<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
HERMES EUROPE RAILTEL B.V.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NETHERLANDS 4813 NONE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Numbers)
</TABLE>
TERHULPSESTEENWEG 6A
1560 HOEILAART, BELGIUM
(322) 658-5200
(Address, including ZIP code, and telephone number, including area code,
of registrant's principal executive officers)
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NY 10019
(212) 664-1666
(Name, address, including ZIP, and telephone number,
including area code, of agent for service)
------------------------
Copy to:
JOHN D. MORRISON, JR., ESQ.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 848-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================
PROPOSED
MAXIMUM PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE FEE(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/2% Senior Exchange Notes
Due 2007...................... $265,000,000 $1,000 $265,000,000 $80,303.03
=================================================================================================
</TABLE>
(1) The registration fee was calculated, pursuant to Rule 457(f), as
one-thirty-third of one percent of $265,000,000.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAW OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED OCTOBER , 1997
PROSPECTUS FILE NO: 33-
[HERMES EUROPE RAILTEL LOGO]
HERMES EUROPE RAILTEL B.V.
OFFER TO EXCHANGE
11 1/2% SENIOR NOTES DUE 2007
FOR
ALL OUTSTANDING 11 1/2% SENIOR NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME ON
, 1997, UNLESS EXTENDED, PROVIDED IT MAY NOT BE EXTENDED BEYOND
, 1997.
Hermes Europe Railtel B.V., a company organized in the Netherlands (the
"Company"), hereby offers, upon the terms and subject to conditions set forth in
this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"; together with the Prospectus, the "Exchange
Offer"), to exchange up to an aggregate principal amount of $265,000,000 of its
registered 11 1/2% Senior Notes due 2007 (the "Exchange Notes") for up to an
aggregate principal amount of $265,000,000 of its outstanding unregistered
11 1/2% Senior Notes due 2007 (the "Outstanding Notes"). The form and terms of
the Exchange Notes are identical in all material respects to those of the
Outstanding Notes, except for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except for certain interest
provisions related to such registration rights. The Exchange Notes will be
issued pursuant to, and entitled to the benefits of, the Indenture (as defined)
governing the Outstanding Notes. The Exchange Notes and the Outstanding Notes
are sometimes referred to collectively as the "Notes."
The Exchange Notes will be general unsecured obligations of the Company and
will rank senior in right of payment to all
future Indebtedness (as defined)of the Company that is expressly subordinated in
right of payment to the Exchange Notes and pari passu in right of payment with
all existing and future unsecured liabilities of the Company that are not so
subordinated. The Exchange Notes will be effectively subordinated to all secured
liabilities of the Company to the extent of the assets securing such
liabilities. In addition, the Exchange Notes will be structurally subordinated
to all liabilities (including trade payables) of the Company's subsidiaries. As
of June 30, 1997, on a pro forma basis, the Company would have had no
Indebtedness other than the Outstanding Notes, and the Company's subsidiaries
would have had $10.0 million of total liabilities reflected on the Company's
balance sheet. Following the Exchange Offer, the Company intends to transfer all
or substantially all of its assets and liabilities (other than the Exchange
Notes) to its subsidiaries. After such transfer, the Company will be a holding
company with limited assets and will operate its business through subsidiaries.
See "Capitalization" and "Description of the Exchange Notes."
The Company will accept for exchange any and all Outstanding Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York time, on
, 1997, unless extended by the Company in its sole discretion (the
"Expiration Date"). The Exchange Offer will not in any event be extended to a
date beyond , 1997. Tenders of Outstanding Notes may be withdrawn
at any time prior to 5:00 p.m., New York time, on the Expiration Date. If the
Company terminates the Exchange Offer and does not accept for exchange any
Outstanding Notes with respect to the Exchange Offer, the Company will promptly
return the Outstanding Notes to the holders thereof. The Exchange Offer is not
conditioned upon any minimum principal amount of Outstanding Notes being
tendered for exchange, but is otherwise subject to certain customary conditions.
The Outstanding Notes may be tendered only in integral multiples of $1,000.
Interest on the Exchange Notes will be payable semiannually in cash on
February 15 and August 15 of each year, commencing February 15, 1998. Holders of
the Exchange Notes will receive interest on February 15, 1998, from the date of
initial issuance of the Exchange Notes, plus an amount equal to the accrued
interest on the Outstanding Notes from the later of (i) the most recent date to
which interest has been paid thereon and (ii) the date of issuance of the
Outstanding Notes, to the date of exchange thereof. The Exchange Notes will
mature on August 15, 2007. The Exchange Notes will be redeemable, in whole or in
part, at the option of the Company, at any time on or after August 15, 2002 at
the redemption prices set forth herein, plus accrued and unpaid interest to the
date of redemption. In addition, on or prior to August 15, 2000, the Company may
redeem Exchange Notes at a price in cash equal to 111.5% of the principal amount
thereof, plus accrued and unpaid interest to the date of redemption with the net
cash proceeds of one or more Public Equity Offerings (as defined) or Strategic
Equity Investments (as defined); provided, however, that at least two-thirds of
the principal amount of Exchange Notes originally issued remains outstanding
after each such redemption. Upon the occurrence of a Change of Control (as
defined), each holder of Exchange Notes will have the right to require the
Company to purchase such holder's Exchange Notes
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
(Cover Page Continued)
at a price in cash equal to 101% of the principal amount thereof, plus accrued
and unpaid interest to the date of purchase.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
August 19, 1997 (the "Registration Rights Agreement") between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, UBS Securities LLC and
Lehman Brothers Inc., as the initial purchasers (the "Initial Purchasers") with
respect to the initial sale of the Outstanding Notes. The Outstanding Notes were
sold by the Company (the "Offering") on August 19, 1997 to the Initial
Purchasers who placed the Outstanding Notes with certain institutional investors
in reliance on certain exceptions under the Securities Act of 1933, as amended
(the "Securities Act"). Based on positions taken by the staff of the Securities
and Exchange Commission (the "Commission") that have been enunciated in
no-action letters issued in Exxon Capital Holdings Corp. (available April 13,
1989) and Morgan Stanley & Co. Inc. (available June 5, 1991), among others, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for Outstanding Notes may be offered for resale, resold and
otherwise transferred by the respective holders thereof (other than any such
holder which is (i) a broker-dealer who purchased such Outstanding Notes
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the Exchange Notes are acquired in the ordinary course of such holder's
business and such holder has no arrangement with any person to participate in
the distribution of such Exchange Notes and is not engaged in and does not
intend to engage in a distribution of the Exchange Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer. Holders of
Outstanding Notes wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Holders who tender Outstanding Notes
in the Exchange Offer with the intention to participate in a distribution of the
Exchange Notes may not rely upon the Morgan Stanley or similar no-action
letters. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the Exchange Notes received in exchange for Outstanding Notes if
such Exchange Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the rights and preferences and
will be subject to the limitations applicable thereto under the Indenture.
Following consummation of the Exchange Offer, the holder of Outstanding Notes
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such holders to provide for
the registration under the Securities Act of the Outstanding Notes held by them.
If the Company has exchanged Exchange Notes for all Outstanding Notes validly
tendered and not withdrawn in accordance with the terms of the Exchange Offer
and the Registration Statement remains effective until the expiration date of
the Exchange Offer, none of the Notes will be entitled to the contingent
increase in interest rate provided pursuant to the Registration Rights
Agreement.
Prior to the Exchange Offer, there has been no public market for the
Exchange Notes. There can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes, the ability of holders to sell the
Exchange Notes or the price at which holders would be able to sell the Exchange
Notes. The Company does not intend to list the Exchange Notes for trading on any
U.S. national securities exchange or over-the-counter market system, but the
Outstanding Notes are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market and the Company expects to
list the Exchange Notes on the Luxembourg Stock Exchange. Future trading prices
of the Exchange Notes will depend on many factors, including among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. Historically, the market for securities similar to the
Exchange Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the Exchange Notes, if
such market develops, will not be subject to similar disruptions. The Initial
Purchasers have advised the Company that they currently intend to make a market
in the Exchange Notes offered hereby. However, the Initial Purchasers are not
obligated to do so and any market making may be discontinued at any time without
notice.
To comply with the securities laws of certain jurisdictions, it may be
necessary to qualify for sale or register the Exchange Notes prior to offering
or selling such Exchange Notes. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the Exchange Notes held by broker-dealers for
offer or sale under the securities or blue sky laws of such jurisdictions as any
such holder reasonably requests in writing. Unless the Company is so requested,
the Company does not intend to take any action to register or qualify the
Exchange Notes for sale in any such jurisdictions.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay certain expenses incident to the Exchange Offer.
i
<PAGE> 4
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS OF OR EXCHANGE FROM, HOLDERS OF OUTSTANDING NOTES IN ANY JURISDICTION
IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
EXCHANGE NOTES MAY NOT BE OFFERED IN THE NETHERLANDS OR ELSEWHERE TO THE
ACCOUNT OF ANY PERSON OR ENTITY OTHER THAN TO PERSONS OR ENTITIES WHO OR WHICH
TRADE OR INVEST IN NOTES IN THE CONDUCT OF A PROFESSION OR BUSINESS WITHIN THE
MEANING OF THE SECURITIES TRANSACTIONS SUPERVISION ACT 1995 (WET TOEZICHT
EFFECTENVERKEER 1995) AND ITS IMPLEMENTING REGULATIONS (WHICH INCLUDES BANKS,
BROKERS, PENSION FUNDS, INSURANCE COMPANIES, SECURITIES FIRMS, INVESTMENT
INSTITUTIONS, OTHER INSTITUTIONAL INVESTORS, AND OTHER PARTIES INCLUDING INTER
ALIA TREASURIES AND FINANCE COMPANIES OF LARGE ENTERPRISES WHICH TRADE OR INVEST
IN SECURITIES).
ii
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) under the Securities Act, and the rules and regulations
promulgated thereunder, covering the Exchange Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Exchange Notes offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, and financial statements
and notes filed as a part hereof. Statements made in this Prospectus concerning
the contents of any document referred to herein are not necessarily complete.
With respect to each such document filed with the Commission as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits and schedules thereto and reports and other information filed by the
Company with the Commission may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10007. In addition, reports and other information
filed by the Company can be accessed via the Commission's Internet home page at
http://www.sec.gov/. Copies of such material also can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company has agreed to file with the Commission, to the extent
permitted, and distribute to holders of the Exchange Notes reports, information
and documents specified in Section 13(a) and 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), so long as the Exchange Notes are
outstanding, whether or not the Company is subject to such informational
requirements of the Exchange Act.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any statements that express, or involve discussions as to, expectations,
beliefs, plans, objectives, assumptions or future events or performance (often,
but not always, through the use of words or phrases such as "will likely
result," "are expected to," "will continue," "is anticipated," "estimated,"
"intends," "plans," "projection" and "outlook") are not historical facts and may
be forward-looking and, accordingly, such statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. Accordingly,
any such statements are qualified in their entirety by reference to, and are
accompanied by, the factors discussed throughout this Prospectus, and
particularly in the risk factors set forth herein under "Risk Factors." Among
the key factors that have a direct bearing on the Company's results of
operations are the potential risk of delay in implementing the roll-out of the
Company's Network (as defined), the Company's substantial leverage and the
Company's need for substantial additional capital requirements. These and other
factors are discussed herein under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this Prospectus.
The risk factors described herein could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements of the
Company made by or on behalf of the Company, and investors, therefore, should
not place undue reliance on any such forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements 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
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the Company's 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.
iii
<PAGE> 6
SERVICE OF PROCESS AND
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is a Netherlands company and substantially all of its assets
are located outside the United States. In addition, certain members of the
Supervisory Board of the Company are residents of countries other than 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 such persons or the Company judgments of courts of the United States
predicated upon civil liabilities under the United States federal securities
laws. Since there is no treaty between the United States and the Netherlands
providing for the reciprocal recognition and enforcement of judgments, United
States judgments are not enforceable in the Netherlands. However, a final
judgment for the payment of money obtained in a United States court, which is
not subject to appeal or any other means of contestation and is enforceable in
the United States, would in principle be upheld by a Netherlands court of
competent jurisdiction when asked to render a judgment in accordance with such
final judgment by a United States court, without substantive re-examination or
relitigation on the merits of the subject matter thereof; provided that such
judgment has been rendered by a court of competent jurisdiction, in accordance
with rules of proper procedure, that it has not been rendered in proceedings of
a penal or revenue nature and that its content and possible enforcement are not
contrary to public policy or public order of the Netherlands. Notwithstanding
the foregoing, there can be no assurance that United States investors will be
able to enforce against the Company, or members of the Management or Supervisory
Boards, or certain experts named herein who are residents of the Netherlands or
other countries outside the United States, any judgments in civil and commercial
matters, including judgments under the federal securities laws. In addition,
there is doubt as to whether a Netherlands court would impose civil liability on
the Company or on the members of the Management or Supervisory Boards in an
original action predicated solely upon the federal securities laws of the United
States brought in a court of competent jurisdiction in the Netherlands against
the Company or such members.
The Company is organized in the Netherlands and the Company's executive
offices are currently located at Terhulpsesteenweg 6A, 1560 Hoeilaart, Belgium,
and its telephone number is 32-2-658-5200.
CERTAIN DEFINITIONS
As used in this Prospectus, "H.E.R." or the "Company" means Hermes Europe
Railtel B.V., a Netherlands corporation. References to "guilders" or "NLG" are
to Dutch guilders or any other substitute currency in the Netherlands,
references to "ECU" are to European Currency Units, references to "BF" are to
Belgian Francs and references to "dollars," "US$" or "$" are to United States
dollars.
Certain terms used in this Prospectus are defined in the "Glossary."
iv
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Capitalized terms used and not otherwise defined
in this summary have the meanings given to them elsewhere in this Prospectus.
Unless otherwise indicated, industry and market data in this Prospectus are
based on or derived from sources that the Company believes are reliable. There
can be no assurance, however, as to the accuracy of such industry or market
data.
THE COMPANY
Hermes Europe Railtel B.V. is developing an approximately 17,000 kilometer,
pan-European high capacity fiber optic network (the "H.E.R. Network" or the
"Network") designed to interconnect a majority of the largest Western and
Central European cities. H.E.R.'s objective is to become the leading
pan-European carriers' carrier by providing centrally managed cross-border
telecommunications transmission capacity to telecommunications companies
including traditional Public Telecommunications Operators ("PTOs") and new
entrants, such as alternative carriers, global consortia of telecommunications
operators, international carriers, Internet backbone networks, resellers, value
added networks and other service providers ("New Entrants"). H.E.R. intends to
offer these target customers a better transport system than is currently
available in Europe with a higher and more consistent level of transmission
quality, redundancy, network functionality and service at lower prices.
H.E.R. began initial trials of the Brussels-Amsterdam portion of the
Network in the third quarter of 1996 and commenced commercial service in
November 1996. The Company expects to continue to roll out full
telecommunications transport service linking the cities of London, Rotterdam,
Amsterdam, Antwerp, Brussels, Paris, Dusseldorf and Frankfurt (the "initial five
country network") through April 1998. The initial five country network is
expected to consist of 2,600 kilometers of fiber optic cable covering countries
which, in 1995, originated over 60% of all outgoing calls and terminated over
60% of all incoming calls in the countries to be served by the Network. Network
coverage is planned to be expanded to include Geneva, Zurich and Milan in the
third quarter of 1998. Additional extensions of the Network to be completed in
phases through the year 2000 will be built out into Scandinavia, Southern and
Central Europe. The H.E.R. Network is expected to have points of presence in at
least 32 cities in 15 European countries (the "H.E.R. Geographical Area" or
"HERGA"). H.E.R. is deploying the Network along the rights-of-way of several of
its rail-based shareholders as well as the rights-of-way of a variety of
alternative sources, including motorways, waterways, pipelines and utilities.
The European telecommunications market has historically been dominated by
monopoly PTOs. This system has ensured the development of broad access to
telecommunications services in Europe, but it has also restricted the growth of
high quality and competitively priced pan-European voice and data services. The
current liberalization occurring in Europe is intended to address these
structural deficiencies by breaking down PTO monopolies, allowing new
telecommunications operators to enter the market and increasing the competition
within the European telecommunications market. In March 1996, the European
Commission ("EC") adopted a directive (the "Full Competition Directive")
requiring the full liberalization of all telecommunications services in most
European Union ("EU") member states by January 1, 1998. The Company expects that
full liberalization in these European countries will lead to the emergence of
New Entrants with new and competitive service offerings. These New Entrants will
seek to provide a more diverse offering of telecommunications services that are
priced competitively, that offer higher value added services to customers, and
that are accompanied by a high level of customer service. The Company expects
this increase in competition will result in lower prices and a substantial
increase in the volume of traffic and range of telecommunication services
provided. The Company believes that as a result of the increased call volume and
growth in value added services, participants in these markets will require
significant amounts of new cross-border telecommunications transport capacity to
provide their services.
The H.E.R. Network will offer PTOs and New Entrants an attractive
alternative for the transport of cross-border European telecommunications
traffic. In the traditional system, PTOs own and control circuits only within
their national borders, and as a result, cross-border traffic must be passed
from one PTO to another PTO at the national boundary. No one PTO therefore owns
or controls end-to-end cross-border circuit capacity. Consequently, the tariff
for cross-border switched voice traffic is determined by a series of bilateral
settlement agreements between PTOs. This system, known as the accounting rate
mechanism (the "ARM"),
1
<PAGE> 8
is highly complex and has kept the price of cross-border calls at levels
significantly higher than the underlying cost of transport and terminating
calls. Increasing competition, however, is forcing PTOs and New Entrants to
explore alternative means of transporting switched voice traffic across borders.
Full liberalization in 1998 will allow the PTOs and New Entrants to transport
this traffic across borders using dedicated circuits such as those provided by
the Company. The alternative for the transport of this traffic will be for these
competing carriers to build their own transport capacity or use International
Private Leased Circuits ("IPLCs") which are provisioned by combining
half-circuits on the networks of two or more PTOs. The Company believes that
there are a number of problems with these options that will make the Company's
service offering attractive to these carriers. In particular, building own
transport capacity is unlikely to be an attractive option for most carriers
because of the high traffic volumes required to justify the expense, the need to
focus resources on marketing and customer service, the time commitment and the
regulatory and administrative complexities involved. Significant among these is
obtaining the rights of way along which to construct fiber optic cable across
national borders as these typically do not meet at the border crossing. Those
that do meet are often not available on both sides. Likewise, IPLCs provided by
the PTOs also have a number of disadvantages, including high prices, lack of
end-to-end quality control, lack of redundancy, low quality due to diversity of
network systems and equipment, limited availability of bandwidth and long lead
times for provisioning.
The Company intends to address these deficiencies by creating a single
pan-European fiber network that will provide cross-border wholesale transport
services exclusively to the carrier market. The Company believes it is the only
operator currently developing such a network for this purpose. The H.E.R.
Network will provide the following advantages: the Network will (i) be wholly
controlled and operated by H.E.R., allowing full end-to-end quality control,
(ii) operate on a low cost structure, which, combined with its ability to carry
traffic from a large number of carriers, will allow the Company to offer highly
competitive pricing, (iii) feature a network architecture and technology
platform that will allow for flexible network availability, full redundancy,
high bandwidth speeds, and low error performance and (iv) allow the Company to
provide tailored innovative service offerings to individual customers, allowing
them to maximize the efficiency of their own networks. The Company believes that
these features combined with the Company's early entry into the market, its
carriers' carrier strategy and the Company's current agreements and
relationships with rail-based entities will provide it with a sustainable
competitive advantage.
The Company's target customers carry a mixture of switched voice traffic,
data traffic and multimedia/image traffic. In 1995, the HERGA is estimated to
have generated in excess of 13 billion minutes of switched voice traffic with an
estimated value of approximately $9.4 billion, and to have required
approximately 5,900 E1 equivalents of circuit capacity. The market for switched
telecommunications traffic grew at 12% per annum from 1984 to 1992. The Company
expects this growth rate to continue through the year 2000 due to increased
demand for such services resulting from lower prices and the availability of new
services. Demand for switched voice capacity is expected by the Company to reach
11,300 E1 equivalents of circuit capacity by the year 2000. The market for data
traffic (which is currently carried primarily over IPLCs) is estimated to have
required approximately 250 E1 equivalents of circuit capacity in 1995. The
Company expects this market to grow at approximately 30% per annum due to the
increase in managed data network and other data services and to reach some 930
E1 equivalents of circuit capacity by the year 2000. The market for multimedia
and image traffic (primarily Internet traffic) is estimated to have required
approximately 180 E1 equivalents of circuit capacity in 1995. The Company
expects this market to grow at approximately 40% per annum primarily due to the
increase in Internet users and the increase in demand for high bandwidth
services and to reach some 970 E1 equivalents of circuit capacity by the year
2000.
The Company has entered into agreements for the construction and/or lease
of the fiber optic routes for the initial five country network, except for some
of the routes in Germany which are currently under negotiation. The Company has
completed the construction of two undersea cables connecting the United Kingdom
to the Netherlands and to Belgium, which should be placed in commercial service
in January 1998. In France, the Company has reached agreement with an operator
of motorways for the use of approximately 600 kilometers of infrastructure in
northern France, and has agreements with other providers to complete the French
segment of the initial five country network. The Company expects to start
commercial service connecting Paris to Brussels, Amsterdam and London by January
1998. Contracts are currently being negotiated with respect to the portion of
the Network connecting Germany with each of France, the Netherlands and
Switzerland. The Company has also entered into an agreement with two utility
companies to
2
<PAGE> 9
develop portions of the Network in Germany and expects that Dusseldorf,
Frankfurt and Stuttgart will be connected to the Network by April 1998. In
addition, the Company will be provided transport services between Stockholm and
Copenhagen pursuant to an agreement.
Currently, nine customers are under contract for service on the H.E.R.
Network. These customers represent a range of telecommunications providers
including PTOs, a global consortium of PTOs, Internet service providers, an
international carrier, a value added network and a reseller.
The H.E.R. Network is based on SDH technology, which provides for digital
transmission capability upon which a broad range of advanced functionality may
be built and which offers network availability, flexibility and bandwidth speeds
and error performance not otherwise available to carriers for transport of
telecommunications traffic across national borders in Europe. The Network is
designed to provide customers with a wide variety of network bandwidth speeds,
ranging from VC12/E1 Standard (equivalent to 2.048 Mbps) to STM-1/E4 Standard
(equivalent to 155 Mbps). The Network architecture specifies a meshed topology
that can reach destinations through multiple paths. Substantially all Network
equipment and control equipment will be owned by the Company. For all routings,
there will be at least two alternate paths. The Company expects to size the
H.E.R. Network through successive upgrades so that the Network has at least
twice the amount of capacity it is forecast to require in any given year.
Network capacity upgrades can be accomplished optically through the use of wave
division multiplexing ("WDM") technology without adding fiber optic cable. The
H.E.R. Network has been designed to be controlled by a single network management
center and supported by advanced operational support systems. The Network
Operations Center located in Brussels, Belgium and a backup center located in
Antwerp, Belgium are fully operational and house network management and customer
support services which operate 24 hours a day, seven days a week.
Pro forma for the H.E.R. Recapitalization (as defined), the Company will
have had $102.4 million of cash equity contributed by its shareholders. See
"Certain Relationships and Related Transactions." Based on the Company's
business plan, the total capital expenditures required for the H.E.R. Network
are currently expected to be approximately $335 million, with approximately $100
million required for the rollout of the initial five country network. As of June
30, 1997, approximately $22.6 million has been spent on Network capital
expenditures. The Company currently estimates that after the Offering, its
capital resources will be sufficient to fund operations and expected Network
development through December 1998. The Company expects that its operations will
generate positive EBITDA in the first year of full operation of the initial five
country network. Sources of capital to fund Network development after 1998 may
include internally generated funds, bank debt and vendor financing.
H.E.R. is owned approximately 79% by Global TeleSystems Group, Inc. ("GTS")
through its wholly-owned subsidiary, GTS-Hermes, Inc. ("GTS-Hermes"),
approximately 13% by HIT Rail B.V. ("HIT Rail"), a consortium of eleven European
railways, and approximately 8%, collectively, by two of the railways that
comprise the HIT Rail consortium. GTS is a U.S. based provider of a broad range
of telecommunications services to businesses, other telecommunications service
providers and consumers in Russia and the Commonwealth of Independent States,
Western and Central Europe and Asia. The Notes are obligations of the Company
only and are not guaranteed by, and do not otherwise constitute obligations of,
GTS.
3
<PAGE> 10
THE EXCHANGE OFFER
The Exchange Offer.................. The Company is offering to exchange up
to $265,000,000 aggregate principal
amount of its registered 11 1/2% Senior
Notes due 2007 (the "Exchange Notes")
for up to $265,000,000 aggregate
principal amount of its outstanding
unregistered 11 1/2% Senior Notes due
2007 (the "Outstanding Notes" and,
together with the Exchange Notes, the
"Notes"). The form and terms of the
Exchange Notes are identical in all
material respects to those of the
Outstanding Notes, except for certain
transfer restrictions and registration
rights relating to the Outstanding
Notes and except for certain interest
provisions related to such registration
rights described below under
"Description of the Exchange Notes."
The Exchange Notes will be issued
pursuant to, and entitled to the
benefits of, the Indenture governing
the Outstanding Notes. Outstanding
Notes may be exchanged only in integral
multiples of $1,000.
Based on positions taken by the staff
of the Commission that have been
enunciated in certain no-action
letters, the Company believes that the
Exchange Notes issued pursuant to the
Exchange Offer in exchange for
Outstanding Notes may be offered for
resale, resold and otherwise
transferred by the respective holders
thereof (other than any such holder
which is (i) a broker-dealer who
purchased such Outstanding Notes
directly from the Company to resell
pursuant to Rule 144A or any other
available exemption under the
Securities Act or (ii) an "affiliate"
of the Company within the meaning of
Rule 405 under the Securities Act),
without compliance with the
registration and prospectus delivery
provisions of the Securities Act,
provided that the Exchange Notes are
acquired in the ordinary course of such
holder's business and such holder has
no arrangement with any person to
participate in the distribution of such
Exchange Notes and is not engaged in
and does not intend to engage in a
distribution of the Exchange Notes.
Minimum Condition................... The Exchange Offer is not conditioned
upon any minimum aggregate principal
amount of Outstanding Notes being
tendered or accepted for exchange.
Expiration Date;
Withdrawal of Tender.............. The Exchange Offer will expire at 5:00
p.m., New York time, on
, 1997, or such
later date and time to which it is
extended by the Company. The Exchange
Offer will not in any event be extended
to a date beyond ,
1997. The tender of Outstanding Notes
pursuant to the Exchange Offer may be
withdrawn at any time prior to the
Expiration Date. Any Outstanding Notes
not accepted for
4
<PAGE> 11
exchange for any reason will be
returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer.
Certain Conditions to the
Exchange Offer.................... The Exchange Offer is subject to
certain customary conditions, which may
be waived by the Company. See "Terms of
the Exchange Offer -- Certain
Conditions to the Exchange Offer."
Procedures for Tendering
Outstanding Notes................. Each holder of Outstanding Notes
wishing to accept the Exchange Offer
must complete, sign and date the Letter
of Transmittal, or a facsimile thereof,
in accordance with the instructions
contained herein and therein, and mail
or otherwise deliver such Letter of
Transmittal, or such facsimile,
together with such Outstanding Notes
and any other required documentation to
the Exchange Agent at the address set
forth herein. By executing the Letter
of Transmittal, each holder will
represent to the Company that, among
other things, (i) any Exchange Notes to
be received by it will be acquired in
the ordinary course of its business,
(ii) it has no arrangement with any
person to participate in the
distribution of the Exchange Notes and
(iii) it is not an "affiliate," as
defined in Rule 405 of the Securities
Act, of the Company or, if it is an
affiliate, it will comply with the
registration and prospectus delivery
requirements of the Securities Act to
the extent applicable.
Interest on the Exchange Notes...... The Exchange Notes will bear interest
at the rate of 11 1/2% per annum,
payable semiannually on February 15 and
August 15, commencing February 15,
1998, to holders of record on the
immediately preceding February 1 and
August 1, respectively. Holders of the
Exchange Notes will receive interest on
February 15, 1998 from the date of
initial issuance of the Exchange Notes,
plus an amount equal to the accrued
interest on the Outstanding Notes from
the later of (i) the most recent date
to which interest has been paid thereon
and (ii) the date of initial issuance
of the Outstanding Notes, to the date
of exchange thereof. Interest on the
Outstanding Notes accepted for exchange
will cease to accrue upon issuance of
the Exchange Notes.
Special Procedures for
Beneficial Owners................. Any beneficial owner whose Outstanding
Notes are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and who wishes
to tender such Outstanding Notes in the
Exchange Offer should contact such
registered holder promptly and instruct
such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner
5
<PAGE> 12
wishes to tender on such owner's own
behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its
Outstanding Notes, either make
appropriate arrangements to register
ownership of the Outstanding Notes in
such owner's name or obtain a properly
completed bond power from the
registered holder. The transfer of
registered ownership may take
considerable time and may not be able
to be completed prior to the Expiration
Date.
Guaranteed Delivery Procedures...... Holders of Notes who wish to tender
their Outstanding Notes and whose
Outstanding Notes are not immediately
available or who cannot deliver their
Outstanding Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal
to the Exchange Agent prior to the
Expiration Date, must tender their
Outstanding Notes according to the
guaranteed delivery procedures set
forth in "Terms of the Exchange
Offer -- Guaranteed Delivery
Procedures."
Registration Rights................. The Company has agreed to use its best
efforts to consummate the Exchange
Offer to offer holders of the
Outstanding Notes an opportunity to
exchange their Outstanding Notes for
the Exchange Notes which will be issued
without legends restricting the
transfer thereof. If the Company is not
permitted to effect the Exchange Offer
under certain previously enunciated
positions of the staff of the
Commission, or in certain other
circumstances, the Company has agreed
to file a shelf registration statement
(the "Shelf Registration Statement")
covering resales of the Outstanding
Notes and to use its best efforts to
cause the Shelf Registration Statement
to be declared effective under the
Securities Act and, subject to certain
exceptions, keep the Shelf Registration
Statement effective until three years
after the effective date thereof.
Certain Federal Income
Tax Considerations................ For a discussion of certain federal
income tax considerations relating to
the Exchange Notes, see "Certain United
States Federal Income Tax
Consequences."
Use of Proceeds..................... There will be no proceeds to the
Company from the exchange pursuant to
the Exchange Offer.
Exchange Agent...................... The Bank of New York is serving as
exchange agent (the "Exchange Agent")
in connection with the Exchange Offer.
The address and telephone number of the
Exchange Agent are set forth in "Terms
of the Exchange Offer -- Exchange
Agent."
6
<PAGE> 13
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes as set forth in the
legends thereon as a consequence of the issuance of the Outstanding Notes
pursuant to exemptions from, or in transactions not subject to the registration
requirements of the Securities Act and applicable state securities laws.
Accordingly, such Outstanding Notes may be resold only (i) to a person whom the
seller reasonably believes is a qualified institutional buyer (as defined in
Rule 144A under the Securities Act) in a transaction meeting the requirements of
Rule 144A, (ii) in a transaction meeting the requirements of Rule 144 under the
Securities Act, (iii) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 under the Securities Act or
(iv) in accordance with another exemption from the registration requirements of
the Securities Act (and upon an opinion of counsel if the Company so requests),
(v) to the Company or (vi) pursuant to an effective registration statement, and,
in each case, in accordance with any applicable securities laws of any state of
the United States or any other applicable jurisdiction. The Company does not
currently anticipate that it will register the Outstanding Notes under the
Securities Act. See "Risk Factors -- Consequences of Failure to Exchange
Outstanding Notes" and "Terms of the Exchange Offer -- Consequences of Failure
to Exchange."
TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $265,000,000 aggregate principal amount of
Outstanding Notes. The form and terms of the Exchange Notes are identical in all
material respects to those of the Outstanding Notes, except for certain transfer
restrictions and registration rights relating to the Outstanding Notes and
except for certain interest provisions related to such registration rights. The
Exchange Notes will evidence the same debt as the Outstanding Notes and will be
entitled to the benefits of the Indenture. See "Description of the Exchange
Notes."
Securities Offered.................. $265,000,000 aggregate principal amount
of 11 1/2% Senior Notes due 2007 of
Hermes Europe Railtel B.V. (the
"Exchange Notes").
Maturity............................ August 15, 2007.
Interest Payment Dates.............. February 15 and August 15, commencing
February 15, 1998.
Ranking............................. The Exchange Notes will be general
unsecured obligations of the Company
and will rank senior in right of
payment to all future Indebtedness of
the Company that is expressly
subordinated in right of payment to the
Exchange Notes and pari passu in right
of payment with all existing and future
unsecured liabilities of the Company
that are not so subordinated. The
Exchange Notes will be effectively
subordinated to any secured liabilities
of the Company to the extent of the
assets securing such liabilities. In
addition, the Exchange Notes will be
structurally subordinated to all
liabilities (including trade payables)
of the Company's subsidiaries. As of
June 30, 1997 on a pro forma basis, the
Company would have had no Indebtedness
other than the Notes, and the Company's
subsidiaries would have had $10.0
million of total liabilities reflected
on the Company's balance sheet.
Following the Exchange Offer, the
Company intends to transfer all or
substantially all of its assets and
liabilities (other than the Exchange
Notes) to its subsidiaries. After such
transfer, the Company will be a holding
company with limited assets and will
operate its business through
subsidiaries. See "Capitalization" and
"Description of the Exchange Notes."
Escrow Account...................... The Company has purchased, pledged and
transferred to the Trustee for the
benefit of the holders of the Exchange
Notes the Pledged Securities (as
defined) in such amount as will be
sufficient upon scheduled inter-
7
<PAGE> 14
est and principal payments of such
securities to provide for the payment
in full of the first four scheduled
interest payments on the Exchange
Notes. The Company has used
approximately $56.5 million of the net
proceeds of the offering of Outstanding
Notes to acquire the Pledged
Securities. The Pledged Securities have
been pledged to the Trustee for the
benefit of the holders of the Exchange
Notes and deposited into an escrow
account (the "Escrow Account") held by
an escrow agent for the benefit of the
Trustee and the holders of the Exchange
Notes in accordance with an escrow
agreement. Funds may be disbursed from
the Escrow Account for interest
payments on the Exchange Notes. Upon
acceleration of the maturity of the
Exchange Notes, the Escrow Agreement
will provide for the payment of the
amount remaining in the Escrow Account
to the Trustee to be applied on account
of amounts owing on the Exchange Notes
as provided in the Indenture. Pending
such disbursement, any uninvested funds
contained in the Escrow Account will be
invested in Cash Equivalents (as
defined). See "Description of the
Exchange Notes -- Escrow Account."
