealers or agents. Such Transfer Restricted Securities
may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at varying
prices determined at the time of sale, or at negotiated
prices. Such sales may be effected in transactions (which may
involve crosses or block transactions) (i) on any national
securities exchange or quotation service on which the Transfer
Restricted Securities may be listed or quoted at the time of
sale, (ii) in the over-the-counter market, (iii) in
transactions otherwise than on such exchanges or services or
in the over-the-counter market, or (iv) through the writing of
options. In connection with sales of the Transfer Restricted
Securities or otherwise, the Selling Securityholder may enter
into hedging transactions with broker-dealers, which may in
turn engage in short sales of the Transfer Restricted
Securities in the course of hedging the positions they assume.
The Selling Securityholder may also sell Transfer Restricted
Securities short and deliver Transfer Restricted Securities to
close out such short positions, or loan or pledge Transfer
Restricted Securities to broker-dealers that in turn may sell
such securities.
State any exceptions here:
22
<PAGE>
Note: In no event may such method(s) of distribution take the form of
an underwritten offering of the Transfer Restricted Securities without the prior
agreement of the Issuer.
By signing below, the Selling Securityholder acknowledges that it
understands its obligation to comply, and agrees that it will comply, with the
provisions of the Exchange Act and the rules and regulations thereunder,
particularly Regulation M.
In the event that the Selling Securityholder transfers all or any
portion of the Transfer Restricted Securities listed in Item (3) above after the
date on which such information is provided to the Issuer, the Selling
Securityholder agrees to notify the transferee(s) at the time of the transfer of
its rights and obligations under this Notice and Questionnaire and the
Registration Rights Agreement.
By signing below, the Selling Securityholder consents to the disclosure
of the information contained herein in its answers to Items (1) through (6)
above and the inclusion of such information in the Shelf Registration Statement
and related Prospectus. The Selling Securityholder understands that such
information will be relied upon by the Issuer in connection with the preparation
of the Shelf Registration Statement and related Prospectus.
In accordance with the Selling Securityholder's obligation under
Section 3(a) of the Registration Rights Agreement to provide such information as
may be required by law for inclusion in the Shelf Registration Statement, the
Selling Securityholder agrees to promptly notify the Issuer of any inaccuracies
or changes in the information provided herein which may occur subsequent to the
date hereof at any time while the Shelf Registration Statement remains in
effect. All notices hereunder and pursuant to the Registration Rights Agreement
shall be made in writing, by hand-delivery, first-class mail, or air courier
guaranteeing overnight delivery as follows:
(i) To the Issuer:
--------------------------
--------------------------
--------------------------
--------------------------
(ii) With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
Once this Notice and Questionnaire is executed by the Selling
Securityholder and received by the Issuer's counsel, the terms of this Notice
and
23
<PAGE>
Questionnaire, and the representations and warranties contained herein,
shall be binding on, shall inure to the benefit of and shall be enforceable by
the respective successors, heirs, personal representatives, and assigns of the
Issuer and the Selling Securityholder (with respect to the Transfer Restricted
Securities beneficially owned by such Selling Securityholder and listed in Item
(3) above). This Agreement shall be governed in all respects by the laws of the
State of New York.
24
<PAGE>
IN WITNESS WHEREOF, the undersigned, by authority duly given,
has caused this Notice and Questionnaire to be executed and delivered either in
person or by its duly authorized agent.
Dated:--------------------------
--------------------------------------------------------------
Selling Securityholder
(Print/type full legal name of beneficial owner of Transfer
Restricted Securities)
By:_________________________________________________
Name:
Title:
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON
OR BEFORE [ ] TO THE ISSUER'S COUNSEL AT:
--------------------------
--------------------------
--------------------------
--------------------------
25
<PAGE>
Exhibit B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
RSL Communications, Ltd.
Attention: [ ]
Re: RSL Communications, Ltd.'s (the "Company") 7 1/2% Series A
Convertible Preferred Shares (the "Securities")
Dear Sirs:
Please be advised that _____________________ has transferred
$___________ aggregate principal amount of the above-referenced Securities
pursuant to an effective Registration Statement on Form S-3 (File No. 333-____)
filed by the Issuer.
We hereby certify that the prospectus delivery requirements,
if any, of the Securities Act of 1933, as amended, have been satisfied and that
the above-named beneficial owner of the Securities is named as a "Selling
Holder" in the Prospectus dated [ ], or in supplements thereto, and that the
aggregate principal amount of the Securities transferred are the Securities
listed in such Prospectus opposite such owner's name.
Dated:
Very truly yours,
------------------------
(Name)
By: ________________________
(Authorized Signature)
26
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
RSL Communications, Ltd. on Form S-3 of our report dated March 2, 2000,
appearing in and incorporated by reference in the Annual Report on Form 10-K of
RSL Communications, Ltd. for the year ended December 31, 1999 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
New York, New York
April 26, 2000