Optional Redemption................. The Exchange Notes will be redeemable,
in whole or in part, at the option of
the Company, at any time on or after
August 15, 2002 at the redemption
prices set forth herein, plus accrued
and unpaid interest to the date of
redemption. In addition, prior to
August 15, 2000, the Company may redeem
Exchange Notes at a price equal to
111.5% of the principal amount thereof,
plus accrued and unpaid interest to the
date of redemption with the net cash
proceeds of one or more Public Equity
Offerings or Strategic Equity
Investments; provided, however, that at
least two-thirds of the principal
amount of Exchange Notes originally
issued remains outstanding after each
such redemption.
The Company may, at any time, at its
option, redeem all (but not less than
all) of the Exchange Notes then
outstanding at 100% of the principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of
redemption, if the Company has become
or would become obligated to pay, on
the next date on which any amount would
be payable with respect to the Exchange
Notes, any Additional Amounts (as
defined) as a result of change in law
(including any regulations promulgated
thereunder) or in the interpretation or
administration thereof, if such change
is announced and becomes effective on
or after the date of original issuance
of the Outstanding Notes on or about
August 19, 1997 (the "Issue Date" or
the "Closing Date").
Change of Control................... Upon the occurrence of a Change of
Control, each holder of Exchange Notes
will have the right to require the
Company to purchase all or any portion
of such holder's Exchange Notes at a
price in cash equal to 101% of the
principal amount thereof, plus accrued
and unpaid interest to the date of
purchase. There can be no assurance
that the Company will have the
financial resources necessary to
purchase the Exchange Notes upon a
Change of Control.
Certain Covenants................... The indenture relating to the Notes
(the "Indenture") contains covenants
that limit the ability of the Company
and the Restricted Subsidiaries (as
defined) to, among other things, (i)
incur additional Indebtedness,
8
<PAGE> 15
(ii) make Restricted Payments (as
defined), (iii) create certain liens,
(iv) effect certain Asset Sales (as
defined), (v) enter into certain
transactions with affiliates, (vi)
merge or consolidate with any other
person or transfer all or substantially
all of their assets or (vii) sell or
issue capital stock of Restricted
Subsidiaries. These covenants are
subject to a number of important
exceptions and qualifications. See
"Description of the Exchange
Notes -- Certain Covenants."
Registration Rights;
Liquidated Damages................ Pursuant to the Registration Rights
Agreement, the Company agreed to file,
within 90 days after the Issue Date,
the Registration Statement, and to use
its reasonable best efforts to cause
the Registration Statement to become
effective within 135 days after the
Issue Date. In certain circumstances,
the Company will be required to file,
and use its reasonable best efforts to
cause to become effective, a shelf
registration statement under the
Securities Act to cover resales of the
Outstanding Notes from time to time. If
the Registration Statement or shelf
registration statement is not filed or
declared effective within the specified
time periods or if the Exchange Offer
is not consummated within the specified
time period, the Company will be
required to pay additional interest to
holders of the Outstanding Notes. See
"Description of the Exchange
Notes -- Registration Rights;
Additional Interest."
Luxembourg Paying and Transfer
Agent............................... Banque Internationale a Luxembourg S.A.
Listing............................. The Exchange Notes are expected to be
designated as eligible for trading in
the PORTAL market. The Company does not
intend to apply for listing of the
Exchange Notes on any securities
exchange or for quotation through the
National Association of Securities
Dealers Automated Quotation System.
Application has been made to list the
Exchange Notes on the Luxembourg Stock
Exchange.
Transfer Restrictions............... The Outstanding Notes have not been
registered under the Securities Act.
Until such time as the Outstanding
Notes are exchanged for Exchange Notes
in the Exchange Offer or a registration
statement with respect to resale of
Outstanding Notes is declared
effective, the Outstanding Notes will
be subject to certain restrictions on
transfer. The Exchange Notes and
Outstanding Notes registered pursuant
to on effective registration statement
will generally be freely tradeable.
RISK FACTORS
In addition to the information contained elsewhere in this Prospectus, see
"Risk Factors" for a discussion of certain factors that should be considered by
holders of Outstanding Notes prior to tendering Outstanding Notes in the
Exchange Offer.
9
<PAGE> 16
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994(1) 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ -- $ -- $ 48 $ -- $ 593
Operating costs and expenses................ 183 6,637 15,246 6,903 9,649
Loss from operations........................ (183) (6,637) (15,198) (6,903) (9,056)
Other (expense) income...................... (37) 135 (771) (214) (974)
Net loss.................................... (220) (6,502) (15,969) (7,117) (10,030)
OTHER DATA:
EBITDA(2)................................... (233) (6,607) (15,666) (7,238) (8,629)
Deficiency of earnings to fixed
charges(3)............................... (220) (6,493) (15,816) (7,116) (9,381)
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED(4)
<S> <C> <C>
BALANCE SHEET DATA:
Total current assets............................................... $ 9,560 $ 276,601
Property and equipment, net........................................ 23,950 23,950
Total assets....................................................... 33,510 344,233
Total current liabilities.......................................... 16,304 10,009
Total liabilities.................................................. 16,756 275,461
Shareholders' loans................................................ 48,491 --
Total shareholders' equity......................................... $(31,737) $ 68,722
</TABLE>
- ------------------------------
(1) Although the Company was formed on July 6, 1993, the Company had no
operations prior to 1994.
(2) EBITDA is earnings (loss) from operations before interest, taxes,
depreciation and amortization. EBITDA is a measure of a company's
performance commonly used in the telecommunications industry, but should not
be construed as an alternative to net income (loss) determined in accordance
with generally accepted accounting principles ("GAAP") as an indicator of
operating performance or as an alternative to cash from operating activities
determined in accordance with GAAP as a measure of liquidity.
(3) Because of the Company's historic losses, the Company has experienced a
deficiency of earnings to fixed charges throughout its existence. The
deficiency of earnings to fixed charges equals the loss from continuing
operations before income taxes minus fixed charges. Fixed charges consist of
interest on all indebtedness.
(4) Adjusted to reflect the H.E.R. Recapitalization and the Offering.
10
<PAGE> 17
RISK FACTORS
An investment in the Notes offered hereby involves a high degree of risk.
Prospective participants in the Exchange Offer should consider carefully the
following factors in evaluating the Company and its business in addition to the
other information contained in this Prospectus.
RISKS RELATING TO H.E.R. NETWORK ROLL-OUT
The Company's ability to achieve its strategic objective will depend in
large part on the successful, timely and cost-effective completion of the
Network. Although the Company currently operates commercially over the
Amsterdam-Brussels portion of the Network, the development of the remainder of
the Network may be delayed or adversely affected by a variety of factors,
uncertainties and contingencies. Many of these factors, such as strikes, natural
disasters and other casualties, are beyond the Company's control. In addition,
H.E.R. will need to negotiate and conclude additional agreements with various
parties regarding, among other things, rights-of-way and development and
maintenance of the Network infrastructure and equipment. Historically, the
Company has experienced substantial delays in concluding these agreements and
developing its Network. There can be no assurance that H.E.R. will be successful
in concluding necessary agreements, or that delays in concluding such agreements
will not materially and adversely affect the speed or successful completion of
the Network. The successful and timely completion of the Network will also
depend on, among other things, (i) the availability to the Company of
substantial amounts of additional capital and financing (see " -- Substantial
Additional Capital Requirements"), (ii) timely performance by various third
parties of their contractual obligations to engineer, design and construct
portions of the Network and (iii) the Company's ability to obtain and maintain
applicable governmental approvals (see " -- Government Regulation").
Although the Company believes that its cost estimates and the build-out
schedule are reasonable, there can be no assurance that the actual construction
costs or time required to complete the Network build-out will not substantially
exceed current estimates.
Any significant delay or increase in the costs associated with development
of the Network could have a material adverse effect on the Company, including
its ability to make payments on the Notes.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged. After giving pro forma effect to the
H.E.R. Recapitalization and the Offering and the estimated application of the
proceeds thereof, at June 30, 1997, the Company would have had total long-term
debt of $265.4 million and total shareholders' equity of $68.8 million. The
Company had negative EBITDA of $15.7 million and $8.6 million for the year ended
December 31, 1996 and for the six months ended June 30, 1997, respectively. See
"Capitalization" and "Selected Consolidated Financial Data." The Indenture and
certain debt instruments to which the Company is a party limit but do not
prohibit the incurrence of additional indebtedness by the Company. The Company
expects to incur substantial additional indebtedness in the future.
The Company's ability to pay the principal of and interest on its
indebtedness will depend upon the Company's future performance, which is subject
to a variety of factors, uncertainties and contingencies, many of which are
beyond the Company's control. There can be no assurance that the Company will
generate sufficient cash flow in the future to enable it to meet its anticipated
debt service requirements (including those with respect to the Notes). Failure
to generate sufficient cash flow may impair the Company's ability to raise
additional equity or debt financing or to meet its debt service requirements,
including the payment obligations under the Notes, and to complete development
of the H.E.R. Network. In such circumstances, the Company may be required to
renegotiate the terms of the instruments relating to its long-term debt or to
refinance all or a portion thereof. There can be no assurance that the Company
would be able to renegotiate successfully such terms or refinance its
indebtedness when required or that the terms of any such refinancing would be
acceptable to management.
The Company's leverage could result in adverse consequences to the holders
of the Notes. Such consequences may include, among other things: (i) certain of
the future borrowing by the Company may be at variable rates of interest that
could cause the Company to be vulnerable to increases in interest rates; (ii)
the Company may be more leveraged than certain of its competitors, which may
place it at a competitive
11
<PAGE> 18
disadvantage with respect to such competitors; (iii) the Company's vulnerability
to the effects of general economic downturns or to delays or increases in the
costs of developing the H.E.R. Network may be increased; (iv) the Company's
ability to take advantage of significant business opportunities that may arise
may be impaired; and (v) the Company's ability to respond to changes affecting
the implementation of its financing, construction, development or operating
plans may be impaired. The discretion of the Company's management with respect
to certain business matters will be limited by covenants contained in the
Indenture and future debt instruments. Among other things, the covenants
contained in the Indenture restrict, condition or prohibit the Company from
incurring additional indebtedness, creating liens on its assets, making certain
asset dispositions or entering into transactions with affiliates. There can be
no assurance that the Company's leverage and such restrictions or restrictions
in other debt instruments applicable to the Company will not materially and
adversely affect the Company's ability to finance its future operations or
capital needs or to engage in other business activities. Moreover, a failure to
comply with the obligations contained in the Indenture or any future debt
instrument could result in an event of default under such agreements, which
could permit acceleration of the related debt and acceleration of debt under
future debt agreements that may contain cross-acceleration or cross-default
provisions.
SUBSTANTIAL ADDITIONAL CAPITAL REQUIREMENTS
Based on the Company's business plan, the total capital expenditures
required for the H.E.R. Network are currently expected to be approximately $335
million, with approximately $100 million required for the rollout of the initial
five country network. As of June 30, 1997, approximately $22.6 million has been
spent on Network capital expenditures. After giving pro forma effect to the
Offering and the completion of the H.E.R. Recapitalization, H.E.R. has cash of
$240.5 million available for operations and to construct and develop the
Network. Additional financing will be required to develop the Network. Failure
to obtain necessary financing may require the Company to delay or abandon its
plans for deploying the remainder of the Network, which may have a material
adverse effect on the Company, including its ability to make payments on the
Notes.
The Company's revenues and the cost of rolling out its Network and
operating its business will depend upon a variety of factors including, among
other things, the Company's ability to (i) effectively and efficiently manage
the expansion of its Network and operations, (ii) negotiate favorable contracts
with suppliers, (iii) obtain additional licenses, regulatory approvals,
rights-of-way and infrastructure contracts to complete and operate the H.E.R.
Network, (iv) access markets and attract sufficient numbers of customers and (v)
provide and develop services for which customers will subscribe. The Company's
revenues and costs are also dependent upon factors that are not within the
Company's control such as regulatory changes, changes in technology, increased
competition and various factors such as strikes, weather, and performance by
third-parties in connection with the development of the Network. See
" -- Government Regulation," " -- Competition," " -- Technology," and " -- Risks
Relating to H.E.R. Network Roll-out." Due to the uncertainty of these factors,
actual costs and revenues may vary from expected amounts, possibly to a material
degree, and such variations would likely affect the Company's future capital
requirements. Accordingly, there can be no assurance that the amount of funds
required to complete the Network will not exceed the anticipated amounts
described above. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Use of Proceeds."
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES AND WORKING CAPITAL
DEFICITS
H.E.R. is a development stage enterprise. The Company's prospects must be
considered in light of the risks, expenses, problems and delays inherent in
establishing a new business in a rapidly changing industry. While the Company
has commenced commercial operation of the Brussels-Amsterdam portion of the
Network, the Company has generated only limited revenue, has limited experience
in operating its business and intends to enter countries where it has limited or
no operating experience. The Company's plans and development of the Network have
been substantially delayed in the past.
The Company's business has generated operating losses and, as yet,
insufficient cash flow to meet its future debt service requirements, capital
expenditures and other cash needs. At June 30, 1997, the Company had a
cumulative net loss of $32.7 million and a negative working capital balance of
$6.7 million. The Company's negative working capital balance limits its cash
resources, resulting in reduced liquidity. There can
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be no assurance that the Company will be able to achieve or sustain operating
profitability, or generate sufficient cash flow to make payments on the Notes.
ANTICIPATED HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF THE NOTES;
DEPENDENCE UPON CASH FLOW OF SUBSIDIARIES
The Notes will be general unsecured obligations of the Company and will
rank senior in right of payment to all future Indebtedness of the Company that
is expressly subordinated in right of payment to the Notes and pari passu in
right of payment with all existing and future unsecured liabilities of the
Company that are not so subordinated. See "Description of Certain Indebtedness"
and "Use of Proceeds."
Following the Exchange Offer, the Company intends to transfer all or
substantially all of its assets and liabilities (other than the Notes) to
subsidiaries. After such transfer, the Company will be a holding company with
limited assets and will operate its business through subsidiaries. Accordingly,
the Company will rely entirely upon distributions from its subsidiaries to
generate the funds necessary to meet its obligations, including payments on the
Notes. Such subsidiaries will be separate and distinct legal entities which have
no obligation, contingent or otherwise, to pay any amount due pursuant to the
Notes or to make any funds available therefor, whether by dividends, loans or
other payments. Any right of the Company and its creditors, including holders of
the Notes, to participate in the assets of any of the Company's subsidiaries
upon any liquidation or administration of any such subsidiary will be subject to
the prior claims of the creditors of such subsidiary. The claims of creditors of
the Company, including holders of the Notes, will be effectively subordinated to
all existing and future third-party indebtedness and liabilities, including
trade payables, of the Company's subsidiaries. The Company and its subsidiaries
may incur other debt in the future, including secured debt.
The Company expects that future indebtedness incurred by it may be secured,
particularly through equipment financings. As a result, any claims against the
Company will be effectively subordinated to indebtedness secured by mortgages or
other security interests or liens on the assets of the Company, which could have
material consequences to holders of the Notes. Such security may include
substantially all of the fixed assets of the Company. The value of a substantial
portion of such fixed assets is derived from employing such assets in a
telecommunications business. These assets are highly specialized and, taken
individually, can be expected to have limited marketability. Consequently, in
the event of a realization by secured creditors on the assets of the Company,
creditors would likely seek to sell the business as a going concern in order to
maximize the proceeds realized. The price obtained upon any such sale could be
adversely affected by the necessity to obtain approval of the sale or permits
from the applicable regulatory authorities and to comply with other applicable
governmental regulations.
UNCERTAINTY OF MARKET ACCEPTANCE; POTENTIAL LACK OF CUSTOMER DEMAND
The Company only recently began delivering services to a limited number of
customers over a portion of the Network. Since there is no precedent for a
pan-European carriers' carrier network, the market acceptance and customer
demand for services over such a network are uncertain. There can be no assurance
that the Company will be able to achieve the traffic volume necessary to realize
the anticipated cash flow, operating efficiencies and cost benefits of the
Network.
GOVERNMENT REGULATION
As a multinational telecommunications company, the Company is subject to
varying degrees of regulation in each of the jurisdictions in which it provides
services. Local laws and regulations, and the interpretation of such laws and
regulations, differ significantly among the jurisdictions in which the Company
operates. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
regulators or third parties will not raise material issues with regard to the
Company's compliance or noncompliance with applicable regulations or that any
changes in applicable laws or regulations will not have a material adverse
effect on the Company.
A substantial portion of the Company's strategy is based upon the timely
implementation of regulatory liberalization of the EU telecommunications market
on January 1, 1998 under existing EC directives. Although EU member states have
a legal obligation to liberalize their markets in accordance with their
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requirements, certain more detailed aspects of the EU regulatory framework to
apply in the liberalized environment after January 1, 1998, still remain to be
adopted. In addition, Ireland, Portugal, Spain, Luxembourg and Greece have been
granted extensions from the January 1, 1998 deadline. There can be no assurance
that each EU member state will proceed with the expected liberalization on
schedule, or at all, or that the trend toward liberalization will not be stopped
or reversed in any of the countries. Accordingly, the Company faces the risk
that it will establish the Network and make capital expenditures in a given
country in anticipation of regulatory liberalization which does not subsequently
occur.
In order to give effect to EC directives in each member state, national
governments must pass legislation liberalizing their respective markets. This
applies not only to the liberalization requirements set out in existing EC
directives, but also to requirements set out in directives which have yet to be
adopted. The implementation of EC directives in the telecommunications sector
has been inconsistent or ambiguous in some EU member states. Such implementation
could limit, constrain or otherwise adversely affect the Company's ability to
provide certain services. Furthermore, national governments may not necessarily
pass legislation implementing an EC directive in the form required, or at all,
or may pass such legislation only after a significant delay. Even if a national
legislature enacts appropriate regulation within the time frame established by
the EU, there may be significant resistance to the implementation of such
legislation from PTOs, regulators, trade unions and other sources. Further, the
Company's provision of services in Europe may be materially adversely affected
if any EU member state imposes greater restrictions on non-EU international
services than on international services within the EU. These and other potential
obstacles to liberalization could have a material adverse effect on the
Company's operations by preventing the Company from establishing its Network as
currently intended, as well as a material adverse effect on the Company's
ability to make payments on the Notes.
The Company has obtained licenses, authorizations and/or registrations in
the United Kingdom, Belgium, the Netherlands and Germany. The Company has filed
an application for authorization in France and is awaiting final approval
thereof. In addition, the Company intends to file applications in other
countries in anticipation of service launch in accordance with the H.E.R.
Network roll-out plan. The terms and conditions of these licenses may limit or
otherwise affect the Company's scope of operations. There can be no assurance
that it will be able to obtain, maintain or renew licenses to provide the
services it currently provides and plans to provide, that such licenses will be
issued or renewed on terms or with fees that are commercially viable, or that
licenses required in the future can be obtained by the Company. The loss of, or
failure to obtain, these telecommunications licenses or a substantial limitation
upon the terms of these telecommunications licenses could have a material
adverse effect on the Company. See "Licenses and Regulatory Issues."
NEED TO OBTAIN AND MAINTAIN INFRASTRUCTURE PROVIDER AND RIGHTS-OF-WAY
AGREEMENTS; DEPENDENCE ON LEASED FIBER
The Company must obtain additional infrastructure provider agreements for
the long-term lease of dark fiber, rights-of-way and other permits to install
fiber optic cable from railroads, utilities and governmental authorities to
build out the Network. There can be no assurance that the Company will be able
to maintain all of its existing agreements, rights and permits or to obtain and
maintain the additional agreements, rights and permits needed to implement its
business plan on acceptable terms. Loss of substantial agreements, rights and
permits or the failure to enter into and maintain required arrangements for the
H.E.R. Network could have a material adverse effect on the Company's business.
In addition, the Company depends on third parties for leases of dark fiber for
portions of its Network. There can be no assurance that the Company will be able
to enter into and maintain required arrangements for leased portions of the
H.E.R. Network, which could have a material adverse effect on the Company's
business.
COMPETITION
The European and international telecommunications industries are
competitive. The Company is providing "point-to-point" transborder services, and
upon completion of the Brussels-Amsterdam-London ring of the initial five
country network, will begin to offer "virtual infrastructure" services. See
"Business -- Services." The Company believes that there is currently no
competition for the provision of virtual infrastructure services on a
pan-European centrally managed network, although the Company faces potential
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<PAGE> 21
competition from other telecommunications companies who may develop centrally
managed pan-European networks. PTOs, multinational telecommunications carriers,
other telecommunications developers and certain niche telecommunications
providers could proceed to build a competitive network. Such competition could
have a material adverse effect on the Company and its ability to make payments
on the Notes. WorldCom, Inc. recently announced plans to construct a
pan-European fiber network, the first phase of which is expected to connect
London, Amsterdam, Brussels and Paris by early 1998. Although the Company
believes that the proposed WorldCom pan-European network is primarily intended
to carry WorldCom traffic, WorldCom has stated that any excess capacity on such
network will be used to provide a competitive "carrier's carrier" service.
The Company competes with respect to its "point-to-point" transborder
service offering against circuits currently provided by PTOs through IPLCs.
Although the Company believes that it has certain competitive advantages over
PTOs in this market, there can be no assurance that the Company will compete
effectively against PTOs, which have established customer bases and greater
technical, financial, marketing and other resources.
The Company believes that liberalization of the European telecommunications
market is likely to attract entrants to the market. Many of the Company's
current or potential competitors have technical, financial, marketing and other
resources substantially greater than those of the Company. There can be no
assurance that the Company will be able to overcome successfully the competitive
pressures to which it is or may become subject, both in the markets in which it
currently operates and in markets into which it might expand. See
"Business -- Competition."
MANAGING RAPID GROWTH
As a result of the Company's expected growth and expansion, significant
demands will be placed on the Company's management, operational and financial
resources and on its systems and controls. In order to manage its growth
effectively, the Company must continue to develop its operational and financial
systems and controls, purchase and utilize additional telecommunications
facilities, and expand, train and manage its employee base. Inaccuracies in the
Company's forecasts of market demand could result in insufficient or excessive
telecommunications facilities and disproportionate fixed expenses for its
operations. There can be no assurance that the Company will be able to develop
and operate the entire H.E.R. Network as currently planned, expand into
additional markets at the rate currently planned by the Company, or that any
existing regulatory barriers to such expansion will be reduced or eliminated. As
the Company proceeds with its development and expansion, there will be demands
on the Company's customer support, sales and marketing and administrative
resources and Network infrastructure. There can be no assurance that the
operating and financial control systems and infrastructure of the Company will
be adequate to maintain and effectively manage future growth. Failure to
continue to upgrade the administrative, operating and financial control systems
or the emergence of unexpected expansion difficulties could materially and
adversely affect the Company's business, results of operations and financial
condition.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
Telecommunications companies constitute, and will continue to constitute,
the Company's customer base. The Company may become dependent on a small number
of significant customers. The loss of a significant customer may have a material
adverse effect on the Company and its ability to make payments on the Notes.
CURRENCY AND EXCHANGE RISKS
The Company's functional and reporting currencies are the Belgian franc and
the U.S. dollar, respectively. The Company conducts and will continue to conduct
business transactions in currencies other than its functional and reporting
currencies; accordingly, appreciation or depreciation in the value of other
currencies as compared to the functional currency or reporting currency could
result in a material transaction or translation gain or loss, respectively.
The Company has not entered into hedging transactions to limit its foreign
currency risk exposure, although the Company may implement such practices in the
future. In addition, the Company's revenues have
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<PAGE> 22
been, and the Company currently expects that its revenues will be, generated
primarily in the ECU while the interest and principal payment obligations with
respect to the Notes will be payable in U.S. dollars. Accordingly, the Company
is subject to the risk that it will be unable to generate a sufficient amount of
ECU-based revenue to meet its principal and interest obligations with respect to
the Notes.
RISK OF ERROR IN FORWARD LOOKING STATEMENTS
H.E.R. is a development stage company. All statements in this Prospectus
that are not clearly historical in nature are forward looking. Examples of such
forward looking statements include the statements concerning H.E.R.'s
operations, prospects, markets, technical capabilities, funding needs, financing
sources, commercial operations schedule and future regulatory approvals, as well
as information concerning expected characteristics of competing systems and
expected actions of third parties such as equipment suppliers and partners.
These forward looking statements are inherently predictive and speculative and
no assurance can be given that any of such statements will prove to be correct.
Actual results and developments may be materially different from those expressed
or implied by such statements. Prospective investors should carefully review the
other risk factors set forth in this section of the Prospectus for a discussion
of various factors which could result in any of such forward looking statements
proving to be inaccurate.
TECHNOLOGY
The telecommunications industry is subject to rapid and significant changes
in technology and such technological advances may reduce the relative
effectiveness of existing technology and equipment. The cost of implementation
of emerging and future technologies could be significant. There can be no
assurance that the Company will maintain competitive services or that the
Company will obtain appropriate new technology on a timely basis or on
satisfactory terms. Any failure by the Company to maintain competitive services
or obtain new technologies could have a material adverse effect on the Company's
business, financial condition and results of operations.
Development and operation of the H.E.R. Network are also subject to certain
technological risks. The Network has been designed to utilize SDH technology.
While SDH represents an advanced, new transmission technology, the Company's
ability to upgrade technology from this platform to WDM may be important in
establishing and/or maintaining a cost advantage over competitive carriers.
While the current operational network segment has performed at or above design
specifications since November 1996, there can be no assurance that the H.E.R.
Network will achieve the technical specifications for which it was designed or
that the Company will be able to upgrade the Network as technological
improvements in telecommunications equipment are introduced. Failure to achieve
current specifications for, or future upgrades of, the Network may materially
and adversely affect the viability of the H.E.R. Network and could have a
material adverse effect on the business and prospects of the Company.
ENFORCEABILITY OF JUDGMENTS
All of the assets of the Company are located outside the United States. As
a result, it will be necessary for investors to comply with foreign laws in
order to enforce judgments obtained in a U.S. court against the assets of the
Company, including in order to foreclose upon such assets. In addition, it may
not be possible for investors to: (i) effect service of process within the
United States upon the Company or (ii) enforce U.S. court judgements against
such persons obtained in such courts predicated upon U.S. federal securities
laws. See "Service of Process and Enforceability of Civil Liabilities."
LACK OF PUBLIC MARKET
The Exchange Notes will constitute a new issue of securities with no
established trading market. There can be no assurance as to the liquidity of
markets that may develop for the Exchange Notes or the ability of holders of the
Exchange Notes to sell them, or the prices at which such holders would be able
to sell the Exchange Notes. If such markets were to exist, the Exchange Notes
could trade at prices that may be lower than the initial market values thereof
depending on many factors, including prevailing interest rates, the
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Company's operating results and the markets for similar securities. The Company
does not intend to apply for listing of the Exchange Notes on any securities
exchange (other than the Luxembourg Stock Exchange) or for inclusion of the
Exchange Notes in any automated quotation system. The Exchange Notes are
expected to be eligible for trading in the PORTAL market. Accordingly, there can
be no assurance as to the development or liquidity of any market for the
Exchange Notes. Historically, the market for non-investment grade debt has been
subject to disruptions that have caused substantial volatility in the prices of
securities similar to the Exchange Notes. There can be no assurance that, if a
market for the Exchange Notes were to develop, such a market would not be
subject to similar disruptions. See "Description of the Exchange
Notes -- Exchange Offer; Registration Rights; Additional Interest" and "Plan of
Distribution."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will be
entitled to require the Company to purchase any or all of the Notes held by such
holder at the prices stated herein. However, the Company's ability to repurchase
the Notes upon a Change of Control may be limited by the terms of then existing
contractual obligations of the Company and its subsidiaries. In addition, the
Company may not have adequate financial resources to effect such a purchase, and
there can be no assurance that the Company would be able to obtain such
resources through a refinancing of the Notes to be purchased or otherwise. If
the Company fails to repurchase all of the Notes tendered for purchase upon the
occurrence of a Change of Control, such failure will constitute an Event of
Default under the Indenture.
With respect to the sale of assets referred to in the definition of Change
of Control, the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under the relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of a person and
therefore it may be unclear whether a Change of Control has occurred and whether
the Notes are subject to an offer to purchase.
The Change of Control provision may not necessarily afford the holders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or other similar transaction involving the
Company that may adversely affect the holders, because such transactions may not
involve a shift in voting power or beneficial ownership or, even if they do, may
not involve a shift of the magnitude required under the definition of Change of
Control to trigger such provisions. Except as described under "Description of
the Notes -- Change of Control," the Indenture does not contain provisions that
permit the holders of the Notes to require the Company to repurchase or redeem
the Notes in the event of a takeover, recapitalization or similar transaction.
RELIANCE ON KEY PERSONNEL
The Company's operations are managed by a small number of key executive
officers, the loss of any of whom could have a material adverse effect on the
Company. The Company believes that its growth and future success will depend in
large part on its continued ability to attract and retain highly skilled and
qualified personnel. The competition for qualified personnel in the
telecommunications industry is intense and, accordingly, there can be no
assurance that the Company will be able to hire or retain necessary personnel.
The loss of senior management or the failure to recruit additional qualified
personnel in the future could significantly impede attainment of the Company's
financial, Network development, marketing and other objectives. Although the
Company has designed incentive and compensation programs to retain key employees
and has entered into employment agreements with certain executive officers, no
assurance can be given as to the continued availability of qualified key
executive officers. See "Management."
COUNTRY AND EUROPEAN COMMUNITY ECONOMIC, POLITICAL AND LEGAL CONSIDERATIONS
All of the Company's investments have been, and are expected to continue to
be, in Europe. Risks include loss of or damage to property from terrorism and
other political risks (such as the risks of increases in taxes or changes in law
or governmental regulation).
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RELATIONSHIP WITH GTS; POTENTIAL CONFLICTS OF INTEREST
As of the date hereof, GTS beneficially owns approximately 79% of the
outstanding capital stock of the Company through GTS-Hermes Inc., a wholly owned
subsidiary, which is the sole Managing Director of the Company. In either case,
however, GTS, through GTS-Hermes, Inc., will be a majority shareholder of the
Company and will have the ability to strongly influence and/or control the
affairs and business of the Company. Circumstances may occur in which the
interests of GTS could be in conflict with the interests of the holders of the
Notes. In addition, GTS may have an interest in pursuing transactions that, in
its judgment, enhance the value of its equity investments in the Company, even
though such transactions may involve risks to the holders of the Notes. There
can be no assurance that any such conflicts of interests will be resolved in
favor of such holders of the Notes. See "Security Ownership of Principal
Shareholders and Management."
ESCROW ARRANGEMENTS
Although the Escrow Account is designed to secure a portion of the
Company's obligations under the Notes, the ability to deal freely with the funds
in the Escrow Account following an Event of Default under the Indenture may be
limited by applicable bankruptcy, reorganization, receivership, insolvency,
liquidation or other similar legislation or legal principles. See "Description
of the Notes -- Escrow Account."
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes as set forth in the
legend thereon as a consequence of the issuance of the Outstanding Notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Outstanding Notes may not be offered or sold, unless registered
under the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Except under certain limited circumstances, the Company
does not intend to register the Outstanding Notes under the Securities Act. In
addition, any holder of Outstanding Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent
Outstanding Notes are tendered and accepted in the Exchange Offer, the trading
market, if any, for the Outstanding Notes not tendered could be adversely
affected. See "The Exchange Offer" and "Description of the Exchange
Notes -- Registration Rights."
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USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated herein, the Company will receive in exchange Outstanding Notes
in like principal amount. The Outstanding Notes surrendered in exchange for the
Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in the
indebtedness of the Company.
The net proceeds received by the Company from the Offering, after deducting
the underwriting discounts and commissions and estimated expenses of the
Offering, are approximately $251.5 million. The net proceeds of the Offering
will be used, together with the $51.1 million equity contribution from
GTS-Hermes (described below), to complete the development and operational
start-up of the initial five country network and for general working capital
purposes. As of June 30, 1997, the Company has spent approximately $22.6 million
on Network capital expenditures. The Company's sources of liquidity through the
end of June 1997 have been capital contributions totaling $2.9 million in the
form of common equity and shareholder loans totaling $48.4 million, which were
converted into common equity upon the finalization of the H.E.R.
Recapitalization. Additional cash proceeds of approximately $51.1 million were
contributed (the "GTS Contribution") as common equity, on September 30, 1997, by
GTS-Hermes pursuant to the H.E.R. Recapitalization.
TERMS OF THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were sold by the Company on August 19, 1997 to the
Initial Purchasers who placed the Outstanding Notes with certain institutional
investors in reliance on Section 4(2) and Regulation S of, and Rule 144A under,
the Securities Act. In connection with the sale of the Outstanding Notes, the
Company entered into the Registration Rights Agreement, pursuant to which the
Company agreed to use its best efforts to consummate an offer to exchange the
Outstanding Notes for the Exchange Notes pursuant to an effective registration
statement within 90 days of August 19, 1997. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Unless the context requires otherwise, the term
"holder" with respect to the Exchange Offer means any person in whose name
Outstanding Notes are registered on the books of Company or any other person who
has obtained a properly completed bond power from the registered holder, or any
person whose Outstanding Notes are held of record by DTC who desires to deliver
such Outstanding Notes by book-entry transfer at DTC.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the
Outstanding Notes may be offered for sale, resold or otherwise transferred by
any holder without compliance with the registration and prospectus delivery
provisions of the Securities Act. Based on interpretations by the staff of the
Commission set forth in no-action letters issued to third parties, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Outstanding Notes may be offered for resale, resold and otherwise
transferred by any holder of such Exchange Notes (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act and except in the case of broker-dealers, as set forth below)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes or who is an affiliate of
the Company may not rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any secondary resale transaction. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Outstanding Notes, where such Outstanding Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
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By tendering in the Exchange Offer, each holder of Outstanding Notes will
represent to the Company that, among other things, (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is such holder, (ii) neither the holder of Outstanding Notes nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (iii) if the holder is
not a broker-dealer, or is a broker-dealer but will not receive Exchange Notes
for its own account in exchange for Outstanding Notes, neither the holder nor
any such other person is engaged in or intends to participate in the
distribution of such Exchange Notes and (iv) neither the holder nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if such holder is an "affiliate," that such holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Following the consummation of the Exchange Offer, holders of Outstanding
Notes not tendered will not have any further registration rights and the
Outstanding Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for the Outstanding Notes
could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Outstanding Notes properly tendered and not withdrawn prior to 5:00 p.m.,
New York time, on the Expiration Date. The Company will issue $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
Outstanding Notes surrendered pursuant to the Exchange Offer. Outstanding Notes
may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Outstanding Notes, except that the Exchange Notes will be
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof. The Exchange Notes will evidence the same debt as the
Outstanding Notes. The Exchange Notes will be issued under and entitled to the
benefits of the Indenture, which also authorized the issuance of the Outstanding
Notes, such that both series will be treated as a single class of debt
securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange. Holders of Outstanding
Notes do not have any appraisal or dissenters' rights in connection with the
Exchange Offer.
As of the date of this Prospectus, $265,000,000 aggregate principal amount
of the Outstanding Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Outstanding
Notes. There will be no fixed record date for determining registered holders of
Outstanding Notes entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Outstanding Notes which are not tendered for exchange in the Exchange Offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the Indenture and the Registration
Rights Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Outstanding Notes when, as and if the Company shall have given oral or written
notice thereof to the Exchange Agent and complied with the applicable provisions
of the Registration Rights Agreement. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the Exchange Notes from the
Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Outstanding Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
specified below under "-- Certain Conditions to the Exchange Offer."
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to
20
<PAGE> 27
the exchange of Outstanding Notes pursuant to the Exchange Offer. The Company
will pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "The Exchange Offer -- Fees
and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York time on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. The Exchange Offer will
not in any event be extended beyond , 1997.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Outstanding Notes an announcement thereof, each prior to 9:00 a.m.,
New York time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Notes, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under "-- Certain
Conditions to the Exchange Offer" shall not have been satisfied, by giving oral
or written notice of such delay, extension or termination to the Exchange Agent
or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders of
Outstanding Notes. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders, and the Company will extend the Exchange Offer,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 11 1/2% per annum,
payable semi-annually, on each February 15 and August 15, commencing February
15, 1998. Holders of Exchange Notes will receive interest on February 15, 1998
from the date of initial issuance of the Exchange Notes, plus an amount equal to
the accrued and unpaid interest on the Outstanding Notes from the date of
initial issuance to the date of exchange thereof for Exchange Notes. Interest on
the Outstanding Notes accepted for exchange will cease to accrue upon issuance
of the Exchange Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Outstanding Notes, and may terminate the Exchange Offer as provided herein
before the acceptance of any Outstanding Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's reasonable judgment, might materially impair the
ability of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's reasonable judgment,
might materially impair the ability of the Company to proceed with the
Exchange Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall reasonably deem necessary for the consummation of the
Exchange Offer as contemplated hereby.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified above. The Company will give oral or written notice of
any extension, amendment, non-acceptance or termination to the holders of the
Outstanding Notes as promptly as
21
<PAGE> 28
practicable, such notice in the case of any extension to be issued no later than
9:00 a.m., New York time, on the next business day after the previously
scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable judgment. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 5:00 p.m., New York time, on the Expiration Date. In addition,
either (i) Outstanding Notes must be received by the Exchange Agent along with
the Letter of Transmittal, or (ii) a timely confirmation of book-entry transfer
(a "Book-Entry Confirmation") of such Outstanding Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New
York time, on the Expiration Date.
If delivery of the Outstanding Notes is to be made by book-entry transfer
to the account maintained by the Exchange Agent at DTC, the Letter of
Transmittal need not be manually executed; provided, however, that tenders of
Outstanding Notes must be effected in accordance with the procedures mandated by
DTC's Automated Tender Offer Program ("ATOP"). To tender Outstanding Notes
through ATOP, the electronic instructions sent to DTC and transmitted by DTC to
the Exchange Agent must contain the character by which the participant
acknowledges its receipt of and agrees to be bound by the Letter of Transmittal.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Outstanding Notes to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such owner's own behalf,
such owner must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Outstanding Notes, either make appropriate arrangements
to register ownership of the Outstanding Notes in such owner's name or
22
<PAGE> 29
obtain a properly completed bond power from the registered holder of Outstanding
Notes. The transfer of registered ownership may take considerable time and may
not be able to be completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case may be, must be guaranteed by an Eligible Institution (as
defined) unless the Outstanding Notes tendered pursuant thereto are tendered (i)
by a registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. If signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantor must be a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act which is a member of one of the recognized
signature guarantee programs identified in the Letter of Transmittal (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power, signed
by such registered holder as such registered holder's name appears on such
Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding Notes will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company reserves the absolute
right to reject any and all Outstanding Notes not properly tendered or any
Outstanding Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular
Outstanding Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of
Outstanding Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Outstanding Notes or a timely Book-Entry
Confirmation of such Outstanding Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Outstanding Notes
are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer or if Outstanding Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Outstanding Notes will be returned without expense to the
tendering holder thereof (or, in the case of Outstanding Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
non-exchanged Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
23
<PAGE> 30
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Outstanding Notes by causing
the Book-Entry Transfer Facility to transfer such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under "Exchange Agent" on or prior to the Expiration Date or, if the
guaranteed delivery procedures described below are to be complied with, within
the time period provided under such procedures. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Outstanding Notes and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the Outstanding Notes or a Book-Entry Confirmation, as the case may
be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Outstanding Notes to be withdrawn, identify the Outstanding Notes
to be withdrawn (including the principal amount of such Outstanding Notes), and
(where certificates for Outstanding Notes have been transmitted) specify the
name in which such Outstanding Notes were registered, if different from that of
the withdrawing holder. If certificates for Outstanding Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing holder must also submit the serial
numbers of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Outstanding Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the
24
<PAGE> 31
Book-Entry Transfer Facility to be credited with the withdrawn Outstanding Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Outstanding Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer. Any
Outstanding Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Outstanding Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Outstanding
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the Outstanding Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Outstanding Notes may be retendered by following one of the procedures described
under "-- Procedures for Tendering" above at any time on or prior to the
Expiration Date.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent of the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
The Bank of New York
101 Barclay Street (7 East)
New York, NY 10286
Attn: The Reorganization Section
By: Telephone: (212) 815-2742
Facsimile: (212) 815-6339
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$________. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees, printing costs and
related fees and expenses.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Outstanding Notes pursuant to the Exchange Offer. If, however, certificates
representing Outstanding Notes for principal amounts not tendered or accepted
for exchange are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of Notes tendered, or if tendered Notes
are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
25
<PAGE> 32
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes, as set forth in the
legend thereon, as a consequence of the issuance of the Outstanding Notes
pursuant to the exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the Outstanding Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Outstanding Notes under the Securities Act.
26
<PAGE> 33
CAPITALIZATION
The following table sets forth the historical and as adjusted
capitalization of the Company as of June 30, 1997. This table should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements and notes thereto included elsewhere in this Prospectus. Other than
as described in footnote (1) below, there has been no material change in the
capitalization of the Company since June 30, 1997.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
---------------------------
ACTUAL AS ADJUSTED(1)
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 1,050 $240,465
Restricted cash.................................................... 1,142 57,642(2)
Debt maturing within one year...................................... 29 29
Long-term debt, less current portion............................... 444 265,444
-------- --------------
Total debt............................................... 473 265,473
-------- --------------
Shareholders loans................................................. 48,491 --
-------- --------------
Shareholders' Equity:
Common stock, 1,000 Dutch guilders par value (305 shares
authorized and 80 shares issued and outstanding, actual; and
297,000 shares authorized and 190,468 shares issued and
outstanding, as adjusted).................................... 45 96,532
Additional paid-in capital....................................... 2,884 6,906
Cumulative translation adjustment................................ (1,945) (1,945)
Deficit accumulated during the development stage................. (32,721) (32,721)
-------- --------------
Total shareholders' equity............................... (31,737) 68,772
-------- --------------
Total Capitalization............................................... $ 17,227 $334,245
======== ===========
</TABLE>
- ---------------
(1) The "as adjusted" capitalization gives effect to the H.E.R.
Recapitalization, including the conversion of $48.4 million of shareholders
loans into common stock and the payment of a capital duty tax of $1.0
million as a result of the issuance of additional common stock, as well as
the consummation of the GTS Contribution. In addition, the "as adjusted"
capitalization reflects $251.5 million of net proceeds from the Offering.
See "Certain Relationships and Related Transactions."
(2) Reflects the Company's obligation to place into escrow the first four
scheduled semi-annual interest payments on the Notes.
27
<PAGE> 34
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company presented below
under the captions Statement of Operations Data for the years ended December 31,
1995 and 1996 and Balance Sheet Data as of December 31, 1995 and 1996 has been
derived from consolidated financial statements of the Company audited by Ernst &
Young Reviseurs d'Entreprises S.C.C. The selected consolidated financial data of
the Company as of December 31, 1994 and June 30, 1997 and for the year ended
December 31, 1994 and for the six months ended June 30, 1996 and 1997 has been
derived from unaudited financial statements which, in the opinion of management,
include all adjustments, consisting of only normal recurring accruals, necessary
for a fair presentation of such information for the unaudited interim periods.
The operating results for the six months ended June 30, 1996 and 1997 are not
necessarily indicative of results for the full fiscal year. The Company did not
declare or pay any cash dividends during the periods indicated. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------- --------------------------
1994(1) 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ -- $ -- $ 48 $ -- $ 593
Operating costs and expenses:
Cost of revenues.......................... -- -- 4,694 2,251 3,304
Selling, general and administrative....... 183 6,637 10,552 4,652 6,345
Loss from operations........................ (183) (6,637) (15,198) (6,903) (9,056)
Other income/(expense):
Interest income........................... 18 125 508 301 80
Interest expense.......................... -- (9) (153) (1) (649)
Foreign currency (losses) gains........... (55) 19 (1,126) (514) (405)
Net loss............................. (220) (6,502) (15,969) (7,117) (10,030)
OTHER DATA:
EBITDA(2)................................... (233) (6,607) (15,666) (7,238) (8,629)
Deficiency of earnings to fixed
charges(3)................................ $(220) $(6,493) $(15,816) $(7,116) $ (9,381)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1997
-------------------------------- ---------------------------
1994 1995 1996 ACTUAL AS ADJUSTED(4)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total current assets..................... $ 908 $ 6,430 $ 7,528 $ 9,560 $276,601
Property and equipment, net.............. 47 4,671 20,303 23,950 23,950
Deferred financing costs................. -- -- -- -- 13,500
Total assets............................. 955 11,101 27,831 33,510 344,233
Total current liabilities................ 90 6,785 11,907 16,304 10,009
Long-term debt, less current portion..... -- 10 499 444 265,444
Total liabilities........................ 90 6,795 12,414 16,756 275,461
Shareholders' loans...................... -- 8,353 34,863 48,491 --
Shareholders' equity..................... $ 866 $(4,047) $(19,446) $(31,737) $ 68,772
</TABLE>
- ------------------------------
(1) Although the Company was formed on July 6, 1993, the Company had no
operations prior to 1994.
(2) EBITDA is earnings (loss) from operations before interest, taxes,
depreciation and amortization. EBITDA is a measure of a company's
performance commonly used in the telecommunications industry, but should not
be construed as an alternative to net income (loss) determined in accordance
with GAAP as an indicator of operating performance or as an alternative to
cash from operating activities determined in accordance with GAAP as a
measure of liquidity.
(3) Because of the Company's historic losses, the Company has experienced a
deficiency of earnings to fixed charges throughout its existence. The
deficiency of earnings to fixed charges equals the loss from continuing
operations before income taxes minus fixed charges. Fixed charges consist of
interest on all indebtedness.
(4) Adjusted to reflect the H.E.R. Recapitalization and the Offering and the
application of net proceeds as described in "Use of Proceeds."
28
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company as of June 30, 1997 and 1996, December 31, 1996, 1995
and 1994 and for the three and six months ended June 30, 1997 and 1996 and for
the years ended December 31, 1996, 1995 and 1994. The following discussion
should be read in conjunction with the Company's audited consolidated financial
statements, the notes related thereto and the other financial data included
elsewhere in this Prospectus. Certain statements contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
including, without limitation, those concerning (i) projected traffic volume,
(ii) future revenue and costs and (iii) changes in the Company's competitive
environment, contain forward-looking statements concerning the Company's
operations, economic performance and financial condition. Because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause such differences include, but are not limited to, those discussed
under "Risk Factors."
OVERVIEW
The Company is a development stage enterprise and has invested heavily in
developing its Network. The Company realized a small stream of revenues in 1996
from its commencement of commercial service on the Amsterdam-Brussels portion of
its Network in November 1996. The Company expects that its operations will
generate positive EBITDA in the first year of full operation of the initial five
country network.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE AND SIX MONTHS
ENDED JUNE 30, 1996
Revenue. For the three months and six months ended June 30, 1997, the
Company generated revenue of $0.4 million and $0.6 million, respectively. This
revenue was generated from the operation of the Brussels to Amsterdam segment of
the H.E.R. Network, which began commercial operation in November 1996. There was
no revenue generated from operations for the three and six months ended June 30,
1996, respectively.
Gross Margin. The Company had gross margins of $(1.1) million in both the
three months ended June 30, 1997 and 1996, respectively and $(2.7) million and
$(2.3) million for the six months ended June 30, 1997 and 1996, respectively.
The unfavorable margin was primarily due to higher depreciation on Network
assets related to the Brussels to Amsterdam segment which were transferred from
construction in process to telecommunications equipment at the end of 1996.
Selling, General and Administrative. Selling, general and administrative
expenses were $3.7 million and $2.2 million for the three months ended June 30,
1997 and 1996, respectively, and $6.3 million and $4.7 million for the six
months ended June 30, 1997 and 1996, respectively. The increase in selling,
general, and administrative expenses was due mostly to the increase in the
number of employees. The Company had 115 and 74 employees at June 30, 1997 and
1996, respectively.
Foreign Currency. H.E.R. experienced foreign currency losses of $0.7
million and $0.3 million for the three months ended June 30, 1997 and 1996,
respectively, and $0.4 million and $0.5 million for the six months ended June
30, 1997 and 1996, respectively. The Company operates in a multi-currency
environment and is subject to the effects of fluctuations in exchange rates. See
"Risk Factors -- Currency and Exchange Risks."
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 COMPARED
TO YEAR ENDED DECEMBER 31, 1994
Revenue. H.E.R. had minimal revenues for the year ended December 31, 1996
and no revenues for the years ended December 31, 1995 and 1994.
Gross Margin. H.E.R. had an unfavorable gross margin of $(4.7) million for
the year ended December 31, 1996 and no gross margin for the years ended
December 31, 1995 and 1994.
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Selling, General and Administrative. Selling, general and administrative
expenses were $10.6 million, $6.6 million and $0.2 million for the years ended
December 31, 1996, 1995 and 1994, respectively. In addition, the Company had
101, 29 and 2 employees at December 31, 1996, 1995 and 1994, respectively. The
increase in selling, general and administrative expenses and employees reflects
H.E.R.'s continued transition from the start-up phase to the operational phase.
Foreign Currency. H.E.R. experienced a $1.1 million foreign currency
transaction loss for the year ended December 31, 1996. The Company operates in a
multi-currency environment and is subject to the effects of fluctuations in
exchange rates. See "Risk Factors -- Currency and Exchange Risks."
LIQUIDITY AND CAPITAL RESOURCES
The primary source of funding for H.E.R. through June 30, 1997 has been
equity contributions of $2.9 million and shareholder loans of $48.4 million, all
of which have been converted by September 1997. Additional cash proceeds of
approximately $51.1 million have been contributed by GTS-Hermes.
Development of the H.E.R. fiber optic network is capital intensive. The
buildout of the Network is expected to require approximately $335 million of
capital expenditures, with approximately $100 million required for the initial
five country network. The Company currently estimates that after the Offering
its capital resources will be sufficient to fund operations and expected Network
development through December 1998, at which time it may be required to obtain
additional funds. The Company expects that its operations will generate positive
EBITDA in the first year of full operation of the initial five country network.
Sources of capital to fund Network development after 1998 may include internally
generated funds, bank debt and vendor financing. The Company is currently in
discussion with a number of financial institutions to obtain debt financing and
to negotiate vendor financing with key suppliers of network equipment.
CAPITAL EXPENDITURES AND WORKING CAPITAL
The development of the Company's business in the past has required
substantial capital expenditures. In the future, the Company will require
substantial capital expenditures significantly in excess of historical levels to
develop and expand the Network generally. The Company had a negative working
capital balance of $0.4 million, $4.4 million and $6.7 million as of December
31, 1995, December 31, 1996, and June 30, 1997, respectively. The Company had an
accumulated deficit of $32.7 million at June 1997 including net losses of
approximately $16.0 million and $10.0 million for the periods ending December
31, 1996 and June 30, 1997, respectively.
LIQUIDITY ANALYSIS
The Company had cash and cash equivalents of $1.1 million and $2.0 million
at June 30, 1997 and December 31, 1996, respectively. The Company had $1.1
million and $3.8 million of restricted cash at June 30, 1997 and December 31,
1996, respectively, representing cash held in escrow pursuant to an agreement
with a major vendor.
During the three months ended June 30, 1997 and 1996, the Company's
operating activities used $7.0 million and $0.5 million of cash, respectively.
During the three months ended June 30, 1997 and 1996, the Company's investing
activities provided $1.3 million and used $10.5 million of cash, respectively.
During the six months ended June 30, 1997 and 1996, the Company's operating
activities used $13.3 million and $3.2 million of cash, respectively. Cash used
for investing activities was $1.8 million and $12.1 million for the six months
ended June 30, 1997 and 1996, respectively. During the years ended December 31,
1996, 1995 and 1994, the Company used $11.9 million, $2.5 million and $0.2
million, respectively, of cash for operating activities. Cash used for investing
activities was $20.1 million, $4.6 million and $0.1 million for the years ended
December 31, 1996, 1995 and 1994, respectively. The use of cash in operating and
investing activities reflects the developmental stage of the Company's
commercial activities and the engineering and equipment costs associated with
the initial buildout of the fiber optic network.
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INDUSTRY OVERVIEW
H.E.R.'s primary service offering consists of high capacity cross-border
circuits in Europe for wholesale customers provided over an integrated, managed
pan-European Network. The Company expects that such customers will include PTOs
and New Entrants. These target customers carry a mixture of voice traffic, data
traffic and multimedia/image traffic. Historically European PTOs have
monopolized the provision of these telecommunications services resulting in high
prices and limited service for both carriers and end-users. The liberalization
in the European telecommunications market is creating more demand for
cross-border transport capacity through (i) the entry of increased numbers of,
and different types of, New Entrants to the market, (ii) increased end-user
demand for capacity due to the introduction of new services and for improved
quality, and (iii) increased use of existing services due to lower prices.
H.E.R. intends to capitalize on the opportunities arising from this large and
inefficient market as well as this increased demand for cross-border transport
capacity by being the first or among the first operators in the European market
to provide pan-European carrier's carrier services.
THE TELECOMMUNICATIONS SERVICES MARKET
The telecommunications services market being addressed by H.E.R. target
customers can be divided broadly into three categories: voice traffic, data
traffic and multimedia/image traffic which includes Internet traffic.
Voice Traffic. In 1995 the HERGA is estimated to have generated in excess
of 13 billion minutes of international switched telecommunications traffic
("MITT") which both originate and terminate in the HERGA with a total value of
$9.4 billion. European international switched telecommunications traffic has
historically grown at a rate of approximately 12% annually from 1984 to 1992.
The table below summarizes the intra-HERGA MITTs by country which terminate
within the HERGA for 1995:
<TABLE>
<CAPTION>
HERGA COUNTRY MITT
-------------------------------------------------------
(IN MILLIONS)
-------------
<S> <C>
Austria................................................ 588
Belgium................................................ 888
Czech Republic......................................... 133
Denmark................................................ 350
France................................................. 1,640
Germany................................................ 3,192
Hungary................................................ 158
Italy.................................................. 1,129
Netherlands............................................ 1,081
Poland................................................. 276
Slovakia............................................... 42
Spain.................................................. 673
Sweden................................................. 423
Switzerland............................................ 1,274
United Kingdom......................................... 1,591
-------------
Total........................................ 13,438
===========
</TABLE>
- ------------------------------
Source: TeleGeography, Inc., Washington, DC
The Company's basic service offering is wholesale transmission capacity
measured in E1 equivalents of circuit capacity. An E1 circuit is capable of
handling 30 simultaneous voice calls. Minutes of traffic may be translated into
E1 equivalent circuit capacity by calculating the average number of MITT per
minute and then making an adjustment for the uneven distribution of calls. In
1995, within the HERGA, there were approximately 13.4 billion MITT. This is
equivalent to an average of approximately 25,400 MITT per minute.This figure may
be divided by 30 to yield E1 equivalent circuits in use at a given time.
However, an
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<PAGE> 38
adjustment must be made to allow for the uneven distribution of calls, with peak
usage estimated at approximately 7 times average usage. Based on this algorithm,
the approximately 13.4 billion of intra-HERGA MITT generated in 1995 translate
into capacity requirements of approximately 5,900 E1 equivalent circuits. The
Company expects this capacity requirement to grow at a rate of approximately 14%
per year to some 11,300 E1 equivalent circuits of capacity in the year 2000. The
Company expects that the introduction of competition in the liberalizing
European market and its impact on pricing and infrastructure utilization will
drive the peak usage average up yielding this increase in the prospective growth
rate. In 1995, the total value of this traffic is estimated to have been $9.4
billion.
Data Traffic. In 1995 the market for data traffic within the HERGA is
estimated to have been about 250 E1 equivalent circuits, which the Company
expects will grow on the order of 30% per annum to approximately 930 E1
equivalent circuits in the year 2000. Driving the growth for data networks is
the expected increase in managed data network services and a transition from
private leased circuits to Virtual Private Networks.
Multimedia/Image Traffic. Multimedia/image traffic usage for 1995 is
estimated at approximately 180 E1 equivalents of circuit capacity with a rapidly
growing number of users. The Company expects a growth rate of approximately 40%
per annum resulting in traffic use of approximately 970 E1 equivalents of
circuit capacity in the year 2000. The increase in the growth rate is expected
primarily due to increased demand for and use of these services.
THE CURRENT EUROPEAN MARKET
Current telecommunications service provided by PTOs is characterized by a
number of shortcomings. In the traditional system, PTOs own and control circuits
only within their national borders, and as a result, cross-border traffic must
be passed from one PTO to another PTO at the national boundary. PTOs therefore
do not own or control end-to-end cross-border circuit capacity. Pan-European
service has been provided through the networks of the PTOs linked by an
extensive system of multiple, point-to-point links. As a consequence cross-
border transport has been possible in only two ways: (i) either through the
transport and termination of traffic by the PTO under the bilateral ARM or (ii)
through the leasing by carriers or large businesses of IPLCs provided by PTOs.
The ARM. Under the ARM, international switched voice traffic is exchanged
under bilateral correspondent agreements between carriers in two countries.
Correspondent agreements provide for the termination of traffic in, and return
traffic to, the carriers' respective countries at negotiated accounting rates.
In addition, correspondent agreements provide for network coordination and
accounting and settlement procedures between the carriers. Both carriers are
responsible for their own costs and expenses related to operating their
respective halves of end-to-end international connection. The ARM, to which only
PTOs could be participants, has been responsible for keeping the price of
cross-border calls in Europe at levels significantly higher than the underlying
cost of transporting and terminating the calls. The continuing liberalization of
the telecommunications market is, however, putting increasing pressure on both
accounting rates and on the ARM itself.
IPLCs. IPLCs are private leased circuits that are provisioned on a
half-circuit basis through the networks of two or more PTOs. IPLCs may be
composed of a mix of circuit capacities (generally limited to low capacities) as
well as a mix of transmission technologies including PDH and SDH. The HERGA
includes six of the top ten IPLC routes in the world. Customers for IPLCs
include multinational corporations, PTOs, global consortia of telecommunications
operators and other carriers. IPLCs provided by PTOs have a number of inherent
disadvantages including high prices, lack of redundancy, lack of end-to-end
quality control, low quality due to diversity of network systems and equipment,
limited availability of bandwidth and long lead times for provisioning.
The Company intends to address the above deficiencies by creating a single
pan-European fiber network that will provide cross-border wholesale transport
services exclusively to the carrier market for this purpose. The Company
believes it is the only operator currently developing such a network. The
Company's network will be wholly controlled and operated by H.E.R., allowing
full end-to-end quality control. The Company's low
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<PAGE> 39
cost structure and its ability to load the network with traffic from a large
number of carriers will allow the Company to offer highly competitive pricing.
The H.E.R. network architecture and technology platform allows for flexible
network availability, full redundancy, high bandwidth speeds, and low error
performance. It will also allow the Company to provide tailored innovative
service offerings to individual customers, allowing them to maximize the
efficiency of their own networks. The Company believes that these features
combined with the Company's early entry into the market, its carriers' carrier
strategy and the Company's current agreements and relationships with rail-based
entities will provide it with competitive advantages.
LIBERALIZATION OF THE EUROPEAN MARKET
In Europe, the traditional system of monopoly PTOs has ensured the
development of broad access to telecommunications services; however, it has also
restricted the growth of high quality and competitively priced pan-European
voice and data services. The current liberalization occurring in Europe is
intended to address these structural deficiencies by breaking down PTO
monopolies, allowing new telecommunications operators to enter the market and
increasing the competition within the European telecommunications market. The
inefficiencies of the traditional monopoly system combined with the EU
liberalization initiatives have created the current market opportunity for the
Company's service offerings.
In March 1996, the European Commission adopted the Full Competition
Directive requiring the full liberalization of all telecommunications markets in
EU member states by January 1, 1998 with the exception of certain countries that
were granted an additional grace period. The Company expects that full
liberalization in Europe will lead to the emergence of multiple New Entrants
with new and competitive service offerings. Increasing competition is forcing
these PTOs and New Entrants to explore alternative means of transporting
switched voice traffic across borders in order to reduce the high costs
associated with the ARM. Full liberalization will allow the PTOs and New
Entrants to transport this traffic across borders using dedicated circuits such
as those provided by the Company. The alternative for the transport of this
traffic will be for these competing carriers to build their own transport
capacity or to use IPLCs. Building their own transport capacity is unlikely to
be an attractive option for most carriers because of the high traffic volumes
required to justify the expense, the need to focus resources on marketing and
customer service, the time commitment and the regulatory and administrative
complexities involved. In addition, IPLCs provided by the PTOs also have a
number of disadvantages, including high prices, lack of end-to-end quality
control, low quality due to diversity of network systems and equipment, limited
availability of bandwidth and long lead times for provisioning.
The Company also expects this increase in competition to result in lower
prices and a substantial increase in the volume of traffic and range of
telecommunication services provided. As a result of the increased call volume
and growth in the offerings of value added services, participants in these
markets will require significant amounts of new cross-border telecommunications
transport capacity to provide their services. Service provider demand for
cross-border infrastructure is expected to exceed the demand due to switched
minute market growth. Customers will demand higher bandwidth and increased
quality levels required in a competitive environment. End users will have
requirements for vastly increased data traffic which has not been captured in
historical traffic statistics and requirements for increased bandwidth for new
applications.
H.E.R. POTENTIAL CUSTOMER BASE
The Company is a carrier's carrier and will not offer services to end-user
customers. The Company's target customers include PTOs and New Entrants.
Currently an operator wishing to transport and terminate cross-border traffic in
Europe relies on the services of at least two (and in most cases more than two)
PTOs and is required to pay high prices without quality guarantees across the
circuit. H.E.R. intends to offer these target customers a better transport
system that can provide a higher level of transmission quality and service
across Europe at lower prices. The advantages that H.E.R. can offer its target
customers can be divided into two categories: advantages for facilities-based
carriers, such as PTOs and global consortia of telecommunications operators, and
advantages for non-facilities based carriers, which could include international
carriers, alternative carriers, value added networks, Internet backbone networks
and resellers.
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<PAGE> 40
Facilities-based carriers. The Company expects that carriers that already
own facilities will be interested in using the H.E.R. Network for a number of
reasons. PTOs are beginning to provide services in markets other than their home
market and are interested in procuring end-to-end connectivity. The H.E.R.
Network gives PTOs the ability to reconfigure or shift capacity among routes to
avoid over- and under-utilization of certain routes and to respond to changes in
end-user customer traffic. The H.E.R. Network can also provide additional
redundancy to a PTO or other facilities-based carrier's already existing
network. In addition, the Company believes that facilities-based carriers will
be attracted to the high quality of the H.E.R. Network.
Non-facilities based carriers. The Company expects that non-facilities
based carriers will be interested in using the H.E.R. Network because the
Network will offer high quality service at lower prices than currently offered
by PTOs. In addition, for Internet backbone networks, H.E.R. offers advanced
technology and is capable of handling large volumes of traffic. For all
customers, H.E.R. virtual network service offering is expected to be attractive
because it allows for flexibility in the provisioning of telecommunications
transmission capacity. Carriers from outside Europe will be able to connect to
the H.E.R. Network for all pan-European service needs. Additionally, the Company
expects that New Entrants who compete with facilities-based carriers will be
reluctant to use a competitor's facilities if alternative infrastructure such as
the H.E.R. Network is available, providing better quality service and pricing
flexibility.
Special pricing plans have been tailored to the unique needs of these
customer groups.
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<PAGE> 41
BUSINESS
GENERAL
H.E.R.'s objective is to become the leading pan-European carriers' carrier
by providing cross-border centrally managed telecommunications transmission
capacity to telecommunications companies including PTOs and New Entrants. H.E.R.
intends to offer these target customers a better transport system than is
currently available in Europe with a higher and more consistent level of
transmission quality, redundancy, network functionality and service across
Europe at lower prices. Development of the H.E.R. Network is dependent upon,
among other things, H.E.R.'s ability to obtain the necessary financing,
rights-of-way, licenses and other regulatory approvals in a timely and
cost-effective manner. See "Risk Factors -- Risks Relating to H.E.R. Network
Roll-out."
H.E.R. is developing an approximately 17,000 kilometer, pan-European high
capacity fiber optic network designed to interconnect a majority of the largest
Western and Central European cities. H.E.R. began initial trials of the
Brussels-Amsterdam portion of the Network in the third quarter of 1996 and
commenced commercial service in November 1996. The Company expects the initial
five country network to be placed in operation in the second quarter of 1998 and
the 17,000 kilometer Network to be operational during the year 2000. Each access
point of the Network will be placed in operation as it is linked to the Network.
H.E.R. intends to build the Network using the most accessible and cost-efficient
infrastructure base in each of the regions served, including using rights-of-way
and existing infrastructure of railways, motorways, pipeline companies,
waterways and power companies. H.E.R. plans a flexible approach to the Network
build-out plan and intends to fine-tune the scope, route and design of the
Network based upon the evaluation of customer demand.
The Company expects to continue to roll-out full telecommunications
transport service on the initial five country network linking London, Rotterdam,
Amsterdam, Antwerp, Brussels, Paris, Dusseldorf and Frankfurt through April
1998. The initial five country network is expected to consist of 2,600
kilometers of fiber optic cable covering countries which, in 1995, originated
over 60% of all outgoing calls and terminated over 60% of all incoming calls in
the countries to be served by the Network. Network coverage is planned to be
expanded to include Geneva, Zurich, Stockholm, Copenhagen and Milan in the third
quarter of 1998. Additional extensions of the Network to be completed in phases
through the year 2000 will be built-out into Southern and Central Europe. The
H.E.R. Network is expected to have points of presence in at least 32 cities in
15 European countries.
H.E.R. has entered into agreements for the construction and/or lease of
fiber optic routes for the initial five country network, except for some of the
routes in Germany which are currently under negotiation. The Company has
completed the construction of two undersea cables connecting the United Kingdom
to the Netherlands and to Belgium, which should be placed in commercial service
in January 1998. In France, H.E.R. has reached agreement with an operator of
motorways for the use of approximately 600 kilometers of infrastructure in
northern France, and has agreements with other providers to complete the French
segment of the initial five country network. The Company expects to start
commercial service connecting Paris to Brussels, Amsterdam and London by January
1998. Contracts are currently being negotiated with respect to the portion of
the Network connecting Germany with each of France, the Netherlands and
Switzerland. The Company has also entered into an agreement with two utility
companies to develop portions of the Network in Germany and expects that
Dusseldorf, Frankfurt and Stuttgart will be connected to the Network by April
1998. In addition, H.E.R. will be provided transport services between Stockholm
and Copenhagen pursuant to an agreement.
H.E.R. continues to negotiate rights-of-way and other infrastructure
arrangements in six other Western European countries representing the remainder
of the Western European portion of the rollout, which negotiations involve
railway and other infrastructure providers. The Company will need to negotiate
similar agreements to complete the Network in four Central European countries.
Buildout of the H.E.R. Network is subject to numerous risks and uncertainties
that could delay deployment or increase the costs of the Network, or make the
Network commercially unfeasible. See "Risk Factors -- Risks Relating to H.E.R.
Network Roll-out."
H.E.R. was formed on July 6, 1993 by HIT Rail. HIT Rail was incorporated in
1990 by eleven national railways to carry out telecommunications engineering
activities in order to construct and exploit a data
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communications network for railway traffic. GTS-Hermes purchased a 34.4%
interest in H.E.R. in 1994 and has increased its interest to 50% in 1995 and to
79% in 1997. GTS-Hermes is a wholly owned subsidiary of GTS.
BUSINESS AND MARKETING STRATEGY
The overall strategy of H.E.R. is to offer PTOs and New Entrants
pan-European cross-border telecommunications transport services to help them, in
turn, more successfully meet the needs of their end-user customers. The H.E.R.
Network also provides a vehicle through which a carrier can compete in other
markets where the carrier does not own infrastructure. H.E.R. expects to enter
the market ahead of competition and encourage a wide variety of carriers to use
its Network with service offerings that meet their needs. H.E.R.'s primary
service offerings are large-capacity circuits for "wholesale" customers such as
PTOs and New Entrants. H.E.R. does not intend to market its services to retail
end-user customers such as corporations. H.E.R.'s focus on carriers is designed
to complement and not compete with carriers' own business objectives in
providing services to end-users.
To establish H.E.R. as the leading carriers' carrier for international
telecommunications within Europe, H.E.R. intends to offer its customers
significantly higher quality transmission and extended/advanced network
capabilities at a competitive price by focusing on the following:
High Capacity International Network Facilities. The H.E.R. Network is
designed to offer its customers access to high capacity network facilities
outside their domestic markets, providing cross-border capabilities without
requiring customers to invest in network infrastructure or being
constrained by a narrow range of capacity offerings.
Uniform Network Architecture. The H.E.R. Network is designed to offer
managed transport services from country to country and across multiple
countries utilizing a single uniform network, in contrast to services
currently available that use multiple providers over several networks with
varying technologies and each under the control of separate, not
necessarily compatible, network control systems. The H.E.R. Network's
uniform technology enhances service by providing quality and reliability as
well as uniformity of features throughout the Network.
Diverse Routing. The H.E.R. Network architecture includes diverse,
redundant routes that are designed to provide high levels of reliability.
The Network is designed to provide availability of over 99.98% for most
routes and to provide customers with a wide range of telecommunications
transmission capacity. To achieve this level of reliability without the use
of a network similar to the H.E.R. Network, the Company believes that
carrier customers would need to purchase additional dedicated circuits to
provide for redundancy.
Rapid Provisioning. H.E.R. services provide access to the Network,
such that additional capacity can be provided to customers on the H.E.R.
Network on a rapid basis. This access provides a level of capabilities that
the Company believes is unavailable in Western Europe today.
Flexibility. H.E.R. services are focused on providing customers
flexibility across the Network through which the customer may minimize risk
by enabling Network rerouting, eventually even under customer direct
control.
Advanced Technology. H.E.R. is deploying SDH technology which, by
using WDM techniques and hardware, is upgradeable and will permit
significant expansion of transmission capacity without increasing the
number of fiber pairs in the Network. This technology also provides the
basis for structuring advanced operating features, such as virtual private
network service and ATM-based services.
Innovative Pricing. Currently the price of E1 equivalent circuits on
transborder European routes is artificially high and not necessarily
related to the cost of such circuits. H.E.R. intends to offer competitive
pricing. H.E.R. will also offer highly tailored contract terms and volume
discounts, which allow carrier customers to plan more efficiently the fixed
costs of their service portfolio. Customers can select varying capacity,
access, guaranteed availability and contract terms at competitive prices.
Customers sourcing
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<PAGE> 43
from PTOs are generally limited to order from a very narrow set of
capabilities offered under inflexible pricing plans.
Although H.E.R. and GTS have relationships with certain PTOs for specific
projects, they do not have wide-ranging alliances with any of the major
consortia or large Western telecommunications companies. Additionally, H.E.R.'s
Western European strategy calls for it to focus on carriers' carrier services,
so that it will not compete with its carrier customers in consumer or corporate
markets. H.E.R. believes that this independence will make it an attractive
service provider for Western European carriers who may otherwise be reluctant to
obtain services from other providers of intra-European transport that also may
be their competitors in the retail market.
SERVICES
H.E.R.'s primary service is large capacity cross-border European circuits
provided over an integrated, managed pan-European network structure thus
providing a service for wholesale customers such as PTOs and New Entrants.
H.E.R.'s service is not intended for business or residential end users. The
H.E.R. Network will be based on SDH technology, which provides for digital
transmission capability upon which a broad range of advanced functionality may
be built and which offers network availability, flexibility, bandwidth speeds
and error performance not otherwise available to carriers for transport of
telecommunications traffic across national borders in Western Europe. The
Network is designed to provide customers with a wide variety of bandwidth
speeds, ranging from VC12/E1 Standard (equivalent to 2.048 Mbps) to STM-1/E4
Standard (equivalent to 155 Mbps) and beyond.
H.E.R. will provide high quality cross-border transmission services for
licensed telecommunications providers. Services are based on the principle of
adding greater value than currently available in the market while retaining
competitive prices. Currently, H.E.R. is providing one structured service
offering (Point-to-Point Transport Service) on its Brussels-Amsterdam link and
an additional service offering (Virtual Infrastructure) will be available upon
completion of the Brussels-Amsterdam-London ring of the initial five country
network.
Point-to-Point Transport Service. The current market for cross-border
transport is served by IPLCs provided by PTOs. IPLCs are formed by combining
half-circuits from two PTOs between customer locations, often with additional
PTOs providing transit segments. Under the IPLC service, overall service quality
guarantees generally are not provided and only a limited range of bandwidth is
available, usually only E1 and in certain instances, E3. The Company believes
that H.E.R.'s Point-to-Point Transport Service will be a major improvement to
the PTO-based approach because it provides a greater range of bandwidths (from 2
Mbps (E1 or VC-12) to 140/155 Mbps (E4 or VC-4)) and allows customers to choose
a service level agreement with guarantees appropriate for their applications,
including guarantees for on-time service delivery and service availability.
Point-to-Point Transport Service consists of two services, "Integrated" and
"Node-to-Node." The H.E.R. "Integrated" service provides an end-to-end service
between customer-specified locations where the customer can request for H.E.R.
to arrange for "last mile" services from the H.E.R. node location to the
customer's location. The H.E.R. "Node-to-Node" service can be selected only
where the customer provides its own services to reach the local H.E.R. node
location. In Node-to-Node Service, H.E.R. guarantees service only on its portion
of the Network between H.E.R. nodes. Both services will be competitively priced
relative to current service offerings. A premium is charged for the highest
guaranteed level of service which incorporates an end-to-end, fully diverse,
protected, "Integrated" service. The customer can choose flexible contract terms
from one to five or more years' duration, with volume discount schemes designed
to ensure that H.E.R. remains a cost-effective solution.
Virtual Infrastructure Service. Carriers and operators that plan to expand
their operations to become pan-European service providers as the European
marketplace is liberalized require a flexible and cost-effective means of
telecommunications transport. To date such service providers obtain European
cross-border transport service by leasing IPLCs from PTOs. Leasing IPLCs
requires a carrier to lease channels on a segment-by-segment basis from multiple
PTOs, linking the target cities under arrangements having fixed
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capacity and pricing structure for each segment of the carrier's network.
Leasing IPLCs has several disadvantages, including (i) difficulty in obtaining
discount/volume pricing schemes since there is no single provider of
pan-European coverage, (ii) delays in implementation due to numerous contractual
negotiations and having to interconnect numerous IPLCs, (iii) limited
availability of pan-European leased capacity at high bandwidth and (iv)
variability of quality due to multiple operators and the absence of a single
uniform network. Operators could also construct their own network, which is
expensive, time-consuming and complex and which may not be justified by such
operators' traffic volume.
H.E.R.'s Virtual Infrastructure Service will offer a new solution and an
attractive alternative to leasing IPLCs or building infrastructure. This service
will enable H.E.R.'s customers to obtain a uniform pan-European or cross-border
network under one service agreement by allowing the customer to select any
number of cities along the H.E.R. Network at a pricing structure based on the
overall amount of leased capacity for the customer's entire network. The key
feature behind Virtual Infrastructure Service is that it gives the customer the
ability to reconfigure or shift capacity among the customer's leased channels,
thereby enabling the customers to respond almost immediately to changes in
traffic. By being able to transfer capacity among the Network routes, H.E.R.'s
customers are able to avoid the risks of over- and under-utilization of leased
channels. This service offering provides a customer with the benefits of
ownership (rapid provisioning, freedom to rearrange and control) with a
"pay-as-you-go" managed service offering, without the burdens of up-front
investment and costs required to build a network, and without having to manage
the on-going maintenance and operation of the network.
The service is delivered through pre-installed physical facilities at each
of the customer locations. These facilities are designed to ensure that most
growth or changes in customer requirements can be addressed purely by remote
logical reconfiguration from the H.E.R. Network Operations Center. This remote
Network management ability is inherent in SDH technology and allows rapid
provisioning and high quality of service.
Sales and marketing of H.E.R.'s services are conducted through its sales
and marketing department, which includes a director and senior sales managers
responsible for various regions and customer segments. Additionally, the Company
expects that its railway shareholders that develop domestic telecommunications
businesses, or other local network access providers, can provide an effective
distribution channel to smaller carrier customers.
PRICING
Currently the price of cross-border pan-European calls are often
significantly higher than the underlying cost of transport and terminating such
calls and higher than the price of intra-country calls or transborder calls to
and from liberalized markets. The low cost of operating the Network enables the
Company to attractively and competitively price services in the face of
declining overall tariffs for telecommunication services. The Company's low-cost
basis is due to, among other things, its use of up-to-date technology without
the burden of legacy networks, which requires fewer employees to operate.
The term of a typical customer agreement is expected to be from 1 to 3
years. The customer agrees to purchase, and the Company agrees to provide,
cross-border transmission services. In general, the customer agrees to pay
certain non-recurring charges and recurring charges on an annual basis, payable
in twelve monthly installments. If the customer terminates the service order
prior to the end of the contract term, it is required to pay the Company a
cancellation charge equal to three months' service for each of the twelve months
remaining in the contract term. The Company guarantees transmission services to
a certain service level. If such levels are not met or the Company fails to
deliver service by the committed delivery date, the customer is eligible for a
credit against charges otherwise payable in respect of the relevant link.
CUSTOMERS
H.E.R.'s high capacity, SDH-based fiber optic network is designed to enable
PTOs and New Entrants to integrate high quality, cross-border capacity into
their end user offerings. H.E.R. will target seven major market segments or
customer groups which can be characterized as follows:
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<PAGE> 45
Alternative Carriers. This segment consists of second carriers, cable
TV and mobile carriers and competitive access providers. These new carriers
have chosen to compete with the incumbent PTOs in their respective
countries, and the Company believes that they would look very favorably to
an alternative such as H.E.R. The Company believes that this segment will
sustain the largest growth as competition emerges in Europe. The Company
also believes that non-PTO competitors in Europe will prefer to use a
non-PTO alternative like H.E.R. to meet their cross-border
telecommunication transport needs.
Existing PTOs. This customer segment consists of the traditional
European PTOs that generally participate in the standard bilateral
agreements for cross-border connectivity. H.E.R. provides a vehicle for
PTOs to compete in non-domestic markets both before and after January 1,
1998. Prior to January 1, 1998 when liberalization of the provision of
switched telephony (reserved traffic) is scheduled to occur in the majority
of Western European markets, a significant market opportunity for H.E.R.
exists to provide cross-border transport services to PTOs for their
non-reserved international traffic outside the standard ITU settlement
process. As of January 1, 1998, both reserved and non-reserved traffic can
be transported by alternative infrastructure providers, thus vastly
expanding the available PTO market for H.E.R.
Global Consortia of Telecommunications Operators. Many of the largest
PTOs and international carriers have pooled resources and formed consortia
in order to compete more effectively in important telecommunications
markets such as those in Western Europe particularly outside their home
markets. Prior to liberalization of the provision of switched voice
services in Western European markets, one of the primary objectives of
these consortia is to provide non-reserved pan-European services to
multinational business customers, including X.25/frame relay (high speed
data network) service and closed-user group voice services. Under the
current regulatory framework, consortia would otherwise be required to
purchase leased lines at negotiated retail rates, even within their home
countries. H.E.R. believes that it provides an attractive alternative at
better pricing in those environments where such a consortium does not
already own its infrastructure. Furthermore, H.E.R. believes that it is
well positioned to provide cross-border connectivity between different
domestic infrastructures of these alliances.
International Carriers. This customer segment consists of carriers
whose primary business is to transport traffic between European and other
international gateways. Such carriers include Teleglobe and GTS-Monaco
Access. H.E.R. can provide these customers a pan-European distribution
network to gather and deliver traffic to and from their own and other hubs.
Internet Backbone Networks. Internet backbone networks are a fast
emerging segment and are expected to generate significant requirements for
the services H.E.R. offers. These require large capacity international
connectivity services between Internet nodes (point of interconnection
between local Internet service providers) in all local European markets.
The Internet segment is experiencing significant growth in demand for
transmission capacity.
Resellers. Resellers are carriers that do not own transmission
facilities, but obtain communications services from another carrier for
resale to the public. Resellers are also a growing segment of the market
and are expected to increase in conjunction with the liberalization of the
European telecommunications market. In the U.S., for example, resellers
were a significant factor in the expansion of competition.
Value Added Networks ("VANs") and other Service Providers. VANs are
data communications systems in which special service features enhance the
basic data transmission facilities offered to customers. Many of these
networks are targeted to the data transfer requirements of specific
international customer segments such as airlines and financial
institutions. VANs' basic network transmission requirement is to connect
data switches or processors. VANs currently purchase their own
international circuits and build additional resiliency into their network
infrastructure. H.E.R. will allow them to meet these needs
cost-effectively, and to extend their services to new markets or customers
without substantial capital investment.
The Company expects that additional demand for alternative service
providers will come from increased usage of dedicated circuits for Internet
access, private lines for the deployment of wide-area networks by large
corporations, "single source" local and long distance services by small and
medium-sized businesses and
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<PAGE> 46
emerging broad band applications such as cable TV programming distribution
(other than broadcast) to the end user.
CURRENT OPERATIONS
H.E.R. is currently operating the network on the Brussels-Amsterdam link
with additional access points in Antwerp and Rotterdam. H.E.R. began initial
trials of this 244 kilometer portion of the Network in the third quarter of 1996
and commenced commercial service in November 1996. The Company's Network
Operations Center located in Brussels, Belgium and its backup center located in
Antwerp, Belgium are fully operational and house Network management and customer
support services which operate 24 hours a day, seven days a week. Billing and
customer service functions are also operational. Currently nine customers are
under contract for service on the H.E.R. Network, including PTOs, a global
consortium of PTOs, Internet service providers, an international carrier, a VAN
and a reseller. H.E.R. provided capacity of approximately 30 E1 equivalent
circuits as of July 30, 1997.
The Brussels-Amsterdam route is a relatively small part of the initial five
country network and is only a point-to-point link that does not provide the
automated redundancy and access of a complete ring network. The route does have
a spare backup fiber pair on key segments to enhance customer reliability. The
type and quality of H.E.R.'s customers validates the concept of the H.E.R.
Network, and illustrates the type of customers who will be attracted to the full
Network. The success of this link also demonstrates the demand for cross-border
transport services.
NETWORK DESIGN
Network Architecture. The Network architecture is based on a highly meshed
flat topology which covers a wide geographical area with large distances between
individual Network nodes. This architecture allows rerouting of traffic at
electronic speeds in the event of a Network failure. This approach also lowers
Network cost by allowing each node to be sized to match anticipated traffic
volumes rather than to a standard capacity. Individual nodes can be configured
to connect any trunk to any other in the nodes, thus allowing efficient
transmission of traffic. Each node will be connected to at least two other nodes
allowing rerouting of traffic in the event of a Network failure. The Company
believes that its Network will be the first cross-border pan-European network
with such redundancy.
The H.E.R. Network has been designed to be controlled by a single network
management center and supported by advanced operational support systems. A
centralized Network center can pinpoint overloaded pathways or malfunctioning
circuitry and reroute traffic much more quickly than networks controlled by
separate network centers operated by PTOs in different countries. H.E.R. uses a
single vendor for the supply of transmission equipment and network management
systems. H.E.R.'s advanced operational support systems allow it to correct
Network failures and isolate equipment faults with greater speed and at a lower
cost than is the case with heterogeneous multi-operator networks. Critical
elements of the Network, including Network maintenance and control systems, are
designed with redundancy in order to ensure a high quality of service. The
Network design has several important resilience features including: multiple
paths to each node, built-in hardware redundancy and redundant power supplies.
For all Network routings, there will be at least two paths. Should service
failure occur on one route, the Network is designed to automatically re-route
traffic to another route. The Company believes that these techniques will result
in performance of 99.98 percent or better for premium service customers for most
routes.
H.E.R. expects to operate the entire Network and to own substantially all
of the Network equipment as well as some segments of the fiber optic cable. A
substantial part of the fiber is leased on a long-term basis. Long-term leases
for fiber are advantageous to the Company because they reduce the capital
expense burden of building large quantities of capacity before they can be used.
Where H.E.R. leases dark fiber, the infrastructure provider will generally be
responsible for maintaining such fiber optic cable. H.E.R. has concluded an
agreement with Alcatel to supply equipment. H.E.R. will enter into agreements
with Alcatel and
40
<PAGE> 47
infrastructure providers and other third parties to maintain the equipment for
the H.E.R. Network. See "Risk Factors -- Risks Relating to H.E.R. Network
Roll-out."
Network Capacity. The Network will consist of SDH STM-16 links delivered
over fiber owned by H.E.R. and dark fiber leased from infrastructure providers.
Each line system and multiplexer works initially at the 2.5 Gbps (STM-16) level.
Systems with higher bit rates (STM-64) are planned for introduction after 1999.
The most important types of equipment used or to be used in the Network are
Alcatel 1661 SM-C ADM nodes used as Add-Drop Multiplexors ("ADMs") and
regulators and a variety of optical amplifiers for boosting optical signals. The
Company expects to size the Network through successive upgrades so that the
Network has at least twice the amount of capacity it is forecast to require in
any given year. Network capacity upgrades can be accomplished optically through
WDM technology to multiply the then-existing Network capacity without adding
fiber optic cable.
Network Agreements. The Company has entered into agreements and letters of
intent with various infrastructure providers for construction and/or lease of
portions of the H.E.R. Network. The Company's agreements for leases of portions
of the Network typically required the infrastructure provider to provide a
certain number of pairs of dark fiber and node and/or regenerator sites along
the Network route commencing on certain dates provided by H.E.R. The term of a
lease agreement typically ranges from 10 to 15 years. An agreement typically
contains optical specification standards for the fiber and methods of testing.
H.E.R. is allowed to use the cable for the transmission of messages and in other
ways, including increasing capacity. The infrastructure provider also provides
space for the location of equipment and spare parts and guarantees the provision
of power and other utilities together with environmental controls and security
to ensure the proper functioning of the equipment. The infrastructure provider
is typically responsible for maintenance of the cable and the provision of first
line maintenance to equipment and permits H.E.R. access to such facilities.
Access arrangements to the nodes are also provided so that connection may be
made to H.E.R. customers or to the rest of the Network. An agreement also
provides for an annual price for the provision of fiber and for the facilities
and maintenance. The agreements typically provide for termination by the parties
only for material breach, with a 90-day cure period. The agreements typically
contain a transition period after termination of the agreement to allow the
Company to continue to serve its customers until it can reach agreement with an
alternative infrastructure provider.
Local Access. Access to the H.E.R. Network will be provided to clients
through SDH access lines including at the STM-1 or STM-4 level. However,
customers who continue to use the older PDH technology may also access the
H.E.R. Network. In each city, as an H.E.R. POP is deployed, H.E.R. may contract
with a local access network supplier for"last mile" services to customer
locations. H.E.R. will not invest in building local access infrastructure but
such connectivity can be supplied on a case-by-case basis via preferred local
access partner arrangements. Currently Telfort in the Netherlands and Belgacom
in Belgium are providing local access to the operating Amsterdam-Brussels route.
In London and Paris, H.E.R. has contracted to connect the H.E.R. Network to
intra-city networks in those cities. Pursuant to this agreement, H.E.R. can
offer its carrier customers local connectivity in those cities. Local access
network suppliers may also be interested in H.E.R. for the purpose of linking
the business centers in which they are active. Therefore, the Company believes
that the
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<PAGE> 48
relationships between H.E.R. and local access network suppliers can benefit both
parties. Set forth below is an illustration of the connection between the H.E.R.
Network and local access providers.
LOGO
Network Routes. The table below sets forth the planning dates as of June
30, 1997 of the development of routes in the initial five country network.
<TABLE>
<CAPTION>
ESTIMATED
COMMERCIAL
SERVICE TOTAL ROUTE
AVAILABILITY KILOMETERS OF
FROM -------- TO -------- DATE FIBER
-------------- -------------
<S> <C> <C> <C>
Amsterdam Brussels Operational 244
Amsterdam London January 1998 369
Brussels London January 1998 386
Paris Brussels January 1998 492
Paris Frankfurt April 1998 631
Frankfurt Dusseldorf April 1998 181
Dusseldorf Amsterdam February 1998 306
</TABLE>
The Amsterdam-London, Brussels-London, Paris-Brussels and Paris-Strasbourg
fiber optic routes are currently under construction. "Under construction" means
that with respect to each of the segments that make up each of these routes, one
of the following is occurring: (i) H.E.R. has contracted to build or is
contracting to build the fiber optic cable segment or (ii) H.E.R. has leased or
will lease such segment of fiber optic cable from a third party who has built or
is currently building such segment. For each of the Frankfurt-Dusseldorf and
Dusseldorf-Amsterdam routes, H.E.R. is currently negotiating construction and/or
lease contracts. For the Strasbourg-Frankfurt route, H.E.R. is negotiating
construction and/or lease contracts for some segments of the route and has some
segments of the route under construction. The dates set forth above
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<PAGE> 49
may be subject to delays due to a variety of factors, many of which are beyond
the control of the Company. See "Risk Factors -- Risks Related to H.E.R. Network
Roll-Out."
H.E.R. is deploying the Network along the rights-of-way of several
shareholders as well as the rights-of-way of a variety of alternative sources,
including motorways, waterways, pipelines and utilities. The rights-of-way of
Hermes-built portions of the Network will be provided pursuant to long-term
leases or other arrangements entered into with railroads, highway commissions,
pipeline owners, utilities or others. H.E.R. generally prefers to use the
infrastructure of its rail-based shareholders when such infrastructure is
available on a timely and commercially reasonable basis. In certain cases,
however, H.E.R. has not been able to reach agreement with such shareholders for
the provision of rights-of-way along their railways, which has resulted in
significant delays to the Network buildout. In all cases, it is the policy of
H.E.R. to evaluate multiple alternative infrastructure suppliers in order to
maximize flexibility. As a result of its Network development activities to date,
the Company has gained access to infrastructure for its Network routes which, in
certain cases, the Company believes will be difficult for its competitors to
duplicate.
COMPETITION
The European and international telecommunications industries are
competitive. H.E.R.'s success depends upon its ability to compete with a variety
of other telecommunications providers offering or seeking to offer cross-border
services, including (i) the respective PTO in each country in which H.E.R.
operates and (ii) global alliances among some of the world's largest
telecommunications carriers. The Company expects that some of these potential
competitors may also become its customers. H.E.R. believes that the ongoing
liberalization of the European telecommunications market will attract New
Entrants to the market and increase the intensity of competition. Competitors in
the market compete primarily on the basis of price and quality. H.E.R. intends
to focus on these factors and on service innovation as well. H.E.R.'s business
plan anticipates substantial head-to-head competition as well as indirect
competition.
WorldCom, Inc. recently announced plans to construct a pan-European fiber
network, the first phase of which is expected to connect London, Amsterdam,
Brussels and Paris by early 1998. Although the Company believes that the
proposed WorldCom pan-European network is primarily intended to carry WorldCom
traffic, WorldCom has stated that any excess capacity on such network will be
used to provide a competitive "carrier's carrier" service.
If H.E.R.'s competitors, many of whom possess greater technical, financial
and other resources than H.E.R., devote significant resources to the provision
of pan-European, cross-border telecommunications transport services to carriers,
such action could have a material adverse effect on H.E.R.'s business, financial
condition and results of operations. There can be no assurance that H.E.R. will
be able to compete successfully against such new or existing competitors. See
"Risk Factors -- Competition."
LICENSES AND REGULATORY ISSUES
A summary discussion of the regulatory framework in the countries of the
initial five country network and the next five countries into which H.E.R.
expects to develop a Network is set forth below. This discussion is intended to
provide a general outline, rather than a comprehensive discussion, of the more
relevant regulations and current regulatory posture of the various
jurisdictions.
National authorities in individual member states of the EU are responsible
for regulating the operation (and in some cases the construction) of
telecommunications infrastructure. The Company believes that the adoption of the
Full Competition Directive and the various related Directives adopted by the
European Parliament and the Council of the EU have resulted in the removal of
most regulatory barriers to the operation of telecommunications infrastructure
in the countries of the initial five country network.
H.E.R. requires licenses, authorizations or registrations in all countries
to operate the Network. There can be no assurance that H.E.R. will be able to
obtain such licenses, authorizations or registrations or that H.E.R.'s
operations will not become subject to other regulatory, authorization or
registration requirements in the countries in which it plans to operate.
Licenses, authorizations or registrations have been obtained in the
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<PAGE> 50
United Kingdom, the Netherlands, Belgium and Germany and a license application
has been filed in France. A draft license has been received from the French
regulatory authorities which will be the basis for the final license. However,
there can be no assurance that such license will be granted. The Company intends
to file applications in other countries in anticipation of service launch in
accordance with the Network roll-out plan.
On June 28, 1990, the European Commission, in an effort to promote
competition and efficiency in the Western European telecommunications industry,
issued a directive (the "1990 Directive") requiring EU member states to
immediately liberalize all telecommunication services with the exception of
voice telephony to the general public (basic voice services provided over the
public switched voice network). This step liberalized value added services and
voice services over corporate networks and/or "closed user groups," although the
exact definitions of the terms used in the 1990 Directive were not altogether
clear.
On July 22, 1993, the Council of the EU agreed that all voice telephony
services in EU member states should be liberalized by January 1, 1998 subject to
additional transitional periods of up to five years to allow member states with
less developed networks to achieve the necessary adjustments. It was agreed that
such exemptions would be granted to Spain, Ireland, Greece and Portugal, subject
to formal application and satisfaction of certain requirements. Luxembourg,
because of the small size of its market, would be eligible for a special
transitional period of up to two years.
In April 1995, a communication from the European Commission sought to
clarify the types of services that were liberalized by the 1990 Directive,
stating that the burden of proof as to why a service should be considered
"reserved" and therefore not open to competition should be upon the PTOs and the
regulatory authorities of member states. Along with this statement came the
threat of formal procedures under the Treaty of Rome against member states that
do not implement the 1990 Directive "within a reasonable time." Procedures have
been brought so far against Italy, Greece, Germany and Spain for failing to
apply the requirements of the 1990 Directive.
On March 13, 1996, the European Commission adopted the Full Competition
Directive extending the 1990 Directive to all services, requiring that licensing
procedures for these services be transparent and non-discriminatory, requiring
member states to fully liberalize alternative infrastructure to allow a
competitive market for "non-reserved" services such as data, value added
services and non-public (closed-user group) switched voice services by July 1,
1996 and mandating open competition in all public telecommunications services,
including voice telephony to the general public, by January 1, 1998 (except for
countries to which grace periods were granted in accordance with the 1993
Council Resolution).
On April 10, 1997, the European Parliament and the Council of Ministers
adopted a Directive on a common framework for general authorizations and
individual licenses in the field of telecommunications services, including
networks. Licenses must be awarded through open, non-discriminatory and
transparent procedures and applications will be required to be dealt with in a
timely fashion. The number of licenses may only be restricted to the extent
required to ensure the efficient use of radio frequencies or for the time
necessary to make available sufficient numbers in accordance with EC law.
In the specific area of concern to H.E.R., the European Commission is
seeking to establish EU level guidelines for coordinating national regulatory
frameworks to facilitate the development of pan-European networks. The Company
believes that many European countries have revised telecommunications
regulations to comply with the 1990 Directive and the Full Competition Directive
and that such changes will enhance the Company's ability to obtain other
necessary regulatory approvals for its operations.
As a multinational telecommunications company, H.E.R. is subject to varying
degrees of regulation in each of the jurisdictions in which it provides its
services. Local laws and regulations and the interpretation of such laws and
regulations differ significantly among the jurisdictions in which the Company
operates. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
domestic or international regulators or third parties will not raise material
issues with regard to the Company's compliance or noncompliance with applicable
regulations or that regulatory activities will not have a material adverse
effect on the Company. See "Risk Factors -- Government
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<PAGE> 51
Regulation." The regulatory framework in certain jurisdictions in which the
Company provides its services is briefly described below.
UNITED KINGDOM
Since the elimination in 1991 of the United Kingdom telecommunications
duopoly consisting of British Telecommunications and Mercury, it has been the
stated goal of Oftel, the United Kingdom telecommunications regulatory
authority, to create a competitive marketplace from which detailed regulation
could eventually be withdrawn. The United Kingdom has already liberalized its
market beyond the requirements of the Full Competition Directive, and most
restrictions on competition have been removed in practice as well as in law. The
Company has received a license from the Secretary of State for Trade and
Industry which grants it the right to run a telecommunications system or systems
in the United Kingdom connected to an overseas telecommunications system and to
provide international services over such systems. Like the licenses granted to
other providers of international facilities-based services, the license granted
to H.E.R. on December 18, 1996 was for an initial six months' duration and
thereafter is subject to revocation on one month's notice in writing. The short
duration of these initial licenses was adopted for administrative convenience on
the opening-up of the United Kingdom market for international facilities-based
services. The Department of Trade and Industry ("DTI") has indicated that it
intends to replace the initial licenses with new licenses and that it would not
normally expect to revoke an initial license without replacing it with another
license giving an equivalent authorization. The DTI is currently discussing with
license holders the arrangements to put these new licenses into effect and
although the DTI has indicated that the new licenses are expected to be of 25
years' duration, there can be no certainty that this will be the case or that
the new licenses will not contain terms or conditions unfavorable to the
Company. It is a condition of the license that H.E.R. notify the DTI of certain
changes in its share ownership. In connection therewith, the DTI has been
notified of the H.E.R. Recapitalization.
THE NETHERLANDS
On July 1, 1997 the Dutch government abolished the prohibition on the use
of fixed infrastructure for the provision of public voice telephony, thereby
complying with the requirements of the Full Competition Directive six months
ahead of schedule. On August 1, 1996, H.E.R. was granted a license for the
installation, maintenance and use of a fixed telecommunications infrastructure.
H.E.R. is currently operating under its license in the Netherlands on the
Brussels-Amsterdam-route.
An entirely new Telecommunications Bill was introduced to the Second
Chamber (the House of Representatives) of the Parliament on September 15, 1997.
The new Telecommunications Act is intended to confirm the full liberalization of
the telecommunications market according to European Community standards. It is
not expected that the new Telecommunications Act will detrimentally affect the
conduct of business by H.E.R.
BELGIUM
Belgium has implemented the "alternative infrastructure" provider provision
of the Full Competition Directive. Full liberalization of competition, including
the provision of voice telephony, requires further legislation which is expected
to be introduced to the legislature in the near future. H.E.R. has obtained,
through a wholly-owned subsidiary, a license from the Belgian regulatory
authority to provide liberalized services using alternative infrastructure and
is currently operating under its license in Belgium on the Brussels-Amsterdam
route. H.E.R. also has authorization to build infrastructure between major
Belgian population centers.
GERMANY
Germany has approved legislation to implement the Full Competition
Directive and remove all remaining restrictions on competition from January
1998. The Company was granted a license by the German regulatory authorities on
July 18, 1997. The license permits the Company to operate the portions of the
Network in Germany connecting Dusseldorf, Frankfurt and Stuttgart; Dusseldorf to
the Dutch border; and Stuttgart to the French and Swiss borders. The Company
expects to file applications to extend its license in Germany as appropriate in
order to enable it to operate the remaining portions of the Network in Germany.
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<PAGE> 52
FRANCE
A new regulatory agency, the Autorite de Regulation des Telecommunications
("ART"), was established in France effective January 1, 1997. In 1996, France
approved legislation to implement the Full Competition Directive and to remove
all remaining restrictions on competition from January 1998. However, since this
regulatory agency was established, no licenses for alternative networks have
been granted. To operate the Network in France, the Company must receive an
authorization from the French Telecommunications Minister. The Company filed its
application for authorization in November 1996 and received from the ART a draft
license in May 1997, which will be the basis for the final license. The Company
has been informed that the ART has approved a recommendation to the French
minister as to the form of the authorization to be granted to H.E.R. and passed
it on to the responsible ministry for finalization. Upon receipt of such
authorization, the Company will be allowed to operate the Network in specific
regions of France.
SWITZERLAND
The Swiss Parliament has recently passed a new Telecommunications Law which
will enter into force on January 1, 1998. Although Switzerland is not a Member
State of the EU, the effect of the law is largely to mirror the EC
telecommunications liberalization Directives and therefore from that date
existing voice telephony monopoly will be abolished and such services will be
fully liberalized. An independent national regulatory authority has previously
been established. H.E.R. intends to apply for a license to provide its services
in due course.
ITALY
Although in the past Italy has been dilatory in implementing EC
liberalization measures, Italy enacted legislation on July 31, 1997 which
substantially completes the liberalization of services in accordance with the
Full Competition Directive. The Parliament has also approved the creation of an
independent national regulatory authority for the telecommunications and
audiovisual sectors. The most recent EC liberalization Directives relating to
licensing and interconnection remain to be implemented. H.E.R. intends to apply
for a license to provide its services in due course.
SPAIN
Under the Full Competition Directive Spain was granted the right to request
a delay of up to five years in liberalizing fully its telecommunications market.
However, the Spanish government and the European Commission have agreed that
full liberalization should take place on December 1, 1998. In order to ensure
effective liberalization from that date, the Commission Decision granting the
eleven month extension sets out a timetable of interim measures leading up to
full liberalization. These measures include the passing of legislation
authorizing regional cable operators to provide telecommunications services and
the adoption of a new General Telecommunications Bill effectively transposing EC
Directives into Spanish law. Further, RETEVISION, S.A. has been granted a second
national operator's license to compete with the national PTO and Spain has
agreed to grant a third national operator license in early 1998. H.E.R. intends
to apply for a license to provide its services in due course.
SWEDEN
Full liberalization of the Swedish telecommunications market occurred in
1993. A new Telecommunications Act was passed this year to reinforce the powers
of the national regulatory authority, to ensure conformity with EC Directives
and to supplement the pre-existing licensing regime with a general authorization
regime for services other than telephony services, mobile services and leased
lines. H.E.R. intends to register to provide its services in due course.
DENMARK
With the liberalization of infrastructure from July 1, 1997 Denmark has
fully liberalized its telecommunications markets in accordance with the
requirements of the relevant EC Directives. An independent national regulatory
authority has been established.
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MANAGEMENT
MEMBERS OF THE BOARD OF SUPERVISORY DIRECTORS AND THE BOARD OF MANAGING
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Members of the Board of Supervisory Directors and the Board of Managing
Directors and executive officers of the Company and their respective ages and
positions with the Company as of July 1, 1997 are set forth below. GTS-Hermes is
entitled to propose another member for appointment to the Board of Supervisory
Directors and the railways that become shareholders pursuant to the H.E.R.
Recapitalization will also be entitled to propose for appointment another
director to the Board of Supervisory Directors.
BOARD OF SUPERVISORY DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ---- -------------------------------------------
<S> <C> <C>
Gerald W. Thames........................... 50 President, Chief Executive Officer and
Director of GTS
Bernard J. McFadden........................ 64 Director of GTS, GTS-Hermes representative
on the Board of Supervisory Directors of
H.E.R.
Lars Stig M. Larsson....................... 66 President and Director General of Statens
Jarnvagar ("SJ"), the Swedish State
Railways
Svend Laursen.............................. 48 Managing Director of HIT Rail B.V. and
Director of the Information Technology
Department of Danske Statsbaner, the Danish
Railways Company
BOARD OF MANAGING DIRECTORS
GTS-Hermes, Inc.
</TABLE>
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ---- -------------------------------------------
<S> <C> <C>
Jan Loeber................................. 53 Managing Director (Principal Executive
Officer)
Gerard J. Caccappolo....................... 55 Corporate Director of Marketing and Sales
Peter Magnus............................... 35 Corporate Financial Director -- Chief
Financial Officer (Principal Financial and
Accounting Officer)
Bruce C. Rudy.............................. 42 Corporate Director of Business Development,
Planning and Regulatory Affairs
John Allan Shearing........................ 48 Corporate Operations and Engineering
Director
Jan De Wispelaere.......................... 38 Corporate Legal Director
</TABLE>
BOARD OF SUPERVISORY DIRECTORS
The general affairs and business of the Company and the board which manages
the Company (the "Board of Managing Directors") (Directie) are supervised by a
board appointed by the general meeting of shareholders (the "Board of
Supervisory Directors") (Raad van Commissarissen).
The Company's Articles of Association (the "Articles of Association")
provide for at least four and no more than ten supervisory directors who must be
natural persons ("Supervisory Directors") to serve on the Board of Supervisory
Directors. Under the law of the Netherlands, a Member of the Board of
Supervisory Directors of a Company cannot be a member of the Board of Managing
Directors of the same Company. The members of the Board of Supervisory Directors
are appointed by the general meeting of shareholders. The Board of Supervisory
Directors elects a chairman from among its members. See "Certain Relationships
47
<PAGE> 54
and Related Transactions." Under the new Shareholders Agreement, resolutions of
the Board of Supervisory Directors will require the approval of a majority of
the Supervisory Directors present. The quorum for a valid meeting is a majority
of the members of the Supervisory Board with a minimum of four members. The
Board of Supervisory Directors meets four times a year and also upon the request
of its chairman or the Board of Managing Directors. Pursuant to the Articles of
Association, Supervisory Directors may be suspended or dismissed by the general
meeting of shareholders. The remuneration or compensation of the Supervisory
Directors is determined by the general meeting of shareholders.
While the Board of Managing Directors is the executive body of the Company
and is responsible for managing its affairs and representing the Company in its
dealings with third parties, the primary responsibility of the Board of
Supervisory Directors is to supervise the policies enacted by the Board of
Managing Directors and the general course of affairs of the Company. The Board
of Supervisory Directors advises the Board of Managing Directors. In the
fulfilment of their duties, members of the Board of Supervisory Directors are
required to act in the best interests of the Company.
BOARD OF MANAGING DIRECTORS
The Board of Managing Directors, having one managing director (GTS-Hermes),
is charged with the management of the Company in accordance with the business
plan of the Company under the supervision of the Board of Supervisory Directors.
Jan Loeber acts on behalf of GTS-Hermes in this capacity. Under the Articles of
Association, the Board of Managing Directors must obtain the approval of the
Board of Supervisory Directors in order to take the following actions: (a) to
adopt and amend the business plan and the annual budget of the Company; (b) to
incur expenses in excess of the adopted or amended annual budget; (c) to incur
loans outside of the Company's ordinary business, except draw-downs of amounts
previously approved on the Company's account with a bank designated by the Board
of Supervisory Directors; (d) to lend sums which exceed the amounts previously
approved by the Board of Supervisory Directors outside the Company's ordinary
business; (e) to commit the Company to guarantee debts of third parties outside
the Company's ordinary business; (f) to extend the Company's business into a new
line of business and to discontinue the business of the Company; and (g) to
alienate a considerable part of the assets of the Company.
The Articles of Association provide that the Board of Managing Directors
shall consist of one member. The member of the Board of Managing Directors is
appointed by the general meeting of shareholders. The general meeting of
shareholders may suspend or dismiss the member of the Management Board by a vote
of a majority of votes cast in a meeting in which at least four-fifths of the
issued capital is present or represented. If the office of the sole member of
the Board of Managing Directors is vacated or the sole member is prevented from
acting, the Board of Supervisory Directors is charged temporarily with
management of the Company and may appoint one or more of the directors of the
Board of Supervisory Directors to represent the Company. The compensation and
other terms and conditions of employment of the member of the Board of Managing
Directors is determined by the general meeting of shareholders.
SUPERVISORY DIRECTORS
Gerald W. Thames, Member of the Supervisory Board. Mr. Thames is
President, Chief Executive Officer and a Director of GTS. Mr. Thames joined GTS
as Chief Executive Officer in February 1994, and has served as a director of GTS
since February 1994. From 1990 to 1994, Mr. Thames was President and Chief
Executive Officer for British Telecom North America and Syncordia, a joint
venture company focused on the international outsourcing market. Mr. Thames has
spent over 18 years in senior positions with telecommunications companies, where
he was responsible for developing start-up telecommunications companies,
including 15 years with AT&T, where he rose to the position of General Manager
of Network Services for the Northeast Region of AT&T Communications.
Bernard J. McFadden, Member of Supervisory Board. Mr. McFadden has served
as a director of GTS since February 1994. Mr. McFadden currently serves as an
independent consultant to GTS. Prior to 1994, Mr. McFadden worked for 32 years
with ITT Corporation, where he served as President and Chief Executive Officer
of ITT's Telecom International Group. Mr. McFadden's career in international
telecommunications
48
<PAGE> 55
includes a four and one-half year assignment as President and Chief Operating
Officer of Alcatel Trade International, S.A.
Lars Stig M. Larsson, Member of Supervisory Board. Mr. Larsson is
President and Director General of SJ, the Swedish State Railway, a position he
has held since February 1988. After receiving a Master of Science Engineering
degree from Gothenburg Technical University, where he is also a Doctor honoris
causa, he joined the Ericsson Group in 1960. From 1960 to 1987 he held different
posts within the Ericsson Group and its subsidiaries, including that of
Development Director for road and rail signalling systems as well as the
telephone system AXE. In 1979 Mr. Larsson was appointed President of RIFA, the
Ericsson subsidiary company specializing in the development, production and
marketing of electronic components. In 1985 he was named President of Ericsson
Information Systems. In 1988 Mr. Larsson was appointed President and Director
General of SJ. After several years in positions of responsibility within the
Union Internationale des Chemins de Fer ("UIC") framework, including as Chairman
of the Strategy Committee, Mr. Larsson was appointed Vice-Chairman of UIC in
charge of coordinating all rail cooperation in Europe in September 1993. On
November 1, 1996 he was appointed Chairman of UIC. Mr. Larsson is also Chairman
of the Board of AB Swedcarrier, SweFerry AB, Rail Combi AB, Royal Viking Hotel
AB, Stockholm Water Foundation and the Swedish Travel & Tourist Council. He is a
board member of the Royal Academy of Engineering Sciences (IVA) section XI for
Education and Research, the Swedish Transport Research Commission (TFK), the
National Agency for Government Employers, the Taxpayers' Association, the
Stockholm Water Festival and the environmental organization, The Natural Step.
Svend Laursen, Member of Supervisory Board. Mr. Laursen currently is
Director of the Information Technology Department in Danish State Railway, a
position he has held since 1987, and Managing Director of HIT Rail, a position
he has held since 1994. Until 1987 Mr. Laursen was employed as consultant for
the Danish Ministry of Finance where he was responsible for advising public and
state authorities in relation to information technology. Prior to 1987 he was
employed by the then state owned computer center, DataCentralen. Mr. Laursen has
been a Supervisory Board member of HIT Rail from 1989 to 1994 and a member of
the Board of Supervisory Directors since 1994.
EXECUTIVE OFFICERS OF THE COMPANY
Jan Loeber, Managing Director. Mr. Loeber has overall responsibility for
the development and operations of the Company. Mr. Loeber joined GTS in January
1995. From October 1992 to December 1994, Mr. Loeber was a Managing Director of
B.T. Securities Corporation, where he was responsible for investment banking for
telecommunications clients. From April 1990 to September 1992, Mr. Loeber held
positions as Managing Director of Unitel Ltd. (now Mercury One 2 One) in the
United Kingdom, Group President of Nokia North America Inc., Vice President of
ITT Corporation and Marketing and Product Management Director of ITT Europe. Mr.
Loeber also spent almost ten years with AT&T, where his last position was
Executive Director, Bell Laboratories. Mr. Loeber has over 22 years of
experience in the telecommunications industry and an additional nine years of
experience in information technology with the Pentagon, IBM and Chemical Bank of
New York.
Gerard J. Caccappolo, Corporate Director of Marketing and Sales. Mr.
Caccappolo joined H.E.R. in January 1995 as Director of Marketing and Sales,
responsible for market and customer segmentation, services development, and
pricing and sales strategies. Prior to joining H.E.R., from September 1988 to
December 1994, he was Vice President of Marketing and Sales -- International
Carriers at Ascom Timeplex Equipment (Telecommunications) Manufacturer.
Peter Magnus, Corporate Financial Director -- Chief Financial Officer. Mr.
Magnus joined H.E.R. in January 1995 as Financial Director -- Chief Financial
Officer, responsible for treasury, financing, accounting and budgets. Prior to
joining H.E.R., from January 1992 to December 1994, he was Controller of the
Belgian operations of Cargill N.V.
49
<PAGE> 56
Bruce C. Rudy, Corporate Director of Business Development, Planning and
Regulatory Affairs. Mr. Rudy joined H.E.R. in 1996 and is Director of Business
Development, Planning and Regulatory Affairs, responsible for business planning,
financial modeling, shareholder relations and development. Mr. Rudy previously
worked for Lochridge & Company, Inc. Management Consultants in Boston, where he
was a senior consultant from September 1989 to December 1995.
John Allan Shearing, Corporate Operations and Engineering Director. Mr.
Shearing joined H.E.R. in November 1995 as Director of Operations, with
responsibility for network operations, customer service and information systems.
Before joining H.E.R., Mr. Shearing spent eight years at S.W.I.F.T. as Network
Operations Director and also managing the acceptance and implementation of a new
generation of network systems and applications.
Jan De Wispelaere, Corporate Legal Director. Mr. De Wispelaere joined
H.E.R. as a consulting attorney in 1995 and has since been promoted to the
position of Legal Director -- Corporate Secretary and General Counsel. Prior to
joining H.E.R., from January 1994 to November 1995, Mr. De Wispelaere had been
with Stanbrook & Hooper -- European Community Lawyers. Prior to that, he was
with Scott Paper Company and SD Warren Group as Senior Counsel for five years.
He has held since 1993 positions as a member of the Board of Directors and
Management Board of the German Scott -- Feldmuhle HQ Company, as well as several
Scott Paper operating entities in Europe.
50
<PAGE> 57
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF DIRECTORS
The directors on the Board of Supervising Directors and the Board of
Managing Directors receive no fees from the Company for serving as directors.
Mr. McFadden currently serves as an independent consultant to GTS pursuant to a
consulting agreement, under which he receives a consulting fee of $100,000 per
annum. One of his duties under the consulting agreement is to serve as a member
of the Board of Supervisory Directors of H.E.R.
EXECUTIVE COMPENSATION
The following table sets forth each component of compensation paid or
awarded to, or earned by, the chief executive officer (who is the Managing
Director of H.E.R.) and the four most highly compensated executive officers
other than the chief executive officer (collectively, the "Named Executive
Officers") during the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------
AWARDS
ANNUAL COMPENSATION -----------------------
-------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) ($) (#) ($)
- --------------------------- ----------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jan Loeber(1).............. $235,000 $78,608 $74,642(2) (3) 7 $9,950(10)
Managing Director
Gerald J. Caccappolo(1).... 160,000 40,000 42,108(6) -- 1.5 3,750(5)
Corporate Director of
Marketing & Sales
Peter Magnus............... 129,889(7) 32,472(7) (8) -- 1 --
Corporate Financial
Director (Principal
Accounting Officer)
Bruce Rudy(1).............. 135,000 13,509 18,416(9) -- 0.5 2,532(5)
Corporate Director of
Business Development
John Shearing.............. 173,594(7) 35,163(7) (8) -- -- --
Corporate Operations
Director
</TABLE>
- ---------------
(1) The terms of the Named Executive Officer's employment are included in an
agreement between the Named Executive Officer and GTS. Such Named Executive
Officer is seconded to the Company for a fee.
(2) Mr. Loeber received a cost of living allowance and paid home leave during
fiscal year 1996. The Company provided Mr. Loeber with a tax equalization
that compensates him for the higher taxes he pays because he resides in
Belgium instead of the United States. Furthermore, the Company provided Mr.
Loeber with a housing allowance equal to $31,836 per year (converted from
Belgian Francs to U.S. Dollars at an exchange rate of BF32.0392=$1.00). In
addition, the Company provides Mr. Loeber with the use of a company car.
(3) Mr. Loeber has been granted a restricted stock award of 20,000 shares of
GTS common stock which vests in equal thirds, beginning in January 2, 1997.
GTS common stock is not registered or publicly traded and no market price
is available for such stock. GTS completed a private placement of common
stock in the third quarter of 1996 pursuant to which the common stock was
valued at $20 per share. At December 31, 1996, GTS deemed the value of its
common stock to be approximately $20 per share.
51
<PAGE> 58
(4) Stock options were granted under the GTS-Hermes, Inc. 1994 Stock Option
Plan (the "GTS-Hermes Plan"). Each stock option is exercisable for one
share of GTS-Hermes common stock, par value $0.01 per share at an exercise
price equal to the fair market value of the stock on the date of grant as
determined by a committee of the board of directors of GTS-Hermes. There is
no ready market for the GTS-Hermes common stock. As of December 31, 1996,
100 shares of GTS-Hermes common stock were outstanding. In the aggregate
13% of this stock is subject to the GTS-Hermes Plan. Generally, one-third
of the stock options vest on each of the first three anniversaries of the
date of grant.
(5) These Named Executive Officers participate in the GTS 401(k) plan to which
GTS contributed the amounts indicated for 1996.
(6) Mr. Caccappolo received a cost of living allowance of $11,200 and resides
in a Company apartment which the Company pays the equivalent of $17,928 per
year in rent (converted from Belgian Francs to U.S. Dollars at an exchange
rate of BF32.0392=$1.00). In addition, the Company provides Mr. Caccappolo
with the use of a Company car.
(7) Converted from Belgian Francs to U.S. Dollars at an exchange rate of
BF32.0392=$1.00.
(8) Perquisites and other personal benefits paid to Mr. Magnus and Mr. Shearing
during fiscal year 1996 were less than the lesser of $50,000 and 10 percent
of the total of annual salary and bonus reported for the Named Executive
Officer.
(9) Mr. Rudy received a housing allowance of $16,855 during fiscal year 1996.
In addition, the Company provides Mr. Rudy with the use of a Company car.
(10) This amount represents premiums paid by GTS for $1,000,000 in term life
insurance for Mr. Loeber and contributions to Mr. Loeber's account by GTS
under the 401(k) Plan.
OPTION GRANTS IN THE LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE OR GRANT DATE
UNDERLYING OPTION EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE ($)
------------------------ ------------------- ------------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Jan Loeber..............
Gerard J. Caccappolo....
Peter Magnus............
Bruce Rudy..............
John Shearing...........
</TABLE>
- ---------------
(1) Stock options are for GTS-Hermes stock pursuant to the GTS-Hermes Plan. Each
stock option vests one-third on each of the first three anniversaries of
the date of grant.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-ENDED OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
NAME OPTIONS AT FY-END(#) FY-END($)(1)
----------------------------------------------- ------------------------- -------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C>
Jan Loeber.....................................
Gerard J. Caccappolo...........................
Peter Magnus...................................
Bruce Rudy.....................................
John Shearing..................................
</TABLE>
- ---------------
(1)
52
<PAGE> 59
GTS-HERMES 1994 STOCK OPTION PLAN
The GTS-Hermes, Inc. 1994 Stock Option Plan (the "GTS-Hermes Plan") was
adopted by the board of directors of GTS-Hermes in 1994 to enable employees of
GTS-Hermes and its subsidiaries, including H.E.R., and affiliates to participate
in ownership of GTS-Hermes and to attract and retain key employees of particular
merit. The GTS-Hermes Plan provides for the award of incentive stock options,
nonqualified stock options and stock appreciation rights. All employees of
GTS-Hermes and its subsidiaries, including H.E.R., and affiliates are eligible
to participate in the GTS-Hermes Plan.
The maximum number of shares authorized with respect to grants of awards
under the GTS-Hermes Plan in each calendar year is 6.5% of the shares of common
stock, par value $0.01 per share, of GTS-Hermes issued and outstanding, and the
aggregate number of shares of stock subject to the GTS-Hermes Plan is 13% of the
total shares of stock issued and outstanding. The GTS-Hermes Plan is
administered by a committee appointed by the board of directors of GTS-Hermes,
which has broad discretion to determine who shall receive awards under the
H.E.R. Plan and the characteristics of any award thereunder, including the
price, term and vesting of such award. However, stock appreciation rights may
not be awarded alone and may only be awarded in tandem with an option grant.
The GTS-Hermes Plan provides that in the event of a change in control, as
defined under the GTS-Hermes Plan, any stock appreciation rights outstanding for
at least six months and any stock options awarded under the GTS-Hermes Plan not
previously exercisable and vested which have been held for at least six months
from the date of grant will become fully vested and exercisable at an adjusted
price to be determined according to the highest sales price per share paid in
any transaction reported or offer made at any time during the preceding 60 days
as determined by the committee.
The board of directors of GTS-Hermes may amend, alter or discontinue the
GTS-Hermes Plan at any time, provided that the rights of participants are not
impaired.
H.E.R. intends to establish a stock option plan to replace the GTS-Hermes
Plan for the purpose of incentivizing H.E.R. key employees, in substantially
similar form to the GTS-Hermes Plan. The aggregate number of shares of H.E.R.
stock subject to the proposed plan would be approximately 13% of the total
shares of H.E.R. stock issued and outstanding including options. Grants under
the GTS-Hermes Plan would be converted into grants under the proposed H.E.R.
plan. Upon establishment of such plan, the GTS-Hermes Plan would be terminated.
PENSION PLAN
In 1995, the Company established a defined benefit pension plan (the
"Pension Plan") that covers substantially all of its employees that are at least
twenty-five years of age and have at least one year of service. The benefits are
based on years of service and the employee's compensation at retirement. Messrs.
Magnus and Shearing participate in the Pension Plan. Each participant in the
Pension Plan will receive a lump sum at retirement equal to 450% of final annual
salary up to a specified ceiling which changes every year (in 1996 the ceiling
was BF1,352,000) plus 910% of the excess multiplied by the years of service
divided by 35. The maximum years of service taken into account under the formula
is 35. The normal retirement age is 60. The Company has entered into an
agreement with an insurance company for the provision of a group insurance
policy (the "Policy"). Under the Policy, the insurance provider has undertaken a
legal obligation to provide specified benefits to participants in return for a
fixed premium; accordingly, the Company does not bear significant financial
risk. Premium payments for the Policy are partly paid by the employee based on
specified terms that consider the employee's annual salary, with the remaining
premium paid by the Company. Premiums are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future. (See Note 5 to the Notes to Consolidated Financial Statements).
Upon termination of employment prior to retirement age, employer contributions
cease and the participant may decide to receive the cash surrender value of the
policy, to continue paying premiums or cease paying premiums but in either case
maintaining the policy which is paid out according to its terms.
53
<PAGE> 60
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$125,000........................... $ 370,313 $ 493,750 $ 617,188 $ 740,625 $ 863,200
$150,000........................... 467,870 623,829 779,786 935,744 1,090,610
$175,000........................... 565,508 754,011 942,513 1,131,056 1,318,200
$200,000........................... 663,100 884,140 1,105,170 1,326,210 1,545,700
$225,000........................... 760,703 1,014,271 1,267,838 1,521,405 1,773,200
$250,000........................... 858,300 1,144,400 1,430,500 1,716,600 2,000,000
$300,000........................... 1,053,490 1,404,660 1,755,820 2,106,990 2,455,700
$400,000........................... 1,443,880 1,925,181 2,406,476 2,887,771 3,365,700
$450,000........................... 1,639,080 2,185,440 2,731,800 3,278,160 3,820,700
$500,000........................... 1,834,270 2,445,700 3,057,120 3,668,550 4,275,700
</TABLE>
The above pension benefits are based on the following formula: (260% S1 + 910%
S2) X N/35
S = annual salary
S1 = S up to the "ceiling"
S2 = S above the "ceiling"
N = years of service up to a maximum of 35
For purposes of this calculation the "ceiling" is U.S. $42,200.
EMPLOYMENT AGREEMENTS
All the Named Executive Officers have employment agreements with either the
Company (the "Company Employment Agreements") or GTS (the "GTS Employment
Agreements"). The Company reimburses GTS for payments made to Named Executive
Officers under contracts with GTS. The Employment Agreements generally are each
for a term of two to three years and include an automatic renewal provision
unless either party provides notice of termination on or prior to 90 days
thereof.
Messrs. Magnus and Shearing have Company Employment Agreements. The
following is a summary of the material terms of such agreements. Mr. Magnus'
Company Employment Agreement was entered into by the parties on January 3, 1995
for an initial term ending December 31, 1996. The parties have agreed to extend
the term for an indefinite period of time. Mr. Magnus' initial gross annual
salary was BF4,080,000. He may also receive a yearly performance-based bonus of
up to 30% of his base salary based at the discretion of the Company. Under the
agreement, Mr. Magnus is entitled to the use of a company car. The agreement
also provides that Mr. Magnus shall be granted an option to buy shares under the
GTS-Hermes Plan under a separate stock option agreement.
Mr. Shearing's Company Employment Agreement was entered into by the parties
of November 1, 1995 for an undetermined period of time. Mr. Shearing's initial
annual salary was BF2,800,000, which is net of all tax and social security
contributions. He may also receive a yearly performance-based bonus of up to 10%
of his base salary at the discretion of the Company. Furthermore, beginning in
1996, Mr. Shearing may receive an additional deferred bonus of up to 10% of his
base salary, which will be payable on the third anniversary of the date such
bonus is awarded, provided that Mr. Shearing is still employed by the Company on
December 31, 1998. Mr. Shearing participates in the Company's pension plan and
is provided with a company car.
See "Certain Relationships and Related Transactions" for a description of
the GTS Employment Agreements.
54
<PAGE> 61
SECURITY OWNERSHIP OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Ordinary Shares of the Company, as of September 30, 1997, by
each beneficial owner of 5% or more of the Ordinary Shares and by executive
officers and directors of the Company as a group. Pursuant to a recent
recapitalization, the Company issued 11,424 Ordinary Shares to Societe Nationale
des Chemins de Fer Belges S.A. de Droit Public/Nationale Maatschappij der
Belgische Spoorwegen N.V. Van Publiek Recht (the Belgian National Railway)
("SNCB/NMBS") and 4,365 Ordinary Shares to AB Swed Carrier (a wholly owned
subsidiary of SJ, the Swedish National Railway).
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
--------- -------
<S> <C> <C>
GTS-Hermes, Inc............................................................ 150,632 79.09%
HIT Rail B.V.(1)........................................................... 24,047 12.63
SNCB/NMBS.................................................................. 11,424 6.00
AB Swed Carrier............................................................ 4,365 2.29
All directors and executive officers as a group(2)......................... -- --
---------
Total............................................................ 190,468
========
</TABLE>
- ------------------------------
(1) The members of HIT Rail are Osterreichische Bundesbahnen, Societe Nationale
des Chemins de Fer Belges, Danske Statsbaner, Societe Nationale des Chemins
de Fer Francais, Deutsche Bundesbahn, Ente Ferrovie dello Stato, Nederlandse
Spoorwegen, Red Nacional de los Ferrocarriles Espanoles, Statens Jarnvagar,
Schweizerische Bundesbahnen and Racal-BRT.
(2) The Company intends to establish a stock option plan pursuant to which key
officers and employees will be granted options to purchase Ordinary Shares
of the Company. The Company expects that the number of Ordinary Shares of
Hermes subject to the proposed plan will be approximately 13% of the total
Ordinary Shares of Hermes issued and outstanding. See "Executive
Compensation and Other Information -- GTS-Hermes 1994 Stock Option Plan."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
H.E.R. was formed on July 6, 1993 by HIT Rail, a consortium of eleven
Western European railways. HIT Rail was incorporated in 1990 by these national
railways to carry out telecommunications engineering activities in order to
construct and exploit a data communications network for railway traffic.
GTS-Hermes purchased a 34.4% interest in H.E.R. in 1994, increased its interest
to 50% in 1995 and approximately 79% in 1997.
GTS-Hermes is a wholly owned subsidiary of GTS. GTS is a U.S.-based
provider of a broad range of telecommunications services to businesses, other
telecommunications service providers and consumers in Russia and the
Commonwealth of Independent States, Western and Central Europe and Asia. GTS is
organized in the state of Delaware. At June 30, 1997, GTS had approximately 23.5
million shares of common stock outstanding and a stockholders' equity of $76.2
million.
H.E.R. has formed a wholly owned subsidiary, Hermes Europe Railtel N.V., a
company incorporated in Belgium in December 1996. The registered office of
Hermes Europe Railtel N.V. is 1560 Hoeilaart, Terhulpsesteenweg 6A, Belgium. The
authorized share capital is 2,500 shares (of which 2,499 shares are owned by the
Company) and the share capital is fully subscribed and amounts to BF 2,500,000.
Hermes Europe Railtel N.V. currently has no operations or revenue. Following the
Offering, H.E.R. intends to transfer all or substantially all of its assets and
liabilities (other than the Notes) to Hermes Europe Railtel N.V. After such
transfer, the Company will be a holding company with limited assets and will
operate its business through subsidiaries. As of the date hereof, the Company
has only one subsidiary and expects to form one or more subsidiaries in the
future.
H.E.R. RECAPITALIZATION
H.E.R. has completed a recapitalization (the "H.E.R. Recapitalization"),
wherein H.E.R. extended rights to subscribe to additional shares of H.E.R. to
GTS-Hermes, HIT Rail and the eleven railways
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comprising the HIT Rail consortium. Pursuant thereto, GTS-Hermes and two of the
eleven railways that comprise the HIT Rail consortium have exercised their
subscription rights, while HIT Rail and the other nine railways have declined to
exercise their subscription rights. H.E.R. has issued (i) 150,592 shares to
GTS-Hermes in exchange for the conversion of loans and additional consideration,
(ii) 24,007 shares to HIT Rail in exchange for the conversion of loans, (iii)
11,424 shares to SNCB/NMBS and (iv) 4,365 shares to AB Swed Carrier (a wholly
owned subsidiary of SJ, the Swedish national railway). As a result, GTS-Hermes
owns approximately 79%, HIT Rail owns approximately 13%, SNCB/NMBS owns
approximately 6% and AB Swed Carrier owns approximately 2% of the outstanding
H.E.R. shares. Pursuant to the H.E.R. Recapitalization, H.E.R., GTS-Hermes, HIT
Rail, SNCB/NMBS and AB Swed Carrier have executed a new Shareholders Agreement,
the principal terms of which are set forth below.
Under the new Shareholders Agreement, actions to be taken by shareholders
will be adopted by a simple majority vote with the exception of certain actions
which will require at least 85% of the votes cast: (i) purchase by H.E.R. of its
own shares and any redemption thereof, (ii) exclusion of preemptive rights in
the case of the issuance of new shares and the transfer of shares held by
H.E.R., except in the event of a public listing of the shares or of new shares
or of an offering of shares or options on new shares (warrants) to professional
investors in order to obtain further funding, (iii) winding up or dissolution of
H.E.R., (iv) any amendment to the articles of association other than those
pertaining to increases in the authorized capital of H.E.R. or to convert H.E.R.
into an N.V. ("Naamloze Vennootschap") to enable a public listing of shares or
new shares, (v) any amendment to the scope of H.E.R.'s business, (vi) the
declaration of dividends and (vii) the admission of new shareholders to the
Shareholders Agreement. In addition, the Shareholders Agreement provides that
(a) if GTS-Hermes is the owner of as least 50% of the issued shares, then it
will have the right to make a binding nomination for the appointment of half of
the members of the Board of Supervisory Directors or (b) if GTS-Hermes is the
owner of at least two-thirds of the issued shares, then it will have the right
to make a binding nomination for the appointment of half of the members of the
Board of Supervisory Directors plus one additional member. As long as HIT Rail
is the owner of at least one share, HIT Rail will be entitled to make a binding
nomination for the appointment of at least one member of the Supervisory Board.
The Shareholders Agreement also provides that shareholders that are not
GTS-Hermes and HIT Rail with a shareholding of at least 6.8% subject to
adjustment in the discretion of the other shareholders will be entitled to make
a binding nomination for the appointment of one member of the Board of
Supervisory Directors. Shareholders other than GTS-Hermes who hold fewer than
6.8% of the issued share capital of H.E.R. will be entitled on a rotating basis
to make one binding nomination for the appointment of a member of the Board of
Supervisory Directors for two-year periods.
ARTICLES OF ASSOCIATION AND SHAREHOLDERS AGREEMENT
Under the Articles of Association and the Shareholders Agreement between
GTS-Hermes and HIT Rail, both GTS-Hermes and HIT Rail have preemptive rights in
connection with issuances of ordinary shares and options on shares to be issued
in proportion to the total nominal value of the shares held by each of them.
Preemption rights can be exercised for four weeks after the date the notice of
the offer is received by the shareholders.
The Shareholders Agreement provides that the Company or its designated
vendor will provide fiber capacity in its Network for use by the shareholders of
the Company on fair commercial terms, use, quantity and price to be negotiated
on a bilateral basis. In the Shareholders Agreement, HIT Rail has covenanted to
(i) use its best efforts to establish such commercial agreements between
individual HIT Rail shareholders and the Company, to obtain rights of way from
individual HIT Rail shareholders and to cooperate in obtaining such licenses as
may advance the business of the Company, (ii) use its best efforts to ensure
that the HIT Rail shareholders cooperate in obtaining such license in accordance
with the business plan of the Company and as may be necessary or advisable in
furtherance of the Company's business, (iii) will not, so long as both HIT Rail
and GTS-Hermes are shareholders of the Company and for one year after HIT Rail
ceases to be a shareholder, agree with any entity other than GTS-Hermes and the
Company to assist or cooperate in the development of any pan-European
telecommunications operator and (iv) use its best efforts to obtain on the
Company's behalf such materials as may be required and arrange inspection visits
of selected rights of way for the purpose of making initial cost estimates.
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The foregoing summary of the Shareholders Agreement does not purport to be
complete and is qualified in its entirety by reference to the Shareholders
Agreement.
SHAREHOLDER LEASES AND LOANS
The Company currently leases dark fiber and facilities from, and has
entered into a contract to construct portions of the initial five country
network with, Telfort which is a subsidiary of Nederlandse Spoorwegen, a member
of HIT Rail. As a result, Telfort is currently an indirect shareholder of the
Company. The Company has also entered into a contracts with SNCB/NMBS for the
provision of fiber and facilities for portions of the initial five country
network. SNCB/NMBS is a member of HIT Rail and thus an indirect shareholder of
the Company and is also a direct shareholder of H.E.R. As such, it is entitled
to propose a nominee for appointment to the Board of Supervisory Directors of
the Company.
Lars Stig M. Larsson is currently a member of the Board of Supervisory
Directors of the Company and is President and Director General of SJ, the
Swedish State Railways, which is the parent company of AB Swedcarrier. AB
Swedcarrier is both an indirect shareholder through HIT Rail and a direct
shareholder of the Company.
In January and February 1997, additional loans of ECU 6.4 million
(approximately $7.5 million) were advanced to the Company by GTS-Hermes. In
addition, loans of ECU 5.4 million (approximately $6.1 million) were advanced to
the Company in February and April 1997 by individual members of the HIT Rail
consortium. The loans were converted into equity as part of the H.E.R.
Recapitalization.
GTS EMPLOYMENT AGREEMENTS
Messrs. Loeber, Caccappolo and Rudy are parties to GTS Employment
Agreements. Each GTS Employment Agreement provides the relevant Named Executive
Officer with a salary, bonus and a standard company welfare benefits package as
well as the use of an automobile, cost of living allowance, tax equalization and
certain other fringe benefits. In addition, the GTS Employment Agreements
include severance benefit provisions. Finally, the GTS Employment Agreements
include noncompete and nonsolicitation clauses that cover the term of employment
and twelve months thereafter. Under the GTS Agreements, each party employee is
entitled to participate in the GTS-Hermes Plan. In addition, Mr. Loeber received
a restricted stock award of 20,000 shares of GTS common stock.
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<PAGE> 64
DESCRIPTION OF THE EXCHANGE NOTES
The Outstanding Notes were issued under an Indenture (the "Indenture")
dated as of August 19, 1997 among the Company, GTS (with respect only to the
provisions described under " -- Covenant of GTS") and The Bank of New York, as
trustee (the "Trustee"). The Exchange Notes will be issued under the Indenture,
which will be qualified under the United States Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), upon the effectiveness of the Registration
Statement of which this Prospectus is a part. The form and terms of the Exchange
Notes are the same in all material respects as the form and terms of the
Outstanding Notes, except that the Exchange Notes will have been registered
under the Securities Act and, therefore, will not bear legends restricting
transfer thereof. Upon the consummation of the Exchange Offer, holders of
Outstanding Notes will not be entitled to registration rights under, or the
contingent increase in interest rate provided pursuant to, the Registration
Rights Agreement. The Exchange Notes will evidence the same debt as the
Outstanding Notes and will be treated as a single class under the Indenture with
any Outstanding Notes that remain outstanding. The Outstanding Notes and
Exchange Notes are herein collectively referred to as the "Notes."
The following summary of certain provisions of the Indenture, the Escrow
Agreement and the Registration Rights Agreement does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act, and to all of the provisions of the Indenture, the Escrow
Agreement and the Registration Rights Agreement, including the definitions of
certain terms therein and those terms made a part of the Indenture by reference
to the Trust Indenture Act. Copies of the Indenture, the Escrow Agreement and
the Registration Rights Agreement have been filed with the Commission as an
Exhibit to the Registration Statement of which this Prospectus is part. The
definitions of certain terms used in the following summary are set forth under
"-- Certain Definitions." References in this "Description of the Exchange Notes"
section to "the Company" mean only Hermes Europe Railtel B.V. and not any
Subsidiary.
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Company will
initially appoint the Trustee to serve as registrar and principal paying agent
under the Indenture at its offices at 101 Barclay Street, New York, New York
10286. The registrar, paying agents, and transfer agents (the "Registrar,"
"Paying Agents" and "Transfer Agents," respectively) are appointed in accordance
with the Indenture and initially are as set forth on the inside back cover page
hereof. No service charge will be made for any registration of transfer or
exchange of the Notes, except for any tax or other governmental charge that may
be imposed in connection therewith.
RANKING
The Notes will be general unsecured obligations of the Company and will
rank senior in right of payment to all future Indebtedness of the Company that
is, by its terms or by the terms of the agreement or instrument governing such
Indebtedness, expressly subordinated in right of payment to the Notes and pari
passu in right of payment with all existing and future unsecured liabilities of
the Company that are not so subordinated.
Following the Exchange Offer, the Company intends to transfer all or
substantially all of its assets and liabilities (other than the Notes) to
Subsidiaries. After such transfer, the Company will be a holding company with
limited assets and will operate its business through Subsidiaries. Any right of
the Company and its creditors, including holders of the Notes, to participate in
the assets of any of the Company's Subsidiaries upon any liquidation or
administration of any such Subsidiary will be subject to the prior claims of the
creditors of such Subsidiary. The claims of creditors of the Company, including
holders of the Notes, will be effectively subordinated to all existing and
future third-party indebtedness and liabilities, including trade payables, of
the Company's Subsidiaries. At June 30, after giving pro forma effect to the
H.E.R. Recapitalization and the transfer of all or substantially all of the
Company's assets and liabilities (other than the Notes) to Subsidiaries as
described above, the Company's Subsidiaries would have had total liabilities of
$10.0 million reflected on the Company's balance sheet. The Company and its
Subsidiaries may incur other debt in the future, including secured debt.
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<PAGE> 65
The Notes will not be entitled to any security, except as described under
"-- Escrow Account" and will not be entitled to the benefit of any guarantees,
except under the circumstances described under "-- Certain
Covenants -- Limitation on Issuances of Guarantees by Restricted Subsidiaries."
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes will be limited to $265.0 million aggregate principal amount and
will mature on August 15, 2007. The Notes will be payable at maturity at par,
plus accrued and unpaid interest, if any. Cash interest on the Notes will accrue
at the rate per annum set forth on the cover page of this Prospectus and will be
payable semi-annually in arrears on each February 15 and August 15, commencing
February 15, 1998, to the holders of record of Notes (the "Holders") at the
close of business on February 1 and August 1, respectively, immediately
preceding such interest payment date. Cash interest will accrue from the most
recent interest payment date to which interest has been paid or, if no interest
has been paid, from the Issue Date. Holders of the Exchange Notes will receive
interest on February 15, 1998, from the date of initial issuance of the Exchange
Notes, plus an amount equal to the accrued interest on the Outstanding Notes
from the later of (i) the most recent date to which interest has been paid
thereon and (ii) the date of issuance of the Outstanding Notes, to the date of
exchange thereof. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
The Luxembourg Stock Exchange will be informed of each change in the
interest rate of the Notes on the date of such change. The Company will cause a
copy of such notice to be published in a daily newspaper with general
circulation in Luxembourg (which is expected to be the Luxemburger Wort).
Principal of, and interest on, the Notes will be payable, and the transfer
of Notes will be registrable, at the office of the Trustee, and at the offices
of the Paying Agents and Transfer Agents, respectively. Payments of such
principal and premium, if any, will be made against surrender of Certificated
Notes at the corporate trust office of the Paying Agent in New York City or,
subject to any applicable laws and regulations, at the offices of the Paying
Agent in Luxembourg by United States dollar check drawn on, or wire transfer to
a United States dollar account maintained by the holder with, a bank located in
New York City. Payments of any installment of interest on Certificated Notes
will be made by a United States dollar check drawn on a bank in New York City
mailed to the holder at such holder's registered address or (if arrangements
satisfactory to the Company and the Paying Agents are made) by wire transfer to
a dollar account maintained by the holder with a bank in New York City. For so
long as the Notes are listed on the Luxembourg Stock Exchange and the rules of
such stock exchange so require, the Company will maintain a Paying Agent and a
Transfer Agent in Luxembourg.
If a payment date is not a Business Day at a place of payment, payment may
be made at that place on the next succeeding Business Day and no interest shall
accrue for the intervening period.
The Company may at any time deliver Notes to the Trustee for cancellation.
Subject to the terms of the Indenture, the Company may not issue new Notes to
replace Notes that it has paid or delivered to the Trustee for cancellation.
ADDITIONAL AMOUNTS
All payments made by the Company under or with respect to the Notes will be
made free and clear of and without withholding or deduction for or on account of
any present or future Taxes imposed or levied by or on behalf of any Taxing
Authority within the Netherlands, or within any other jurisdiction in which the
Company is organized or engaged in business for tax purposes, unless the Company
is required to withhold or deduct Taxes by law or by the interpretation or
administration thereof. If the Company is required to withhold or deduct any
amount for or on account of Taxes imposed by a Taxing Authority within the
Netherlands, or within any other jurisdiction in which the Company is organized
or engaged in business for tax purposes, from any payment made under or with
respect to the Notes, the Company will pay such additional amounts ("Additional
Amounts") as may be necessary so that the net amount received by each holder of
Notes (including Additional Amounts) after such withholding or deduction will
equal the amount the holder would have received if such Taxes had not been
withheld or deducted; provided, however, that no Additional Amounts will be
payable with respect to any Tax that would not have been imposed, payable or due
(i) but for the existence of any present or former connection between the holder
(or the beneficial owner of, or person
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<PAGE> 66
ultimately entitled to obtain an interest in, such Notes) and the Netherlands or
other jurisdiction in which the Company is organized or engaged in business for
tax purposes other than the mere holding of the Notes; (ii) but for the failure
to satisfy any certification, identification or other reporting requirements
whether imposed by statute, treaty, regulation or administrative practice,
provided that the Company has delivered a request to the holder to comply with
such requirements at least 30 days prior to the date by which such compliance is
required; (iii) if the presentation of Notes (where presentation is required)
for payment has occurred within 30 days after the date such payment was due and
payable or was duly provided for, whichever is later; or (iv) if the beneficial
owner of, or person ultimately entitled to obtain an interest in, such Notes had
been the holder of the Notes and would not be entitled to the payment of
Additional Amounts. In addition, Additional Amounts will not be payable with
respect to any Tax which is payable otherwise than by withholding from payments
of, or in respect of principal of, or any interest on, the Notes.
Whenever in the Indenture or in this "Description of the Notes" there is
mentioned, in any context, the payment of amounts based upon the principal
amount of the Notes or of principal, interest or of any other amount payable
under or with respect to any of the Notes, such mention shall be deemed to
include mention of the payment of Additional Amounts to the extent that, in such
context, Additional Amounts are, were or would be payable in respect thereof.
ESCROW ACCOUNT
Pursuant to the Indenture, the Company has purchased, pledged and
transferred to the Trustee for the benefit of the holders of the Notes the
Pledged Securities in such amount as will be sufficient upon scheduled interest
and principal payments of such securities to provide for the payment in full of
the first four scheduled interest payments on the Notes (excluding any
Additional Amounts or Additional Interest). The Company has used approximately
$56.5 million of the net proceeds of the Offering to acquire the Pledged
Securities. The Pledged Securities have been pledged to the Trustee for the
benefit of the Holders of the Notes and deposited into an escrow account (the
"Escrow Account") held by the Escrow Agent for the benefit of the Trustee and
the Holders in accordance with an escrow agreement entered into among the
Company, The Bank of New York, as escrow agent (the "Escrow Agent") and the
Trustee (the "Escrow Agreement"). The Escrow Agreement provides, among other
things, that funds may be disbursed from the Escrow Account for interest
payments on the Notes. The Escrow Agent has been instructed to cause any
uninvested funds in the Escrow Account to be invested, pending disbursement, in
Cash Equivalents. Interest earned on the Pledged Securities and any Cash
Equivalents will be added to the Escrow Account.
Under the Escrow Agreement, the Company granted to the Trustee, for the
benefit of the Holders, a first priority and exclusive security interest in all
funds and securities in the Escrow Account and the proceeds thereof (the "Escrow
Collateral"). The Escrow Agreement provides that the Trustee may foreclose on
the Escrow Collateral upon acceleration of the maturity of the Notes. Under the
terms of the Indenture, the proceeds of the Escrow Collateral will be applied,
first, to amounts owing to the Trustee in respect of fees and expenses of the
Trustee, and second, to the Obligations of the Company to the Holders under the
Notes and the Indenture. The ability of Holders to realize upon the Escrow
Collateral may be subject to certain bankruptcy law limitations in the event of
the bankruptcy of the Company.
Upon payment in full of the first four scheduled interest payments
(including any Additional Amounts or Additional Interest), if no Default has
occurred and is continuing, the Escrow Collateral will be released to the
Company.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time or from time to time on or after August 15, 2002, upon not
less than 30 nor more than 60 days' prior notice mailed by first class mail to
each Holder's registered address, at the redemption prices (expressed as a
percentage of principal
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amount) set forth below, plus accrued and unpaid interest thereon, if any, to
the date of redemption, if redeemed during the 12-month period beginning on
August 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---------------------------------------------------------- ----------
<S> <C>
2002...................................................... 105.750%
2003...................................................... 103.833%
2004...................................................... 101.917%
2005 and thereafter....................................... 100.000%
</TABLE>
REDEMPTION UPON PUBLIC EQUITY OFFERING OR STRATEGIC EQUITY INVESTMENT
At any time or from time to time prior to August 15, 2000, upon not less
than 30 nor more than 60 days' prior notice mailed by first class mail to each
Holder's registered address, the Company may redeem Notes at a redemption price
equal to 111.5% of the principal amount of the Notes so redeemed, plus accrued
and unpaid interest thereon, if any, to the date of redemption with the net cash
proceeds of one or more Public Equity Offerings or Strategic Equity Investments
resulting in aggregate gross cash proceeds to the Company of at least $75.0
million; provided, however, that at least two-thirds of the principal amount of
Notes originally issued would remain outstanding immediately after giving effect
to any such redemption (excluding any Notes owned by the Company or any of its
Affiliates) (it being understood that the foregoing shall not apply to proceeds
received in connection with the GTS Contribution). Notice of any such redemption
must be given within 60 days after the date of a Public Equity Offering or
Strategic Equity Investment resulting in gross cash proceeds to the Company,
when aggregated with all prior Public Equity Offerings and Strategic Equity
Investments, of at least $75.0 million.
REDEMPTION FOR CHANGES IN WITHHOLDING TAXES
The Company may, at any time, at its option, redeem all (but not less than
all) of the Notes then outstanding at 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of redemption, if the Company
has become or would become obligated to pay, on the next date on which any
amount would be payable with respect to the Notes, any Additional Amounts as a
result of change in law (including any regulations promulgated thereunder) or in
the interpretation or administration thereof, if such change is announced and
becomes effective on or after the Issue Date.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; provided, further, however, that if a partial redemption is
made pursuant to the provisions described in the second paragraph under
"-- Optional Redemption," selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to the procedures of The Depository
Trust Company), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days before
the date of redemption to each Holder of Notes to be redeemed at its registered
address. The Company will cause a copy of such notice to be published in a daily
newspaper with general circulation in Luxembourg (which is expected to be the
Luxembourger Wort). If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the date of redemption, interest
will cease to accrue on Notes or portions thereof called for redemption as long
as the Company has deposited with the Paying Agents in New York and Luxembourg
for the Notes funds in satisfaction of the redemption price pursuant to the
Indenture.
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CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
Holders of such occurrence in the manner prescribed by the Indenture and shall,
within 30 days after the Change of Control Date, make an Offer to Purchase all
Notes then outstanding at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date. The Company will cause a copy of such notice to be
published in a daily newspaper with general circulation in Luxembourg (which is
expected to be the Luxembourger Wort). The Company's obligations may be
satisfied if a third party makes the Offer to Purchase in the manner, at the
times and otherwise in compliance with the requirements of the Indenture
applicable to an Offer to Purchase made by the Company and purchases all Notes
validly tendered and not withdrawn under such Offer to Purchase.
If an Offer to Purchase is made, there can be no assurance that the Company
will have available funds sufficient to pay for all of the Notes that might be
tendered by Holders seeking to accept the Offer to Purchase. If the Company
fails to purchase all of the Notes tendered for purchase upon the occurrence of
a Change of Control, such failure will constitute an Event of Default. See
"-- Events of Default" and "-- Risk Factors -- Change of Control."
If the Company makes an Offer to Purchase, the Company will comply with all
applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indenture relating to such Offer to Purchase
occurring as a result of such compliance shall not be deemed a Default.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or any Restricted Subsidiary or make any
payment or distribution to the direct or indirect holders of Equity
Interests of the Company or any Restricted Subsidiary (other than any
dividends, distributions and payments made to the Company or any Restricted
Subsidiary and dividends or distributions payable to any Person solely in
Qualified Equity Interests or in options, warrants or other rights to
purchase Qualified Equity Interests);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Restricted Subsidiary (other than
any such Equity Interests owned by the Company or any Restricted
Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Subordinated Indebtedness (other
than any Subordinated Indebtedness held by any Restricted Subsidiary); or
(iv) make any Investment (other than Permitted Investments)
(any of the foregoing, a "Restricted Payment"), unless
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of additional Indebtedness under the
first paragraph of "-- Limitation on Incurrence of Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments (including the Fair Market
Value of any non-cash Restricted Payment) declared or made on or after the
Issue Date (excluding any Restricted Payment described in clauses (ii),
(iii) or (iv) of the next paragraph) does not exceed an amount equal to the
sum of the following (the "Basket"):
(1) (x) the Cumulative Operating Cash Flow determined at the time
of such Restricted Payment less (y) 150% of cumulative Consolidated
Interest Expense determined for the period
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(treated as one accounting period) commencing on the Issue Date and
ending on the last day of the most recent fiscal quarter immediately
preceding the date of such Restricted Payment for which consolidated
financial information of the Company is required to be available, plus
(2) the aggregate net cash proceeds received by the Company either
(x) as capital contributions to the Company after the Issue Date or (y)
from the issue and sale (other than to a Subsidiary) of Qualified Equity
Interests after the Issue Date (other than any issuance and sale of
Qualified Equity Interests financed, directly or indirectly, using funds
(I) borrowed from the Company or any Subsidiary until and to the extent
such borrowing is repaid or (II) contributed, extended, guaranteed or
advanced by the Company or any Subsidiary (including, without
limitation, in respect of any employee stock ownership or benefit
plan)), plus
(3) the aggregate amount by which Indebtedness (other than any
Subordinated Indebtedness) of the Company or any Restricted Subsidiary
is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to the
Issue Date into Qualified Equity Interests (less the amount of any cash,
or the fair value of property, distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange), plus
(4) in the case of the disposition or repayment of any Investment
that was treated as a Restricted Payment made after the Issue Date, an
amount (to the extent not included in the computation of Cumulative
Operating Cash Flow) equal to the lesser of: (x) the return of capital
with respect to such Investment and (y) the amount of such Investment
that was treated as a Restricted Payment, in either case, less the cost
of the disposition of such Investment and net of taxes, plus
(5) so long as the Designation thereof was treated as a Restricted
Payment made after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary after
the Issue Date in accordance with "-- Designation of Unrestricted
Subsidiaries," the Company's proportionate interest in an amount equal
to the excess of (x) the total assets of such Subsidiary, valued on an
aggregate basis at the lesser of book value and Fair Market Value, over
(y) the total liabilities of such Subsidiary, determined in accordance
with GAAP (and provided that such amount shall not in any case exceed
the Designation Amount with respect to such Restricted Subsidiary upon
its Designation), minus
(6) with respect to each Subsidiary of the Company which has been
designated as an Unrestricted Subsidiary after the Issue Date in
accordance with "-- Designation of Unrestricted Subsidiaries," the
greater of (x) $0 and (y) the Designation Amount thereof (measured as of
the Date of Designation).
Notwithstanding the foregoing, the GTS Contribution shall not be taken into
account in calculating the Basket.
The foregoing provisions will not prevent (i) the payment of any dividend
or distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of
formal notice such payment or redemption would comply with the provisions of the
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent (A) common equity capital contribution to the
Company from any Person (other than a Subsidiary) or (B) issue and sale (other
than to a Subsidiary) of, Qualified Equity Interests; (iii) any Investment to
the extent that the consideration therefor consists of the net proceeds of the
substantially concurrent issue and sale (other than to a Subsidiary) of
Qualified Equity Interests; (iv) the purchase, redemption, retirement,
defeasance or other acquisition of Subordinated Indebtedness made in exchange
for, or out of the net cash proceeds of, a substantially concurrent issue and
sale (other than to a Subsidiary) of, (x) Qualified Equity Interests or (y)
other Subordinated Indebtedness having no stated maturity for the payment of
principal thereof prior to the Maturity Date; or (v) any Investment in any
Person principally engaged in a Telecommunications Business; provided, however,
that Investments pursuant to this clause (v) shall not exceed $25.0 million in
the aggregate at any time outstanding; provided, further, however,
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that in the case of each of clauses (ii), (iii), (iv) and (v), no Default shall
have occurred and be continuing or would arise therefrom.
Limitation on Incurrence of Indebtedness. (a) The Company shall not, and
shall not cause or permit any Restricted Subsidiary to, directly or indirectly,
Incur any Indebtedness; provided, however, that the Company may Incur
Indebtedness if, at the time of such Incurrence, the Debt to Annualized
Operating Cash Flow Ratio would be less than or equal to 6.0 to 1.0.
(b) The foregoing limitations of paragraph (a) of this covenant will
not apply to any of the following, each of which shall be given independent
effect:
(i) the Notes and the Exchange Notes, and Permitted Refinancings
thereof;
(ii) Indebtedness of the Company or any Restricted Subsidiary to
the extent outstanding on the date of the Indenture, and Permitted
Refinancings thereof;
(iii) Indebtedness of the Company or Qualified Subsidiary
Indebtedness, in each case, to the extent that the proceeds of or credit
support provided by such Indebtedness is used to finance the cost
(including the cost of design, development, construction, installation
or integration) of network assets, equipment or inventory acquired by
the Company or a Restricted Subsidiary after the Issue Date, and
Permitted Refinancings thereof;
(iv) (1) Indebtedness of the Company or Qualified Subsidiary
Indebtedness, in each case, to the extent that the proceeds of or credit
support provided by such Indebtedness is used to finance a
Telecommunications Acquisition, or working capital for, or to finance
the construction of, the business or network acquired and (2) Acquired
Indebtedness, and, in each case, Permitted Refinancings thereof, but in
each case only to the extent that (x) the aggregate amount of
Indebtedness outstanding of the Company and the Restricted Subsidiaries
after giving effect to the Incurrence of such Indebtedness and the
application of the proceeds therefrom does not exceed the product of 2.0
and the Share Capital of the Company at the date of Incurrence of such
Indebtedness or (y) the aggregate amount of such Indebtedness or
Acquired Indebtedness, together with all Indebtedness of the Person, if
any, that is to become a Restricted Subsidiary or be merged or
consolidated with or into the Company or any Restricted Subsidiary in
the contemplated transaction outstanding at the time of such transaction
(whether or not Incurred in connection with, or in contemplation of,
such transaction), does not exceed the net sum of the plant, property
and equipment set forth on the Latest Balance Sheet of such Person;
(v) (1) Indebtedness of any Restricted Subsidiary owed to and held
by the Company or any Restricted Subsidiary and (2) Indebtedness of the
Company owed to and held by any Restricted Subsidiary which is unsecured
and subordinated in right of payment to the payment and performance of
the Company's obligations under the Notes; provided, however, that an
Incurrence of Indebtedness that is not permitted by this clause (v)
shall be deemed to have occurred upon (x) any sale or other disposition
of any Indebtedness of the Company or any Restricted Subsidiary referred
to in this clause (v) to any Person other than the Company or any
Restricted Subsidiary or (y) any Restricted Subsidiary that holds
Indebtedness of the Company or another Restricted Subsidiary ceasing to
be a Restricted Subsidiary;
(vi) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary relating to Indebtedness of the Company or such
Restricted Subsidiary, as the case may be (which Indebtedness (x) bears
interest at fluctuating interest rates and (y) is otherwise permitted to
be Incurred under this covenant); provided, however, that the notional
principal amount of such Interest Rate Protection Obligations does not
exceed the principal amount of the Indebtedness to which such Interest
Rate Protection Obligations relate;
(vii) Indebtedness of the Company or any Restricted Subsidiary
under Currency Agreements to the extent relating to (x) Indebtedness of
the Company or such Restricted Subsidiary, as the case may be, and/or
(y) obligations to purchase assets, properties or services incurred in
the ordinary course of business of the Company or such Restricted
Subsidiary, as the case may be; provided, however, that such Currency
Agreements do not increase the Indebtedness or other obligations of
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the Company and the Restricted Subsidiaries outstanding other than as a
result of fluctuations in foreign currency exchange rates or by reason
of fees, indemnities or compensation payable thereunder;
(viii) Indebtedness of the Company and/or any Restricted Subsidiary
in respect of performance bonds of the Company or any Restricted
Subsidiary or surety bonds provided by the Company or any Restricted
Subsidiary incurred in the ordinary course of business and on ordinary
business terms in connection with the construction or operation of a
Telecommunications Business; and
(ix) in addition to the items referred to in clauses (i) through
(viii) above, Indebtedness of the Company or Qualified Subsidiary
Indebtedness in an aggregate amount not to exceed $15.0 million at any
time outstanding.
(c) For purposes of determining any particular amount of Indebtedness
under this covenant, guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included; provided,
however, that the foregoing shall not in any way be deemed to limit the
provisions of "-- Limitation on Issuances of Guarantees by Restricted
Subsidiaries."
(d) For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness may be Incurred through the first
paragraph of this covenant or by meeting the criteria of one or more of the
types of Indebtedness described in the second paragraph of this covenant
(or the definitions of the terms used therein), the Company, in its sole
discretion, may, at the time of such Incurrence, (i) classify such item of
Indebtedness under and comply with either of such paragraphs (or any of
such definitions), as applicable, (ii) classify and divide such item of
Indebtedness into more than one of such paragraphs (or definitions), as
applicable, and (iii) elect to comply with such paragraphs (or
definitions), as applicable, in any order.
Limitation on Restrictions Affecting Restricted Subsidiaries. The Company
shall not, and shall not cause or permit any Restricted Subsidiary to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any Restricted Subsidiary to
(x) pay dividends or make any other distributions to the Company or any other
Restricted Subsidiary on its Equity Interests or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (y) make
loans or advances to, or guarantee any Indebtedness or other obligations of, the
Company or any other Restricted Subsidiary or (z) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary.
The foregoing shall not prohibit (a) any encumbrance or restriction
existing under or by reason of any agreement in effect on the Issue Date, as any
such agreement is in effect on such date or as thereafter amended or
supplemented but only if such encumbrance or restriction is no more restrictive
than in the agreement being amended; (b) customary provisions contained in an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of a Restricted Subsidiary;
provided, however, that (x) such encumbrance or restriction is applicable only
to such Restricted Subsidiary or assets and (y) such sale or disposition is made
in accordance with "-- Limitation on Asset Sales"; (c) any encumbrance or
restriction existing under or by reason of applicable law; (d) customary
provisions restricting subletting or assignment of any lease governing any
leasehold interest of any Restricted Subsidiary; (e) covenants in purchase money
obligations for property acquired in the ordinary course of business restricting
transfer of such property; (f) covenants in security agreements securing
Indebtedness of a Restricted Subsidiary (to the extent that such Liens were
otherwise incurred in accordance with "-- Limitation on Liens") that restrict
the transfer of property subject to such agreements; (g) any agreement or other
instrument of a Person acquired by the Company or any Restricted Subsidiary in
existence at the time of such acquisition, which encumbrance or restriction (x)
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the properties or assets of the Person so acquired,
and (y) is not incurred in connection with or in contemplation of such
acquisition; or (h) contained in any agreement entered into after the Issue
Date, so long as such encumbrance or restriction is not materially more
disadvantageous to the Holders than the encumbrances and restrictions in
existence at the Issue Date.
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Designation of Unrestricted Subsidiaries. (a) The Company may designate
any Subsidiary of the Company as an "Unrestricted Subsidiary" under the
Indenture (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness under the first
paragraph of "-- Limitation on Incurrence of Indebtedness"; and
(iii) the Company would be permitted to make an Investment (other than
a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"-- Limitation on Restricted Payments" in an amount (the "Designation
Amount") equal to the Fair Market Value of the Company's proportionate
interest in the net worth of such Subsidiary on such date calculated in
accordance with GAAP.
All Subsidiaries of Unrestricted Subsidiaries shall be Unrestricted
Subsidiaries.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, at any time (x) provide credit support
for, subject any of its properties or assets (other than the Equity Interests of
any Unrestricted Subsidiary) to the satisfaction of, or guarantee, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted Subsidiary.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") only if:
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of the
Indenture; and
(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred while such Subsidiary
was an Unrestricted Subsidiary would be permitted by "-- Limitation on
Transactions with Affiliates" as if such transaction (or series of related
transactions) had occurred at the time of such Revocation (after giving
effect to any modification to such transaction (or series of related
transactions) effective at such time).
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur any Lien (other than
any Permitted Lien) of any kind against or upon any of their respective
properties or assets now owned or hereafter acquired, or any proceeds, income or
profits therefrom, unless contemporaneously therewith or prior thereto, (i) in
the case of any Lien securing an obligation that ranks pari passu with the
Notes, effective provision is made to secure the Notes equally and ratably with
or prior to such obligation with a Lien on the same collateral and (ii) in the
case of any Lien securing an obligation that is subordinated in right of payment
to the Notes, effective provision is made to secure the Notes with a Lien on the
same collateral that is prior to the Lien securing such subordinated obligation,
in each case, for so long as such obligation is secured by such Lien.
Limitation on Asset Sales. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, make any Asset
Sale, unless (x) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the assets sold or otherwise disposed of and (y) at least 75% of
such consideration consists of
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(i) cash or Cash Equivalents, (ii) Replacement Assets, (iii) publicly traded
Equity Interests of a Person who is engaged primarily in a Telecommunications
Business; provided, however, that the Company or such Restricted Subsidiary
shall sell (a "Monetization Sale"), for cash or Cash Equivalents, such Equity
Interests to a third Person (other than to the Company or a Subsidiary thereof)
at a price not less than the Fair Market Value thereof within 365 days of the
consummation of such Asset Sale, or (iv) any combination of the foregoing
clauses (i) through (iii). The amount of any (x) Indebtedness (other than any
Subordinated Indebtedness) of the Company or any Restricted Subsidiary that is
actually assumed by the transferee in such Asset Sale and from which the Company
and the Restricted Subsidiaries are fully released shall be deemed to be cash
for purposes of determining the percentage of cash consideration received by the
Company or such Restricted Subsidiary and (y) notes or other similar obligations
received by the Company or any Restricted Subsidiary from such transferee that
are immediately converted, sold or exchanged (or are converted, sold or
exchanged within 365 days of the related Asset Sale) by the Company or any
Restricted Subsidiary into cash shall be deemed to be cash, in an amount equal
to the net cash proceeds realized upon such conversion, sale or exchange for
purposes of determining the percentage of cash consideration received by the
Company or such Restricted Subsidiary. Any Net Cash Proceeds from any Asset Sale
or any Monetization Sale that are not invested in Replacement Assets or used to
repay and permanently reduce the commitments under Indebtedness of any
Restricted Subsidiary within 365 days of the consummation of such Asset Sale or
Monetization Sale shall constitute "Excess Proceeds" subject to disposition as
provided below.
Within 40 days after the aggregate amount of Excess Proceeds equals or
exceeds $10.0 million, the Company shall make an Offer to Purchase, from all
Holders, that aggregate principal amount of Notes as can be purchased with the
Note Portion of Excess Proceeds at a price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to any
purchase date. To the extent that the aggregate amount of principal and accrued
interest of Notes validly tendered and not withdrawn pursuant to an Offer to
Purchase is less than the Excess Proceeds, the Company may use such surplus for
general corporate purposes. If the aggregate amount of principal and accrued
interest of Notes validly tendered and not withdrawn by Holders thereof exceeds
the amount of Notes that can be purchased with the Note Portion of Excess
Proceeds, Notes to be purchased will be selected pro rata based on the aggregate
principal amount of Notes tendered by each Holder. Upon completion of an Offer
to Purchase, the amount of Excess Proceeds with respect to the applicable Asset
Sale or Monetization Sale shall be reset to zero.
In the event that any other Indebtedness of the Company that ranks pari
passu with the Notes (the "Other Debt") requires an offer to purchase to be made
to repurchase such Other Debt upon the consummation of an Asset Sale, the
Company may apply the Excess Proceeds otherwise required to be applied to an
Offer to Purchase to offer to purchase such Other Debt and to an Offer to
Purchase so long as the amount of such Excess Proceeds applied to purchase the
Notes is not less than the Note Portion of Excess Proceeds. With respect to any
Excess Proceeds, the Company shall make the Offer to Purchase in respect thereof
at the same time as the analogous offer to purchase is made pursuant to any
Other Debt and the Purchase Date in respect thereof shall be the same as the
purchase date in respect thereof pursuant to any Other Debt.
For purposes of this covenant, "Note Portion of Excess Proceeds" means (1)
if no Other Debt is being offered to be purchased, the amount of the Excess
Proceeds and (2) if Other Debt is being offered to be purchased, the amount of
the Excess Proceeds equal to the product of (x) the Excess Proceeds and (y) a
fraction the numerator of which is the aggregate amount of all Notes tendered
pursuant to the Offer to Purchase related to such Excess Proceeds (the "Note
Amount") and the denominator of which is the sum of the Note Amount and the
aggregate amount as of the relevant purchase date of all Other Debt tendered and
purchased pursuant to a concurrent offer to purchase such Other Debt made at the
time of such Offer to Purchase.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed a Default or an Event of Default.
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Limitation on Transactions with Affiliates. The Company shall not, and
shall not cause or permit any Restricted Subsidiary to, directly or indirectly,
conduct any business or enter into any transaction or series of related
transactions with or for the benefit of any Affiliate, any holder of 5% or more
of any class of Equity Interests or any officer, director or employee of the
Company or any Restricted Subsidiary (each, an "Affiliate Transaction"), unless
such Affiliate Transaction is on terms that are no less favorable to the Company
or such Restricted Subsidiary, as the case may be, than could reasonably be
obtained at such time in a comparable transaction with an unaffiliated third
party. For any such transaction that involves value in excess of $5.0 million,
the Company shall deliver to the Trustee an Officers' Certificate stating that a
majority of the Disinterested Directors has determined that the transaction
satisfies the above criteria and shall evidence such a determination by a Board
Resolution delivered to the Trustee. For any such transaction that involves
value in excess of $12.5 million, the Company shall also obtain a written
opinion from an Independent Financial Advisor to the effect that such
transaction is fair, from a financial point of view, to the Company or such
Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions between or among the Company and one or more
Restricted Subsidiaries or between or among Restricted Subsidiaries; (ii)
customary directors' fees, indemnification and similar arrangements, employee
salaries, bonuses or employment agreements, compensation or employee benefit
arrangements and incentive arrangements with any officer, director or employee
of the Company or any Restricted Subsidiary entered into in the ordinary course
of business (including customary benefits thereunder); (iii) transactions
pursuant to agreements in effect on the Issue Date, as such agreements are in
effect on the Issue Date or as thereafter amended or supplemented in a manner
not adverse to the Holders; (iv) loans and advances to officers, directors and
employees of the Company or any Restricted Subsidiary for travel, entertainment,
moving and other relocation expenses, in each case made in the ordinary course
of business and consistent with past business practices; (v) any transaction
between the Company or any Restricted Subsidiary, on the one hand, and any
Affiliate of the Company engaged primarily in a Telecommunications Business, on
the other hand, (x) in the ordinary course of business and consistent with
commercially reasonable practices or (y) approved by a majority of the
Disinterested Directors; (vi) any payment pursuant to any tax sharing agreement
between the Company and any other Person with which the Company files a
consolidated tax return or with which the Company is part of a consolidated
group for tax purposes; provided that such payment is not greater than that
which the Company would be required to pay as a stand-alone taxpayer; (vii) the
pledge of Equity Interests of Unrestricted Subsidiaries to support the
Indebtedness thereof; and (viii) payment of dividends in respect of Equity
Interests of the Company or any Restricted Subsidiary permitted under the
covenant described under "-- Limitation on Restricted Payments."
Limitation on Issuances of Guarantees by Restricted Subsidiaries. The
Company shall not cause or permit any Restricted Subsidiary, directly or
indirectly, to guarantee any Indebtedness of the Company ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture pursuant to which such
Restricted Subsidiary guarantees (a "Subsidiary Guarantee") all of the Company's
obligations under the Notes and the Indenture and (ii) such Restricted
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee. If the Guaranteed Indebtedness is (A) pari passu with the Notes, then
the guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then
the guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Any Subsidiary Guarantee by a Restricted Subsidiary shall provide by its
terms that it shall be automatically and unconditionally released and discharged
upon (i) any sale, exchange or transfer, to any Person not an Affiliate of the
Company, of all of the Equity Interests of the Company or any Restricted
Subsidiary in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is made in accordance with the
Indenture) or (ii) the release or discharge of the guarantee which
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resulted in the creation of such Subsidiary Guarantee, except a discharge or
release by or as a result of payment under such guarantee.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not sell, and shall not cause or permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any Equity
Interests of a Restricted Subsidiary, except (i) to the Company or a Wholly
Owned Restricted Subsidiary; (ii) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary; or (iii) in the case of issuance of Equity Interests by a
non-Wholly Owned Restricted Subsidiary if, after giving effect to such issuance,
the Company maintains its direct or indirect percentage of beneficial and
economic ownership of such non-Wholly Owned Restricted Subsidiary.
Merger, Sale of Assets, etc. The Company shall not consolidate with or
merge with or into (whether or not the Company is the Surviving Person) any
other Person and the Company shall not, and shall not cause or permit any
Restricted Subsidiary to, sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the property and assets of the Company
and the Restricted Subsidiaries, taken as a whole, to any Person or Persons
(other than any Restricted Subsidiary), in each case, in a single transaction or
series of related transactions, unless: (i) either (x) the Company shall be the
Surviving Person or (y) the Surviving Person (if other than the Company) shall
be a corporation organized and validly existing under the laws of The
Netherlands, the United States of America or any State thereof or the District
of Columbia, and shall, in any such case, expressly assume by a supplemental
indenture, the due and punctual payment of the principal of and interest on the
Notes and the performance and observance of every covenant of the Indenture, the
Escrow Agreement and the Registration Rights Agreement to be performed or
observed on the part of the Company; (ii) immediately after giving effect to
such transaction, no Default shall have occurred and be continuing; and (iii)
immediately after giving effect to such transaction, the Surviving Person (as
the Company) could Incur at least $1.00 of additional Indebtedness under the
first paragraph of "-- Limitation on Incurrence of Indebtedness."
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interests of which constitute all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the first paragraph of this covenant in
which the Company is not the Surviving Person and the Surviving Person is to
assume all the Obligations of the Company under the Notes, the Indenture, the
Escrow Agreement and the Registration Rights Agreement pursuant to a
supplemental indenture, such Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Company and the
Company shall be discharged from its Obligations under the Notes, the Indenture,
the Escrow Agreement and the Registration Rights Agreement.
Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Company would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so required, such documents to be filed with the SEC on or
prior to the respective dates (the "Required Filing Dates") by which the Company
would have been required so to file such documents if the Company were so
required; provided, however, that until the Company is subject to Section 13(a)
or Section 15(d) of the Exchange Act or any successor provisions thereto, the
Required Filing Dates for such quarterly reports shall be 75 days following the
end of the applicable fiscal quarter. The Company shall also in any event (a)
within 15 days of each Required Filing Date (whether or not permitted or
required to be filed with the SEC but subject to the proviso in the previous
sentence) (i) transmit (or cause to be transmitted) by mail to all Holders, as
their names and addresses appear in the Note register, without cost to such
Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly
reports and other documents which the Company is required to file with the SEC
pursuant
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to the preceding sentence, or, if such filing is not so permitted, information
and data of a similar nature, and (b) if, notwithstanding the preceding
sentence, filing such documents by the Company with the SEC is not permitted by
SEC practice or applicable law or regulations, promptly upon written request
supply copies of such documents to any Holder. In addition, for so long as any
Notes remain outstanding, the Company will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act, and, to any beneficial holder of Notes, if not obtainable from
the SEC, information of the type that would be filed with the SEC pursuant to
the foregoing provisions, upon the request of any such holder.
COVENANT OF GTS
GTS has consummated the GTS Contribution. This obligation of GTS
constitutes "Senior Indebtedness" under that certain indenture noted as of July
14, 1997 between GTS and The Bank of New York relating to GTS' Senior
Subordinated Convertible Bonds due 2000, and is incurred pursuant to clause (c)
of the second paragraph of the "Limitation on Indebtedness" covenant.
EVENTS OF DEFAULT
The occurrence of any of the following will be defined as an "Event of
Default" under the Indenture: (a) failure to pay principal of any Note when due;
(b) failure to pay any interest on any Note when due, continued for 30 days or
more; (c) failure to pay on the Purchase Date the Purchase Price for any Note
validly tendered pursuant to any Offer to Purchase; (d) failure to perform or
comply with any of the provisions described under "-- Certain
Covenants -- Merger, Sale of Assets, etc."; (e) failure to perform any other
covenant, warranty or agreement of the Company under the Indenture or the Escrow
Agreement or in the Notes continued for 30 days or more after written notice to
the Company by the Trustee or Holders of at least 25% in aggregate principal
amount of the outstanding Notes; (f) there shall be, with respect to any issue
or issues of Indebtedness of the Company or any Restricted Subsidiary having an
outstanding principal amount of $10.0 million or more in the aggregate for all
such issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (x) an event of default that has caused the holders
thereof (or their representative) (I) to declare such Indebtedness to be due and
payable prior to its scheduled maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 45 days following such acceleration and/or (II) to commence judicial
proceeding to foreclose upon, or to exercise remedies under applicable law or
applicable security documents to take ownership of, the property or assets
securing such Indebtedness and/or (y) the failure to make a principal payment at
the final (but not any interim) fixed maturity and such defaulted payment shall
not have been made, waived or extended within 45 days of such payment default;
(g) the rendering of a final judgment or judgments against the Company or any
Restricted Subsidiary in an amount of $10.0 million or more which remains
undischarged or unstayed for a period of 60 consecutive days; (h) certain events
of bankruptcy, insolvency or reorganization affecting the Company or any
Significant Restricted Subsidiary; or (i) the Company shall challenge the Lien
on the Escrow Collateral under the Escrow Agreement prior to such time as the
Escrow Collateral is to be released to the Company, or the Escrow Collateral
shall become subject to any Lien other than the Lien under the Escrow Agreement.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (h) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes by notice in writing to
the Company may declare the unpaid principal of and accrued interest to the date
of acceleration on all the outstanding Notes to be due and payable immediately
and, upon any such declaration, such principal amount and accrued interest,
notwithstanding anything contained in the Indenture or the Notes to the
contrary, will become immediately due and payable; provided, however, that after
such acceleration, but before a judgment or decree based on acceleration, the
Holders of a majority in aggregate principal amount of outstanding Notes may,
under certain circumstances, rescind and annul such acceleration if all Events
of Default, other than the nonpayment of accelerated principal, have been cured
or waived as provided in the Indenture. If an Event or Default specified in
clause (h) of the preceding paragraph with respect to the Company occurs under
the
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Indenture, the Notes will ipso facto become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default with respect to the Notes, give the Holders notice of
all uncured Defaults thereunder known to it; provided, however, that, except in
the case of an Event of Default in payment with respect to the Notes or a
Default or Event of Default in complying with "-- Certain Covenants -- Merger,
Sale of Assets, etc.," the Trustee shall be protected in withholding such notice
if and so long as a committee of its trust officers in good faith determines
that the withholding of such notice is in the interest of the Holders.
No Holder will have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless the Trustee (i) shall have
failed to act for a period of 60 days after receiving written notice of a
continuing Event of Default by such Holder and a request to act by Holders of at
least 25% in aggregate principal amount of Notes outstanding, (ii) shall have
been offered indemnity reasonably satisfactory to it and (iii) shall not have
received from the Holders of a majority in aggregate principal amount of the
outstanding Notes a direction inconsistent with such request. However, such
limitations do not apply to a suit instituted by a Holder of any Note for
enforcement of payment of the principal of or interest on such Note on or after
the due date therefor (after giving effect to the grace period specified in
clause(b) of the first paragraph of this "-- Events of Default" section).
The Company will be required to furnish to the Trustee after the end of
each fiscal year a statement as to the performance by it of certain of its
obligations under the Indenture and as to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its substantive obligations in respect of the
Notes by delivering all outstanding Notes to the Trustee for cancellation and
paying all sums payable by it on account of principal of, premium, if any, and
interest on all Notes or otherwise. In addition to the foregoing, the Company
may terminate the applicability of the covenants under "-- Certain Covenants"
and "-- Change of Control" or any Event of Default under clause (e) of
"-- Events of Default" by (i) depositing with the Trustee, under the terms of an
irrevocable trust agreement, money or United States Government Obligations
sufficient (without reinvestment) to pay all remaining indebtedness on such
Notes at maturity or upon earlier redemption; (ii) delivering to the Trustee
either an Opinion of Counsel or a ruling directed to the Trustee from the
Internal Revenue Service to the effect that the Holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and termination of obligations; (iii) delivering to the Trustee an
Opinion of Counsel to the effect that the Company's exercise of its option under
this paragraph will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds pursuant to this provision becoming or
being deemed to be an "investment company" under the United States Investment
Company Act of 1940, as amended (the "Investment Act"); and (iv) complying with
certain other requirements set forth in the Indenture. In addition, the Company
may, provided that no Default has occurred and is continuing or would arise
therefrom (or, with respect to a Default specified in clause (h) of "-- Events
of Default," occurs at any time on or prior to the 91st calendar day after the
date of the deposit (it being understood that this condition shall not be deemed
satisfied until after such 91st day)) under the Indenture, terminate all of its
substantive obligations in respect of the Notes (including its obligations to
pay the principal of and interest on such Notes) by (i) depositing with the
Trustee, under the terms of an irrevocable trust agreement, money or United
States Government Obligations sufficient (without reinvestment) to pay all
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remaining Indebtedness on such Notes at maturity or upon earlier redemption;
(ii) delivering to the Trustee either a ruling directed to the Trustee from the
Internal Revenue Service to the effect that the Holders of such Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and termination of obligations or an Opinion of Counsel addressed
to the Trustee based upon such a ruling or based on a change in the applicable
federal tax law since the date of the Indenture, to such effect; (iii)
delivering to the Trustee an Opinion of Counsel to the effect that the Company's
exercise of its option under this paragraph will not result in any of the
Company, such Trustee or the relevant trust created by the Company's deposit of
funds pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Act; and (iv) complying with certain other
requirements set forth in the Indenture.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Notes (including consents obtained in connection with a
tender offer or exchange offer for such Notes); provided, however, that no such
modification or amendment to the Indenture may, without the consent of the
Holder of each Note affected thereby, (a) change the maturity of the principal
of any such Note; (b) alter the optional redemption or repurchase provisions of
any such Note or the Indenture in a manner adverse to the Holders of such Notes;
(c) reduce the principal amount of any such Note; (d) reduce the rate of or
extend the time for payment of interest on any such Note; (e) change the place
or currency of payment of principal of or interest on any such Note; (f) modify
any provisions of the Indenture relating to the waiver of past defaults (other
than to add sections of the Indenture or the Notes subject thereto) or the right
of the Holders of Notes to institute suit for the enforcement of any payment on
or with respect to any such Note in respect thereof or the modification and
amendment provisions of the Indenture and such Notes (other than to add sections
of the Indenture or such Notes which may not be amended, supplemented or waived
without the consent of each Holder therein affected); (g) reduce the percentage
of the principal amount of outstanding Notes necessary for amendment to or
waiver of compliance with any provision of the Indenture or the Notes or for
waiver of any Default in respect thereof; (h) waive a default in the payment of
principal of, interest on, or redemption payment with respect to, such Note
(except a rescission of acceleration of the relevant Notes by the Holders
thereof as provided in the Indenture and a waiver of the payment default that
resulted from such acceleration); (i) modify the ranking or priority of any such
Note; (j) modify the provisions of any covenant (or the related definitions) in
the Indenture requiring the Company to make an Offer to Purchase in a manner
materially adverse to the Holders of Notes affected thereby; or (k) modify the
provisions of the Escrow Agreement or the Indenture relating to the Escrow
Collateral in any manner adverse to the Holders or release any of the Escrow
Collateral from the Lien under the Escrow Agreement or permit any other
obligation to be secured by the Escrow Collateral.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders, may waive compliance by the Company with
certain restrictive provisions of the Indenture. Subject to certain rights of
the Trustee as provided in the Indenture, the Holders of a majority in aggregate
principal amount of the Notes, on behalf of all Holders, may waive any past
default under the Indenture (including any such waiver obtained in connection
with a tender offer or exchange offer for such Notes), except a default in the
payment of principal or interest or a default arising from failure to purchase
any Notes tendered pursuant to an Offer to Purchase pursuant thereto, or a
default in respect of a provision that under the Indenture cannot be modified or
amended without the consent of the Holder of each Note that is affected.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of
New York without regard to principles of conflicts of laws.
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THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default under the Indenture, the Trustee will exercise such rights and
powers vested in it under the Indenture and use the same degree of care and
skill in its exercise as a prudent person would exercise under the circumstances
in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company or any other obligor upon the Notes, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claim as the Notes or otherwise. The Trustee is
permitted to engage in other transactions with the Company or an Affiliate of
the Company; provided, however, that if it acquires any conflicting interest (as
defined in the Indenture or in the Trust Indenture Act), it must eliminate such
conflict or resign.
LISTING
Application has been made to list the Notes on the Luxembourg Stock
Exchange. The legal notice relating to the issue of the Notes and the Articles
of Association of the Company will be registered prior to the listing with the
Registrar of the District Court in Luxembourg, where such documents are
available for inspection and where copies thereof can be obtained upon request.
As long as the Notes are listed on the Luxembourg Stock Exchange, an agent for
making payments on, and transfers of, the Notes will be maintained in
Luxembourg. The Company has initially designated Banque Internationale a
Luxembourg S.A. as its agent for such purposes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary; provided, however, that such
Indebtedness was not Incurred in connection with, or in contemplation of, such
Acquisition, such Person becoming a Restricted Subsidiary or such merger or
consolidation.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated, merged with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"Additional Interest" has the meaning provided in Section 4(a) of the
Registration Rights Agreement.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise.
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"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Restricted Subsidiary, in one transaction or
a series of related transactions, of (i) any Equity Interest of any Restricted
Subsidiary; (ii) any material license, franchise or other authorization of the
Company or any Restricted Subsidiary; (iii) any assets of the Company or any
Restricted Subsidiary which constitute substantially all of an operating unit or
line of business of the Company or any Restricted Subsidiary; or (iv) any other
property or asset of the Company or any Restricted Subsidiary outside of the
ordinary course of business (including the receipt of proceeds paid on account
of the loss of or damage to any property or asset and awards of compensation for
any asset taken by condemnation, eminent domain or similar proceedings). For the
purposes of this definition, the term "Asset Sale" shall not include (a) any
transaction consummated in compliance with "-- Certain Covenants -- Merger, Sale
of Assets, etc." and the creation of any Lien not prohibited by "-- Certain
Covenants -- Limitation on Liens"; provided, however, that any transaction
consummated in compliance with "-- Certain Covenants -- Merger, Sale of Assets,
etc." involving a sale, conveyance, assignment, transfer, lease or other
disposal of less than all of the properties or assets of the Company and the
Restricted Subsidiaries shall be deemed to be an Asset Sale with respect to the
properties or assets of the Company and Restricted Subsidiaries that are not so
sold, conveyed, assigned, transferred, leased or otherwise disposed of in such
transaction; (b) sales of property or equipment that has become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be; and
(c) any transaction consummated in compliance with "-- Certain
Covenants -- Limitation on Restricted Payments." In addition, solely for
purposes of "-- Certain Covenants -- Limitation on Asset Sales," any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, involving assets
with a Fair Market Value not in excess of $1.0 million in any fiscal year shall
be deemed not to be an Asset Sale.
"Basket" has the meaning set forth in "-- Certain Covenants -- Limitation
on Restricted Payments."
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person (or comparable governing body), or any authorized
committee of that Board (it being understood that the Board of Directors of the
Company shall be its Board of Supervisory Directors).
"Business Day" means a day (other than a Saturday or Sunday) on which the
Depository and banks in New York are open for business.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition; provided, however, that securities deposited in the Escrow
Account may have longer maturities; (c) certificates of deposit and eurodollar
time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500 million; provided, however, that securities
deposited in the Escrow Account may have longer maturities; (d) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (b) and (c) entered into with any financial
institution meeting the qualifications specified in clause (c) above; and (e)
commercial paper rated P-1, A-1 or the equivalent thereof by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group, respectively, and in each case
maturing within six months after the date of acquisition.
"Change of Control" shall mean the occurrence of any of the following
events (whether or not approved by the Board of Directors of the Company): (a)
any Person or group, excluding Permitted Holders, is or becomes the beneficial
owner, directly or indirectly, of Voting Equity Interests representing 35% or
more of the total voting power of the Voting Equity Interests of the Company at
a time when the Permitted Holders together (x) own Voting Equity Interests
representing a lesser percentage of the total voting power of the Voting Equity
Interests of the Company, than such Person or group (for purposes of determining
the
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percentage of the Voting Equity Interests of such Person or group, the holdings
of the Permitted Holders who are part of such Person or group shall not be
counted in the Voting Equity Interests of such Person or group) or (y) do not
hold the power to elect a majority of the members of the Board of Directors of
the Company; (b) any Person or group is or becomes the beneficial owner directly
or indirectly, of Voting Equity Interests representing 50% or more of the total
voting power of the Voting Equity Interests of GTS or has the power, directly or
indirectly, to elect a majority of the members of the Board of Directors of GTS;
(c) the Company consolidates with, or merges with or into, another Person or the
Company or one or more Restricted Subsidiaries sell, assign, convey, transfer,
lease or otherwise dispose of all or substantially all of the assets of the
Company and the Restricted Subsidiaries, taken as a whole, to any Person (other
than a Wholly Owned Restricted Subsidiary), or any Person consolidates with, or
merges with or into, the Company, in any such event other than pursuant to a
transaction in which the Person or Persons that "beneficially owned," directly
or indirectly, a majority of the total voting power of the Voting Equity
Interests of the Company immediately prior to such transaction, "beneficially
own," directly or indirectly, Voting Equity Interests representing a majority of
the total voting power of the Voting Equity Interests of the surviving or
transferee Person; (d) GTS consolidates with, or merges with or into, another
Person or GTS or one or more of its Subsidiaries sell, assign, convey, transfer,
lease or otherwise dispose of all or substantially all of the assets of GTS and
its Subsidiaries, taken as a whole, to any Person (other than a wholly owned
Subsidiary of GTS), or any Person consolidates with, or merges with or into,
GTS, in any such event other than pursuant to a transaction in which the Person
or Persons that "beneficially owned," directly or indirectly, Voting Equity
Interests representing a majority of the total voting power of the Voting Equity
Interests of GTS immediately prior to such transaction, "beneficially own,"
directly or indirectly, Voting Equity Interests representing a majority of the
total voting power of the Voting Equity Interests of the surviving or transferee
Person; (e) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by the Board of Directors of the
Company or whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason (other than by
action of the Permitted Holders) to constitute a majority of the Board of
Directors of the Company, then in office; (f) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Directors of GTS (together with any new directors whose election by the Board of
Directors of GTS or whose nomination for election by the stockholders of GTS was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of GTS then in office; or (g) there shall
occur the liquidation or dissolution of the Company or GTS. For purposes of this
definition, (I) "group" has the meaning under Section 13(d) and 14(d) of the
Exchange Act or any successor provision to either of the foregoing, including
any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act, and
(II) "beneficial ownership" has the meaning set forth in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time, upon
the happening of an event or otherwise.
"Change of Control Date" has the meaning set forth under "-- Change of
Control."
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for federal, state, local and foreign income taxes payable by the
Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, without
duplication, the sum of (i) the interest expense of the Company and the
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and (e) all capitalized interest and all accrued interest, (ii) the interest
component of Capitalized Lease Obligations paid,
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accrued and/or scheduled to be paid or accrued by the Company and the Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP and (iii) dividends and distributions in respect of
Disqualified Equity Interests actually paid in cash by the Company or any
Restricted Subsidiary (other than to the Company or another Restricted
Subsidiary) during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net income
of the Company and the Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, adjusted, to the extent included in
calculating such net income, by excluding, without duplication, (a) other than
for purposes of calculating the Basket, all extraordinary gains or losses for
such period; (b) other than for purposes of calculating the Basket, all gains or
losses from the sales or other dispositions of assets out of the ordinary course
of business (net of taxes, fees and expenses relating to the transaction giving
rise thereto) for such period; (c) that portion of such net income derived from
or in respect of investments in Persons other than Restricted Subsidiaries,
except to the extent actually received in cash by the Company or any Restricted
Subsidiary (subject, in the case of any Restricted Subsidiary, to the provisions
of clause (f) of this definition); (d) the portion of such net income (or loss)
allocable to minority interests in any Person (other than a Restricted
Subsidiary) for such period, except to the extent the Company's allocable
portion of such Person's net income for such period is actually received in cash
by the Company or any Restricted Subsidiary (subject, in the case of any
Restricted Subsidiary, to the provisions of clause (f) of this definition); (e)
the net income (or loss) of any other Person combined with the Company or any
Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination; and (f) the net income of any
Restricted Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the time
(regardless of any waiver) permitted, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulations applicable to that Restricted
Subsidiary or its Equity Interest holders.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication), to the
extent deducted in calculating such Consolidated Net Income, by (a) Consolidated
Income Tax Expense for such period; (b) Consolidated Interest Expense for such
period; and (c) depreciation, amortization and any other non-cash items for such
period (other than any non-cash item which requires the accrual of, or a reserve
for, cash charges for any future period) of the Company and the Restricted
Subsidiaries, including, without limitation, amortization of capitalized debt
issuance costs for such period, all of the foregoing determined on a
consolidated basis in accordance with GAAP minus non-cash items to the extent
they increase Consolidated Net Income (including the partial or entire reversal
of reserves taken in prior periods) for such period.
"Cumulative Operating Cash Flow" means, as at any date of determination,
the positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on the Issue Date and ending on the last day of the most
recent fiscal quarter immediately preceding the date of determination for which
consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Currency Agreement" shall mean any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement, which may include the
use of derivatives, designed to protect the Company or any Restricted Subsidiary
against fluctuations in currency values.
"Debt to Annualized Operating Cash Flow Ratio" means the ratio of (a) the
Total Consolidated Indebtedness as of the date of calculation (the
"Determination Date") to (b) two times the Consolidated Operating Cash Flow for
the latest two fiscal quarters for which financial information is available
immediately preceding such Determination Date (the "Measurement Period"). For
purposes of calculating Consolidated Operating Cash Flow for the Measurement
Period immediately prior to the relevant Determination Date, (I) any Person that
is a Restricted Subsidiary on the Determination Date (or would become a
Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated Operating Cash
Flow) will be deemed to have been a Restricted Subsidiary at all times during
such Measurement Period, (II) any Person that is not a Restricted Subsidiary on
such Determination
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Date (or would cease to be a Restricted Subsidiary on such Determination Date in
connection with the transaction that requires the determination of such
Consolidated Operating Cash Flow) will be deemed not to have been a Restricted
Subsidiary at any time during such Measurement Period, and (III) if the Company
or any Restricted Subsidiary shall have in any manner (x) acquired (through an
Acquisition or the commencement of activities constituting such operating
business) or (y) disposed of (by way of an Asset Sale or the termination or
discontinuance of activities constituting such operating business) any operating
business during such Measurement Period or after the end of such period and on
or prior to such Determination Date, such calculation will be made on a pro
forma basis in accordance with GAAP as if, in the case of an Acquisition or the
commencement of activities constituting such operating business, all such
transactions had been consummated on the first day of such Measurement Period
and, in the case of an Asset Sale or termination or discontinuance of activities
constituting such operating business, all such transactions had been consummated
prior to the first day of such Measurement Period (it being understood that in
calculating Consolidated Operating Cash Flow the exclusions set forth in clauses
(a) through (f) of the definition of Consolidated Net Income shall apply to an
Acquired Person as if it were a Restricted Subsidiary).
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designation" has the meaning set forth in "-- Certain
Covenants -- Designation of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth in "-- Certain
Covenants -- Designation of Unrestricted Subsidiaries."
"Disinterested Director" means a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest in
or with respect to the transaction being considered.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, on or prior to the Maturity Date; provided, however, that any
Equity Interests that would not constitute Disqualified Equity Interests but for
provisions thereof giving holders thereof the right to require the Company to
repurchase or redeem such Equity Interests upon the occurrence of a change in
control occurring prior to the Maturity Date shall not constitute Disqualified
Equity Interests if the change in control provisions applicable to such Equity
Interests are no more favorable to the holders of such Equity Interests than the
provisions described under "-- Change of Control" and such Equity Interests
specifically provide that the Company will not repurchase or redeem any such
Equity Interests pursuant to such provisions prior to the Company's repurchase
of Notes as are required to be repurchased pursuant to the provisions described
under "-- Change of Control."
"Dollar Equivalent" shall mean, with respect to a monetary amount in a
currency other than U.S. Dollars, at any time for the determination thereof, the
amount of U.S. Dollars obtained by converting such other currency involved in
such computation into U.S. dollars at the rate for the purchase of U.S. dollars
with the applicable currency as set forth in the Key Currency Cross Rates table
of The Wall Street Journal (or a successor table) on the date that is two
Business Days prior to such determination.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
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"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase."
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, which determination shall be
evidenced by a resolution of such Board delivered to the Trustee.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"GTS" means Global TeleSystems Group, Inc., a Delaware corporation, and its
successors.
"GTS Contribution" means one or more investments, on and after the Issue
Date, in the Company (other than by a Subsidiary of the Company) of not less
than ECU 46.0 million (the equivalent of $51.1 million on July 7, 1997), in the
aggregate, by capital contribution to the Company, purchase from the Company of
common Equity Interests of the Company, conversion of Indebtedness owing to
GTS-Hermes, Inc. by the Company into common Equity Interests of the Company or
repayment of Indebtedness owing to the Company.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or is merged or consolidated with or
into the Company or any Restricted Subsidiary shall be deemed to be Incurred at
such time.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in good faith); (e) every Capital
Lease Obligation of such Person; (f) every net obligation under interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements of such Person; (g) every obligation of the type referred to in
clauses (a) through (f) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise; and (h) any and all Refinancing of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a) through (g) above. Indebtedness (i) shall never be calculated taking
into account any cash and cash equivalents held by such Person; (ii) shall not
include obligations of any Person (x) arising from the honoring by a bank or
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other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within two Business
Days of their incurrence unless covered by an overdraft line, (y) resulting from
the endorsement of negotiable instruments for collection in the ordinary course
of business and consistent with past business practices and (z) under stand-by
letters of credit to the extent collateralized by cash or Cash Equivalents;
(iii) which provides that an amount less than the principal amount thereof shall
be due upon any declaration of acceleration thereof shall be deemed to be
Incurred or outstanding in an amount equal to the accreted value thereof at the
date of determination determined in accordance with GAAP; and (iv) shall include
the liquidation preference and any mandatory redemption payment obligations in
respect of any Disqualified Equity Interests of the Company or any Preferred
Equity Interests of any Restricted Subsidiary.
"Independent Financial Advisor" means a recognized, accounting, appraisal,
investment banking firm or consultant with experience in a Telecommunications
Business (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a material direct or indirect financial interest in the
Company and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for which it
is to be engaged.
"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest on the Notes.
"Interest Rate Protection Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. The amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, and minus the amount of any portion of such Investment
repaid to such Person in cash as a repayment of principal or a return of
capital, as the case may be, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment. In determining the amount of any investment involving a transfer of
any property or asset other than cash, such property shall be valued at its Fair
Market Value at the time of such transfer. "Investments" shall exclude
extensions of trade credit in the ordinary course of business in accordance with
normal trade practices.
"Issue Date" means the original issue date of the Notes.
"Latest Balance Sheet" means, of any Person, the latest consolidated
balance sheet of such Person reported on by a recognized firm of independent
accountants without qualification as to scope.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Maturity Date" means the date, which is set forth on the face of the
Notes, on which the Notes will mature.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in
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accordance with GAAP, against any liabilities associated with such assets which
are the subject of such Asset Sale (provided that the amount of any such
reserves shall be deemed to constitute Net Cash Proceeds at the time such
reserves shall have been released or are not otherwise required to be retained
as a reserve); and (e) with respect to Asset Sales by Subsidiaries, the portion
of such cash payments attributable to Persons holding a minority interest in
such Subsidiary.
"Obligations" means any principal, interest (including, without limitation,
post-petition interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to Purchase."
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each holder at
his address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 20 Business Days nor more than 90 days after the date of such
Offer, and a settlement date (the "Purchase Date") for purchase of Notes to
occur no later than five Business Days after the Expiration Date. The Company
shall notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain all the information required by
applicable law to be included therein. The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to
be purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to Purchase)
(the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the Notes
registered in the name of such holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount at maturity;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the holder thereof or his attorney duly authorized in
writing);
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(10) that holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its Paying Agent) receives, not later
than the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of the Note the
holder tendered, the certificate number of the Note the holder tendered and
a statement that such holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such Notes and (b)
if Notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase Notes having an aggregate principal amount equal to
the Purchase Amount on a pro rata basis (with such adjustments as may be
deemed appropriate so that only Notes in denominations of $1,000 principal
amount at maturity or integral multiples thereof shall be purchased); and
(12) that in the case of any holder whose Note is purchased only in
part, the Company shall execute and the Trustee shall authenticate and
deliver to the holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Permitted Holders" means GTS or any of its Affiliates.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business not to exceed
$3,000,000 in the aggregate at any one time outstanding; (d) Interest Rate
Protection Obligations and Currency Agreements permitted under "-- Certain
Covenants -- Limitation on Incurrence of Indebtedness"; (e) bonds, notes,
debentures or other securities received as a result of Asset Sales permitted
under "-- Certain Covenants -- Limitation on Asset Sales"; (f) transactions with
officers, directors and employees of the Company or any Restricted Subsidiary
entered into in the ordinary course of business (including compensation or
employee benefit arrangements with any such director or employee) and consistent
with past business practices; (g) Investments made in the ordinary course of
business and on ordinary business terms as partial payment for constructing a
network relating principally to a Telecommunications Business; (h) Investments
in any Restricted Subsidiary; (i) intercompany Indebtedness to the extent
permitted under paragraph (b)(v) of "-- Certain Covenants -- Limitation on
Incurrence of Indebtedness"; (j) Investments by the Company or any Restricted
Subsidiary in another Person, if as a result of such Investment (x) such other
Person becomes a Restricted Subsidiary or (y) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its assets to, the Company or a Restricted Subsidiary; and (k) Investments in
evidences of Indebtedness, securities or other property received from another
Person by the Company or any Restricted Subsidiary in connection with any
bankruptcy proceeding or by reason of a composition or readjustment of debt or a
reorganization of such Person or as a result of foreclosure, perfection or
enforcement of any Lien in exchange for evidences of Indebtedness, securities or
other property of such Person held by the Company or any Restricted Subsidiary,
or for other liabilities or obligations of such other Person to the Company or
any Restricted Subsidiary that were created in accordance with the terms of the
Indenture.
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens existing on the Issue Date; (c) Liens securing Indebtedness consisting
of Capitalized Lease Obligations, mortgage financings, industrial revenue bonds
or other monetary obligations, in each case incurred solely for the purpose of
financing all or any part of the purchase price or cost of construction or
installation of assets used in the business of the Company or any Restricted
Subsidiary,
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or repairs, additions or improvements to such assets; provided, however, that
(I) such Liens secure Indebtedness in an amount not in excess of the original
purchase price or the original cost of any such assets or repair, addition or
improvement thereto (plus an amount equal to the reasonable fees and expenses in
connection with the Incurrence of such Indebtedness), (II) such Liens do not
extend to any other assets of the Company or any Restricted Subsidiary (and, in
the case of repair, addition or improvements to any such assets, such Lien
extends only to the assets (and improvements thereto or thereon) repaired, added
to or improved), (III) the Incurrence of such Indebtedness is permitted by
"-- Certain Covenants -- Limitation on Incurrence of Indebtedness" and (IV) such
Liens attach within 90 days of such purchase, construction, installation,
repair, addition or improvement; (d) Liens to secure any Refinancings, in whole
or in part, of any Indebtedness secured by Liens referred to in the clauses
above so long as such Lien does not extend to any other property (other than
improvements thereto); (e) Liens securing letters of credit entered into in the
ordinary course of business and consistent with past business practice; (f)
Liens on and pledges of the capital stock of any Unrestricted Subsidiary
securing any Indebtedness of such Unrestricted Subsidiary; (g) Liens on any
property or assets of a Restricted Subsidiary granted in favor of and held by
the Company or any Restricted Subsidiary; (h) Liens on any property or assets of
the Company or any Restricted Subsidiary securing on a pari passu basis all of
the Notes; (i) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of the Company or any Restricted Subsidiary and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings; (j) Liens for taxes, assessments, government charges or
claims that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (k) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory obligations, surety and appeal
bonds, government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts for the
payment of money); (l) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with the
business of the Company or any Restricted Subsidiary incurred in the ordinary
course of business; (m) Liens arising by reason of judgment, decree or order of
any court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired; (n) Liens
securing Qualified Subsidiary Indebtedness to the extent permitted to be
Incurred under "-- Certain Covenants -- Limitation on Incurrence of
Indebtedness"; (o) Liens securing Indebtedness under Interest Rate Protection
Obligations or Indebtedness under Currency Agreements to the extent permitted to
be Incurred under "-- Certain Covenants -- Limitation on Incurrence of
Indebtedness"; and (p) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security.
"Permitted Refinancing" means, with respect to any Indebtedness,
Indebtedness to the extent representing a Refinancing of such Indebtedness;
provided, however, that (1) the Refinancing Indebtedness shall not exceed the
sum of the amount of the Indebtedness being Refinanced, plus the amount of
accrued interest or dividends thereon, the amount of any reasonably determined
prepayment premium necessary to accomplish such Refinancing and reasonable fees
and expenses incurred in connection therewith; (2) the Refinancing Indebtedness
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being Refinanced and shall
not permit redemption or other retirement (including pursuant to any required
offer to purchase to be made by the Company or any Restricted Subsidiary) of
such Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Indebtedness being Refinanced, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including pursuant
to a required offer to purchase made by the Company or a Restricted Subsidiary)
upon a change of control of the Company pursuant to provisions substantially
similar to those contained in the Indenture described under "-- Change of
Control"; (3) Indebtedness that ranks pari passu with the Notes may be
Refinanced only with Indebtedness that is made pari passu with or subordinate in
right of payment to the Notes, and Indebtedness that is subordinated in right of
payment to the Notes may be Refinanced only with Indebtedness that is
subordinate in right of payment to the Notes on terms no less
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favorable to the Holders than those contained in the Indebtedness being
Refinanced; and (4) the Refinancing Indebtedness shall be Incurred by the
obligor on the Indebtedness being Refinanced or by the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
partnership, limited partnership, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pledged Securities" means the U.S. Government Obligations purchased by the
Company with a portion of the net proceeds from the Offering to be deposited in
the Escrow Account pursuant to the Escrow Agreement.
"Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"Public Equity Offering" means an underwritten public offering of common
Equity Interests of the Company pursuant to an effective registration statement
filed under the Securities Act (excluding registration statements filed on Form
S-8).
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase."
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase."
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase."
"Qualified Equity Interest" means any Equity Interest of the Company other
than any Disqualified Equity Interest.
"Qualified Subsidiary Indebtedness" means (i) Indebtedness of Restricted
Subsidiaries under one or more senior credit agreements, senior loan agreements
or similar senior facilities, secured or unsecured, entered into from time to
time, including any related notes, guarantees collateral documents, instruments
and agreements executed in connection therewith or (ii) Indebtedness of
Restricted Subsidiaries in an aggregate principal amount not to exceed $25.0
million in the aggregate at any time outstanding.
"Refinance" means refinance, renew, extend, replace, defease or refund; and
"Refinancing" and "Refinanced" have correlative meanings.
"Replacement Assets" means (x) properties and assets (other than cash or
any Equity Interests or other security) that will be used in a
Telecommunications Business of the Company and the Restricted Subsidiaries or
(y) Equity Interests of any Person engaged primarily in a Telecommunications
Business, which Person will become on the date of acquisition thereof a
Restricted Subsidiary as a result of the Company's acquiring such Equity
Interests.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "-- Certain Covenants -- Designation of Unrestricted
Subsidiaries." Any such designation may be revoked by a resolution of the Board
of Directors of the Company delivered to the Trustee, subject to the provisions
of such covenant.
"SEC" means the Securities and Exchange Commission.
"Share Capital" shall mean, at any time of determination, the stated
capital of the Equity Interests (other than Disqualified Stock) and additional
paid-in capital of the Company at such time, all as determined in accordance
with GAAP.
"Significant Restricted Subsidiary" means, at any date of determination,
(a) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries (i) for the most recent fiscal year of
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the Company accounted for more than 10.0% of the consolidated revenues of the
Company and the Restricted Subsidiaries or (ii) as of the end of such fiscal
year, owned more than 10.0% of the consolidated assets of the Company and the
Restricted Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b) any Restricted Subsidiary which, when
aggregated with all other Restricted Subsidiaries that are not otherwise
Significant Restricted Subsidiaries and as to which any event described in
clause (h) of "-- Events of Default" has occurred and is continuing, would
constitute a Significant Restricted Subsidiary under clause (a) of this
definition.
"Stated Maturity," when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Strategic Equity Investments" means the issuance and sale of Qualified
Equity Interests to a Person that has an equity market capitalization, a net
asset value or annual revenues of at least $1.5 billion and owns and operates
business primarily in a Telecommunications Business.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Tax" shall mean any tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and any other liabilities
related thereto).
"Taxing Authority" shall mean any government or political subdivision or
territory or possession of any government or any authority or agency therein or
thereof having power to tax.
"Telecommunications Acquisition" means an Acquisition of properties or
assets to be used in a Telecommunications Business or of the Equity Interests of
any Person that becomes a Restricted Subsidiary; provided, however, that such
Person's properties and assets shall consist principally of properties or assets
that will be used in a Telecommunications Business.
"Telecommunications Business" means any business owning, constructing,
financing and operating a telephone and/or communications system located
entirely in countries located in Western and Central Europe, or any business
reasonably related thereto, including, without limitation, any business
conducted by the Company or any Restricted Subsidiary on the Issue Date.
"Total Consolidated Indebtedness" means, as at any date of determination,
an amount equal to the aggregate amount of all Indebtedness of the Company and
the Restricted Subsidiaries, on a consolidated basis, outstanding as of such
date of determination, after giving effect to any Incurrence of Indebtedness and
the application of the proceeds therefrom giving rise to such determination.
"U.S. Government Obligations" means direct non-callable obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "-- Certain Covenants -- Designation of Unrestricted
Subsidiaries." Any such designation may be revoked by a resolution of the Board
of Directors of the Company delivered to the Trustee, subject to the provisions
of such covenant.
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"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
REGISTRATION RIGHTS; ADDITIONAL INTEREST
Holders of Exchange Notes are not entitled to any registration rights with
respect to the Exchange Notes. Pursuant to the Registration Rights Agreement,
the Company has agreed to file with the Commission on or before the Filing Date,
an offer to exchange (the "Exchange Offer") any and all of the Registrable
Securities for a like aggregate principal amount of senior debt securities of
the Company which are identical to the Outstanding Notes (the "Exchange
Securities") (and which are entitled to the benefits of the Indenture or a trust
indenture which is substantially identical to the Indenture (other than such
changes as are necessary to comply with any requirements of the Commission to
effect or maintain the qualification of such trust indenture under the Trust
Indenture Act (the "TIA")) and which has been qualified under the TIA), except
that the Exchange Securities shall have been registered pursuant to an effective
registration statement under the Securities Act and shall contain no restrictive
legend thereon. The Exchange Notes are intended to constitute Exchange
Securities under the Registration Rights Agreement. The Company has agreed to
use its reasonable best efforts to (i) cause such registration statement to
become effective and commence the Exchange Offer on or prior to the
Effectiveness Date, (ii) keep the Exchange Offer open for 30 days (or longer if
required by applicable law) (the last day of such period, the "Expiration Date")
and (iii) exchange Exchange Securities for all Notes validly tendered and not
withdrawn pursuant to the Exchange Offer on or prior to the fifth day following
the Expiration Date. The Company will cause a copy of any notice regarding the
Exchange Offer to be published in a daily newspaper with general circulation in
Luxembourg (which is expected to be the Luxemburger Wort).
The Company has agreed to use its reasonable best efforts to keep such
registration statement effective and to amend and supplement the prospectus
contained therein in order to permit such prospectus to be lawfully delivered by
all persons subject to the prospectus delivery requirements of the Securities
Act for at least 180 days (or such shorter time as such persons must comply with
such requirements in order to resell the Exchange Securities) (the "Applicable
Period").
The Exchange Offer and the Registration Statement (of which this Prospectus
constitutes a part) filed in connection with the Exchange Offer are intended to
satisfy the Company's obligations under the Registration Rights Agreement. If
the Company does not consummate the Exchange Offer, or, in lieu thereof, the
Company does not file and cause to become effective a resale shelf registration
for the Notes within the time periods set forth herein, special interest will
accrue and be payable on the Notes either temporarily or permanently.
Although the Company has filed the Registration Statement in satisfaction
of its obligations under the Registration Rights Agreement, as previously
described, there can be no assurance that the Registration Statement will become
effective. If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the Commission, the Company is not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not commenced on or prior
to the Effectiveness Date, (iii) the Exchange Offer is not, for any reason,
consummated on or prior to the 165th day after the Issue Date, (iv) any Holder
of Private Exchange Securities (as defined in the Registration Rights Agreement)
so requests, or (v) in the case of any Holder that
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participates in the Exchange Offer, such Holder does not receive Exchange
Securities on the date of the exchange that may be sold without restriction
under state and federal securities laws (the occurrence of any such event, a
"Shelf Registration Event"), then, in the case of each of clauses (i) to and
including (v) of this sentence, the Company shall promptly deliver to the
Holders and the Trustee notice thereof (the "Shelf Notice") and shall thereafter
file an Initial Shelf Registration Statement pursuant to the terms of the
Registration Rights Agreement.
SHELF REGISTRATION
If a Shelf Registration Event has occurred (and whether or not this
Registration Statement has become effective, or the Exchange Offer has been
consummated), then:
Initial Shelf Registration Statement. The Company shall promptly
prepare and file with the Commission a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all
of the Registrable Securities (the "Initial Shelf Registration Statement").
The Company shall file with the Commission the Initial Shelf Registration
Statement on or prior to the Filing Date. The Initial Shelf Registration
Statement shall be on Form S-1 or another appropriate form if available,
permitting registration of such Registrable Securities for resale by such
holders in the manner designated by them (including, without limitation, in
one or more underwritten offerings). The Company shall not permit any
securities other than the Registrable Securities to be included in the
Initial Shelf Registration Statement or any Subsequent Shelf Registration
Statement. The Company shall use its reasonable best efforts to cause the
Initial Shelf Registration Statement to be declared effective under the
Securities Act on or prior to the Effectiveness Date, and to keep the
Initial Shelf Registration Statement continuously effective under the
Securities Act until the date which is 24 months from the Issue Date (or
such shorter period under Rule 144 under the Securities Act then in effect
permitting resales of securities by non-affiliates of the issuer without
registration), or such shorter period ending when (i) all Registrable
Securities covered by the Initial Shelf Registration Statement have been
sold in the manner set forth and as contemplated in the Initial Shelf
Registration Statement or (ii) a Subsequent Shelf Registration Statement
covering all of the Registrable Securities has been declared effective
under the Securities Act (such period, the "Effectiveness Period").
Subsequent Shelf Registration Statements. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the Company shall use its reasonable best efforts to obtain
the prompt withdrawal of any order suspending the effectiveness thereof,
and in any event the Company shall within 45 days of such cessation of
effectiveness amend the Shelf Registration Statement in a manner reasonably
expected to obtain the withdrawal of the order suspending the effectiveness
thereof, or file an additional "shelf" Registration Statement pursuant to
Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf
Registration Statement"). If a Subsequent Shelf Registration Statement is
filed, the Company shall use its reasonable best efforts to cause the
Subsequent Shelf Registration Statement to be declared effective as soon as
reasonably practicable after such filing and to keep such Registration
Statement continuously effective until the end of the Effectiveness Period.
As used herein the term "Shelf Registration Statement" means the Initial
Shelf Registration Statement and any Subsequent Shelf Registration
Statement.
Supplements and Amendments. The Company shall promptly supplement and
amend the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for
such Shelf Registration Statement, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal
amount of the Registrable Securities covered by such Registration Statement
or by any underwriter of such Registrable Securities.
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ADDITIONAL INTEREST
The Company agrees to pay, as liquidated damages, additional interest on
the Notes ("Additional Interest") under the circumstances and to the extent set
forth below (each of which shall be given independent effect):
(i) if either the Registration Statement or the Initial Shelf
Registration Statement has not been filed on or prior to the Filing Date
(unless, with respect to the Registration Statement, a Shelf Event
described in clause (i) of the third paragraph under " -- Exchange Offer"
above shall have occurred prior to the Filing Date), Additional Interest
shall accrue on the Notes over and above the stated interest on the
principal at a rate equal to 50 basis points for the first 90 days (for any
part thereof), immediately following such date, such Additional Interest
increasing by an additional 50 basis points for each subsequent 90-day
period (or any part thereof);
(ii) if either the Registration Statement or the Initial Shelf
Registration Statement is not declared effective by the Commission on or
prior to the Effectiveness Date (unless, with respect to the Registration
Statement, a Shelf Event described in clause (i) of the third paragraph
under " -- Exchange Offer" above shall have occurred), Additional Interest
shall accrue on the Notes included or which should have been included in
such Registration Statement over and above the stated interest on the
principal at a rate equal to 50 basis points for the first 90 days (for any
part thereof), immediately following the day after such date, such
Additional Interest increasing by an additional 50 basis points for each
subsequent 90-day period (or any part thereof); and
(iii) if (A) the Company has not exchanged Exchange Securities for all
Notes validly tendered and not withdrawn in accordance with the terms of
the Exchange Offer on or prior to the fifth day after the Expiration Date,
or (B) the Registration Statement ceases to be effective at any time prior
to the Expiration Date, or (C) if applicable, any Shelf Registration
Statement has been declared effective and such Shelf Registration Statement
ceases to be effective at any time during the Effectiveness Period, then
Additional Interest shall accrue on the Notes (over and above any interest
otherwise payable on principal of the Notes) in an amount equal to 50 basis
points for the first 90 days (or any part thereof) commencing on the (x)
sixth day after the Expiration Date, in the case of (A) above, or (y) the
day the Registration Statement ceases to be effective in the case of (B)
above, or (z) the day such Shelf Registration Statement ceases to be
effective in the case of (C) above, such Additional Interest increasing by
an additional 50 basis points at the beginning of each such subsequent
90-day period (or any part thereof);
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 150 basis points, provided, further, that (1)
upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration Statement as required hereunder (in the case of clause (i) of this
paragraph), (2) upon the effectiveness of the Registration Statement or the
Shelf Registration Statement as required hereunder (in the case of clause (ii)
of this paragraph) or (3) upon the exchange of Exchange Securities for all Notes
validly tendered and not withdrawn (in the case of clause (iii)(A) of this
paragraph), or upon the effectiveness of the Registration Statement which had
ceased to remain effective (in the case of (iii)(B) of this paragraph), or upon
the effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of (iii)(C) of paragraph), Additional Interest on the
Notes as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue (but any accrued amount shall be payable).
DEFINITIONS
As used in this section, the following terms shall have the following
meanings:
Effectiveness Date: The 135th day after the Closing Date; provided,
however, that, with respect to the Initial Shelf Registration Statement, (i) if
the Filing Date in respect thereof is fewer than 60 days prior to the 135th day
after the Closing Date, then the Effectiveness Date in respect thereof shall be
the 60th day after such Filing Date and (ii) if the Filing Date is after the
filing of the Registration Statement with the Commission, then the Effectiveness
Date in respect thereof shall be the 60th day after such Filing Date.
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Filing Date: The 90th day after the Closing Date; provided, however, that,
with respect to the Initial Shelf Registration Statement, (i) if a Shelf
Registration Event shall have occurred fewer than 30 days prior to the 90th day
after the Closing Date, then the Filing Date in respect thereof shall be the
30th day after such Shelf Registration Event and (ii) if a Shelf Registration
Event shall have occurred after the filing of the Registration Statement with
the Commission, then the Filing Date in respect thereof shall be the 30th day
after such Shelf Registration Event.
Registrable Securities: The Outstanding Notes upon original issuance
thereof and at all times subsequent thereto, each Exchange Security as to which
clause (v) of the third paragraph under "-- Exchange Offer" above is applicable
upon original issuance and at all times subsequent thereto and, if issued, the
Private Exchange Securities, until in the case of any such Outstanding Notes,
Exchange Securities or Private Exchange Securities as the case may be, (i) a
Registration Statement (other than, with respect to any Exchange Security as to
which clause (v) of the third paragraph under "-- Exchange Offer" above is
applicable, the Registration Statement) covering such Outstanding Notes,
Exchange Securities or Private Exchange Securities has been declared effective
by the Commission and such Outstanding Notes, Exchange Securities or Private
Exchange Securities, as the case may be, have been disposed of in accordance
with such effective Registration Statement, (ii) such Outstanding Notes,
Exchange Securities or Private Exchange Securities, as the case may be, are sold
in compliance with Rule 144 under the Securities Act, (iii) such Outstanding
Note has been exchanged for an Exchange Note pursuant to the Exchange Offer and
clause (v) of paragraph (b) of "-- Exchange Offer" above is not applicable
thereto, or (iv) such Outstanding Notes, Exchange Securities or Private Exchange
Securities, as the case may be, cease to be outstanding.
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CERTAIN TAX CONSIDERATIONS
The following is a summary of the principal Netherlands and United States
federal tax consequences to U.S. Holders (as defined below) of the exchange of
Outstanding Notes for Exchange Notes pursuant to the Exchange Offer and the
ownership and disposition of Exchange Notes by a holder acquiring the Exchange
Notes pursuant to the Exchange Offer. The summary is based on the opinion of
Shearman & Sterling as to United States federal income tax matters. This
discussion is not exhaustive of all the possible tax considerations and
potential investors are advised to consult their own tax advisors in order to
determine the final tax consequences of exchanging Outstanding Notes for
Exchange Notes in their own particular circumstances.
THE NETHERLANDS
This summary is based on the tax laws of the Netherlands, as well as the
Convention between the United States of America and the Kingdom of the
Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income (the "Treaty"), to the extent they were
published and effective on October 1, 1997. Changes made to these laws after
that date may have retroactive effect, and may affect the tax consequences
described herein.
The outline below is based on the assumption that the U.S. Holder is not,
and has not been for at least five years, a resident of the Netherlands for
purposes of Dutch tax legislation and is not engaged in a trade or business
through a branch or agency in the Netherlands and does not have a permanent
establishment therein (a "Non-Resident Holder"). In addition, it is assumed that
holders who are individuals do not own, either alone or together with related
individuals, 25% or more of any class of shares of H.E.R. Finally it is assumed
that the limitation on benefits provision in the Treaty cannot be invoked
against the holder.
GENERAL APPLICATION OF DUTCH TAX LAW
A Non-Resident Holder of Notes is liable for Corporate or Individual Income
Tax ("CIT" or "IIT"), according to Dutch Law, if he/she receives interest with
respect to the Notes provided that either (i) he or she has, directly or
indirectly, a substantial interest or a deemed substantial interest (as defined
below) in H.E.R. or (ii) such interest is attributable to a Dutch enterprise.
Similarly, the capital gains realized upon sale of the Outstanding Notes are
only taxable if the Notes are (deemed to be) part of such "substantial"
interest.
A substantial interest is deemed to exist if the Non-Resident Holder,
either alone or together with related individuals, owns at least five percent of
the share capital in any class of shares issued by H.E.R. or if he/she holds an
option to buy at least 5% in any class of shares in the capital of H.E.R.
INTEREST -- WITHHOLDING TAX AND TAX TREATY LIMITATIONS
According to article 12 of the Treaty, interest can only be subject to
CIT/IIT in the country of residence of the recipient of the interest. As a
result, no Dutch CIT or IIT will be due on interest received on the Notes.
In addition, the Netherlands does not levy any withholding taxes on the
payment of interest, provided that these payments do not depend and/or are not
deemed to be dependent on the profits realized and/or distributed by the company
paying the interest. If such link can be established, payments are likely to be
reclassified as payments of dividends. Although amounts reclassified as
dividends generally would be subject to Dutch withholding tax when paid to a
Non-Resident Holder, it does not appear that any substantial basis exists for
such reclassification. The forced reduction under the Treaty of the maximum
withholding tax to zero in such a case would, however, be irrelevant.
CAPITAL GAINS
As a result of article 14 of the Treaty, the Dutch intention to impose CIT
or IIT on capital gains realized upon disposal of any or all of the Notes by a
Non-Resident Holder can only be effectuated, where a Holder who is an
individual, at the time of the alienation, owns, either alone or together with
related individuals, at least 25% of any class of shares of the Company.
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EXCHANGE OFFER
Pursuant to the Exchange Offer contemplated by the Company herein, an
exchange of Outstanding Notes for Exchange Notes will not be a taxable event for
Netherlands income tax purposes.
THE UNITED STATES
The following is a summary of the principal U.S. federal income tax
considerations relevant to the purchase, ownership and disposition of the Notes.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations, revenue rulings,
administrative interpretations and judicial decisions (all as currently in
effect and all of which are subject to change, possibly with retroactive
effect). Except as specifically set forth herein, this summary deals only with
Notes held as capital assets within the meaning of Section 1221 of the Code.
This summary does not discuss all of the tax consequences that may be relevant
to holders in light of their particular circumstances or to holders subject to
special tax rules, such as insurance companies, dealers in securities or foreign
currencies, tax-exempt investors, persons holding the Notes as part of a hedging
transaction, "straddle," conversion transaction, or other integrated
transaction, or U.S. Holders whose functional currency (as defined in Section
985 of the Code) is not the U.S. dollar. Persons considering the exchange of
Outstanding Notes for Exchange Notes should consult with their own tax advisors
with regard to the application of the U.S. federal income tax laws to their
particular situations as well as any tax consequences arising under the laws of
any state, local or foreign jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
who or that is for U.S. federal income tax purposes (i) a citizen or individual
resident of the United States, (ii) a corporation created or organized in or
under the laws of the United States or any political subdivision thereof, (iii)
a domestic partnership within the meaning of the Code (i.e., a partnership
created or organized in or under the laws of the United States or any political
subdivision thereof, unless future Treasury regulations provide otherwise), (iv)
an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or (v) a trust if both: (A) a U.S. court is able to
exercise primary supervision over the administration of the trust, and (B) one
or more U.S. persons have the authority to control all substantial decisions of
the trust. A "Foreign Holder" means a holder of Notes who or that is not a U.S.
Holder.
INTEREST
Interest on the Notes and Additional Amounts, if any, paid in respect of
withholding taxes imposed on payments on the Notes (as described in "Description
of the Notes -- Payments of Additional Amounts") generally will be taxable to a
U.S. Holder as ordinary income at the time accrued or received, in accordance
with such U.S. Holder's method of accounting for U.S. federal income tax
purposes. The amount of interest required to be included in income by a U.S.
Holder will include the amount of such taxes, if any, withheld by the Company in
respect thereof. Thus, in the event of such withholding, a U.S. Holder would be
required to report gross income in an amount greater than the cash it receives
in respect of payments on its Note. However, a U.S. Holder could, subject to
certain limitations, be eligible to claim as a credit or deduction for purposes
of computing its U.S. federal income tax liability such taxes withheld,
notwithstanding that the payment of such taxes will be made by the Company. The
rules relating to foreign tax credits and the timing thereof are extremely
complex and U.S. Holders should consult with their own tax advisors with regard
to the availability of a foreign tax credit and the application of the foreign
tax credit limitations to their particular situations.
EXCHANGE OFFER; ADDITIONAL INTEREST; ADDITIONAL AMOUNTS
Pursuant to the Exchange Offer contemplated by the Company herein, an
exchange of Outstanding Notes for Exchange Notes will not be a taxable event for
U.S. federal income tax purposes and a U.S. Holder will have the same tax basis
and holding period in the Exchange Notes as in the Outstanding Notes. The
Company will be required to pay Additional Interest in certain circumstances as
described in "Description of Notes -- Registration Rights; Additional Interest"
herein. Also, subject to certain exceptions, the Company will pay Additional
Amounts to Holders in the event that withholding taxes are imposed in respect to
payments on the Notes. See "Description of the Notes -- Additional Amounts."
According to the Treasury
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Regulations, the possibility of additional payments in respect of the Notes will
not affect their yield (and, accordingly, will not affect the inclusion of
interest in income) if the likelihood of such payments, as of the date the Notes
are issued, is remote. The Company does not intend to treat the possibility of
additional interest as affecting the yield to maturity of any Note. If, however,
additional payments are made on the Notes, then, solely for the purposes of
determining the yield to maturity of a Note, the Note could be treated as
reissued with "original issue discount," which could result in a U.S. Holder
having to include amounts in income prior to the receipt of payments in respect
thereof.
MARKET DISCOUNT AND PREMIUM
If a U.S. Holder purchases a Note for an amount that is less than its
principal amount, the amount of the difference will be treated as "market
discount" for U.S. federal income tax purposes, unless such difference is less
than a specified de minimis amount.
Under the market discount rules of the Code, a U.S. Holder will be required
to treat any partial principal payment on, or any gain realized on the sale,
exchange, retirement or other disposition of, a Note as ordinary income to the
extent of the lesser of (i) the amount of such payment or realized gain or (ii)
the market discount that has not previously been included in income and is
treated as having accrued on such Note at the time of such payment or
disposition. If such Note is disposed of in a nontaxable transaction (other than
a nonrecognition transaction described in Code Section 1276(c)), the amount of
gain realized on such disposition for purposes of the market discount rules
shall be determined as if such holder had sold the Note at its then fair market
value. Market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the Note,
unless the U.S. Holder elects to accrue on the basis of a constant interest
rate.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry such Note until the maturity of the Note or its earlier
disposition (except for certain nonrecognition transactions). However, a U.S.
Holder may elect to include market discount in income currently as it accrues
(on either a straight-line or a constant interest rate basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the Note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply.
If a U.S. Holder purchases a Note for an amount that is greater than the
amount payable at maturity (or on the earlier call date, in the case of a Note
that is redeemable at the option of the Company), such holder will be considered
to have purchased such Note with "amortizable bond premium" equal in amount to
such excess, and may elect (in accordance with applicable Code provisions) to
amortize such premium, using a constant yield method over the remaining term of
the Note and to offset interest otherwise required to be included in income in
respect of such Note during any taxable year by the amortized amount of such
excess for such taxable year. However, if such Note may be optionally redeemed
after the U.S. Holder acquires it at a price in excess of its stated redemption
price at maturity, special rules would apply which could result in a deferral of
the amortization of some bond premium until later in the term of such Note. If
an election to amortize bond premium is not made, a U.S. Holder must include the
full amount of each interest payment in income in accordance with such U.S.
Holder's regular method of accounting and will receive a tax benefit from the
premium only in computing its gain or loss upon the sale or other disposition or
payment of the principal amount of the Note.
U.S. Holders are permitted to elect to include all interest on a Note using
the constant yield method. For this purpose, interest includes stated interest,
acquisition discount, market discount, de minimis market discount, and unstated
interest, as adjusted by any amortizable bond premium or acquisition premium.
Special rules apply to such elections made with respect to Notes with
amortizable bond premium or market discount and U.S. Holders considering such an
election should consult with their own tax advisors. Once made, the election
cannot be revoked without the consent of the IRS.
DISPOSITIONS
Upon the sale, exchange or retirement of a Note, a U.S. Holder generally
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such holder's adjusted tax
basis (as increased by any market discount previously includible in income by
the U.S. Holder
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and decreased by amortizable bond premium, if any, deducted over the term of the
Notes) in the Note. For these purposes, the amount realized on the sale,
exchange or retirement of a Note does not include any amount attributable to
accrued but unpaid interest, which will be taxable as such unless previously
taken into account. Gain or loss recognized on the sale, exchange or retirement
of a Note will be capital gain or loss and will be long-term capital gain or
loss if the Note was held for more than one year. Under recently enacted
legislation, an individual generally will be taxed on the net amount of his or
her capital gain derived in respect of the Notes at a maximum rate of (i) 28%,
for Notes held for more than one year but not more than 18 months, or (ii) 20%,
for Notes held for more than 18 months. Special rules (and generally lower
maximum rates) apply for individuals in lower tax brackets.
BACKUP WITHHOLDING
"Backup" withholding and information reporting requirements may apply to
certain payments of principal and interest on a Note and to certain payments of
proceeds of the sale or retirement of a Note. The Company, its agent, a broker,
the Trustee or any paying agent, as the case may be, will be required to
withhold tax from any payment that is subject to backup withholding at a rate of
31% of such payment if the U.S. Holder fails to furnish his taxpayer
identification number (social security number or employer identification number)
within a reasonable time after a request therefor, to certify that such U.S.
Holder is not subject to backup withholding, or to otherwise comply with the
applicable requirements of the backup withholding rules. Certain U.S. Holders
(including, among others, all corporations) are not subject to the backup
withholding and information reporting requirements.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Holder of a Note who has provided certain
required certification under penalties of perjury that it is not a U.S. Holder
or has otherwise established an exemption (provided that neither the Company nor
such agent has actual knowledge that the Holder is a U.S. Holder or that the
conditions of any other exemption are in fact satisfied).
Payment of the proceeds from the sale by a U.S. Holder of a Note made to or
through a non-U.S. office of a broker will not be subject to U.S. information
reporting or backup withholding, except that, if the broker is a U.S. person, a
controlled foreign corporation for U.S. federal income tax purposes or a foreign
person 50% or more of whose gross income is effectively connected with a United
States trade or business for a specified three-year period, U.S. information
reporting, but not backup withholding, may apply to such payments. Payments of
the proceeds from the sale of a Note to or through the United States office of a
broker are subject to U.S. information reporting and backup withholding unless
the Holder certifies as to its non-U.S. status or otherwise establishes an
exemption from U.S. information reporting and backup withholding.
Any amounts withheld under the backup withholding rules from a payment to a
Holder may be claimed as a credit against such Holder's U.S. federal income tax
liability; provided that the required information is provided to the IRS.
FOREIGN HOLDERS
Foreign Holders generally will not be subject to U.S. federal income or
withholding tax on (a) interest and Additional Amounts, if any, in respect of
the Notes unless such payments are effectively connected with the conduct by the
Foreign Holder of a trade or business within the United States, or (b) gains
realized on the sale, exchange or retirement of a Note unless (i) such gain is
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States or (ii) in the case of gain realized by an
individual Foreign Holder, the Foreign Holder is present in the United States
for 183 days or more in the taxable year of the disposition and certain other
conditions are met.
Notes held (or treated as held) by an individual who is a Foreign Holder at
the time of his or her death will not be subject to U.S. federal estate tax,
provided that any interest on the Notes would have qualified as portfolio
interest if received by such individual at the time of his or her death.
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PLAN OF DISTRIBUTION
Based on positions taken by the staff of the Commission set forth in
no-action letters issued to Exxon Capital Holdings Corp. and Morgan Stanley &
Co. Inc., among others, the Company believes that Exchange Notes issued pursuant
to the Exchange Offer in exchange for Outstanding Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) a broker-dealer who acquired Notes directly from
the Company, or (iii) broker-dealers who acquired Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions for the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes; provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Exchange Notes. To date, the staff of the Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the Exchange Offer (other than a resale of an
unsold allotment from the sale of the Outstanding Notes to the Initial
Purchasers thereof) with the Prospectus contained in the Exchange Offer
Registration Statement. Pursuant to the Registration Rights Agreement, the
Company has agreed to permit Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements to use this Prospectus
in connection with the resale of such Exchange Notes. The Company has agreed
that, for a period of 180 days after the Exchange Offer has been consummated, it
will make this Prospectus, and any amendment or supplement to this Prospectus,
available to any broker-dealer that requests such documents in the Letter of
Transmittal.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "Terms of the Exchange
Offer -- Terms and Conditions of the Letter of Transmittal". In addition, each
holder who is a broker-dealer and who receives Exchange Notes for its own
account in exchange for Outstanding Notes that were acquired by it as a result
of market-making activities or other trading activities, will be required to
acknowledge that it will deliver a prospectus in connection with any resale by
it of such Exchange Notes.
Holders who tender Outstanding Notes in the Exchange Offer with the
intention to participate in a distribution of the Exchange Notes may not rely
upon the Morgan Stanley or similar no-action letters.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter' within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Outstanding Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act, as
set forth in the Registration Rights Agreement.
93
<PAGE> 100
LEGAL MATTERS
Certain legal matters regarding the validity of the Exchange Notes offered
hereby and the United States federal income tax consequences of the Exchange
Offer will be passed upon for the Company by Shearman & Sterling.
EXPERTS
The consolidated financial statements of Hermes Europe Railtel B.V. at
December 31, 1995 and 1996, and for each of the two years in the period ended
December 31, 1996, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young Reviseurs d'Entreprises S.C.C., independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
GENERAL LISTING INFORMATION
LISTING
Application has been made to list the Exchange Notes on the Luxembourg
Stock Exchange. The Articles of Association of the Company and the legal notices
relating to the exchange of the Outstanding Notes for the Exchange Notes will be
deposited prior to the listing with the Registrar of the District Court in
Luxembourg (Greffier en Chef du Tribunal d'Arrondissement a Luxembourg), where
such documents are available for inspection and where copies thereof can be
obtained upon request. As long as the Exchange Notes are listed on the
Luxembourg Stock Exchange, an Agent for making payments on, and transfers of,
Exchange Notes will be maintained in Luxembourg.
CONSENTS
The Company has obtained all necessary consents, approvals and
authorizations in connection with the exchange of Outstanding Notes for Exchange
Notes. The issue of the Notes was authorized by resolutions of the Board of
Supervisory Directors of the Company passed on July 22, 1997.
NO MATERIAL CHANGE
Except as disclosed in this Prospectus, there has been no material adverse
change in the financial position of the Company and its subsidiaries since June
30, 1997.
LITIGATION
Neither the Company nor any of its subsidiaries or affiliates is involved
in any litigation or arbitration proceedings which relate to claims or amounts
which are material in the context of the issue of the Notes or that may have, or
have had during the 12 months preceding the date of this Prospectus, a material
adverse effect on the financial position of the Company, nor, so far as any of
them is aware, is any such proceeding pending or threatened.
FINANCIAL STATEMENTS
The consolidated accounts of the Company for the two years ended December
31, 1996 have been prepared in accordance with United States generally accepted
accounting principles ("U.S. GAAP"). The unaudited consolidated interim accounts
for the three and six months ended June 30, 1996 and 1997 were prepared in
accordance with U.S. GAAP.
94
<PAGE> 101
DOCUMENTS FOR INSPECTION
Copies of the following documents may be inspected at the specified office
of the Paying and Transfer Agent in Luxembourg.
- Articles of Association of the Company;
- the Purchase Agreement, Registration Rights Agreement and Escrow
Agreement relating to the Notes; and
- the Indenture relating to the Notes (which includes the form of the Note
certificates).
In addition, copies of the most recent consolidated financial statements of
the Company for the preceding financial year, and any interim quarterly
financial statements published by the Company, will be available at the
specified office of the Paying and Transfer Agent in Luxembourg for as long as
the Notes are listed on the Luxembourg Stock Exchange. The Company publishes
only consolidated financial statements.
CLEARING SYSTEMS
The Notes distributed pursuant to Regulation S and represented by the
Regulation S Global Certificate have been accepted for clearance through the
facilities of Euroclear and Cedel. Relevant trading information is set forth
below. The ISIN number is USN40243AA09. The CUSIP number for the Notes
distributed pursuant to Rule 144A represented by the Restricted Global
Certificate is 427516AA7 and for the Notes distributed pursuant to Regulation S
and represented by the Regulation S Global Certificate is N40243AA0.
NOTICES
All notices shall be deemed to have been given upon (i) the mailing by
first class mail, postage prepaid, of such notices to Holders of the Notes at
their registered addresses as recorded in the Register; and (ii) so long as the
Notes are listed on the Luxembourg Stock Exchange and it is required by the
rules of the Luxembourg Stock Exchange, publication of such notice to the
Holders of the Notes in English in a leading newspaper having general
circulation in Luxembourg (which is expected to be the Luxembourg Wort) or, if
such publication is not practicable, in one other leading English language daily
newspaper with general circulation in Europe, such newspaper being published on
each Business Day in morning editions, whether or not it shall be published in
Saturday, Sunday or holiday editions.
95
<PAGE> 102
GLOSSARY
Accounting Rate Mechanism (ARM). The current system of bilateral
settlement agreements between PTOs under which tariffs for cross-border
pan-European-switched voice traffic are determined.
Add-drop multiplexer (ADM). A multiplexer which controls cross connect
between individual circuits by software, permitting dynamic cross connect of
individual 64 kbps circuits within an E1 line.
Asynchronous Transfer Mode (ATM). A switching and transmission technology
that is one of a general class of packet technologies that relay traffic by way
of an address contained within the first five bits of a standard fifty-three
bit-long packet or cell. ATM-based packet transport was specifically developed
to allow switching and transmission of mixed voice, data and video at varying
rates. The ATM format can be used by many different information systems,
including LANs.
Bps. Bits per second; the basic measuring unit of speed in a digital
transmission system; the number of bits that a transmission facility can convey
between a sending location and a receiving location in one second.
Backbone. The through-portions of a transmission network, as opposed to
spurs which branch off the through-portions.
Bandwidth. The range of frequencies that can be passed through a medium,
such as glass fibers, without distortion. The greater the bandwidth, the greater
the information-carrying capacity of such medium. For fiber optic transmission,
electronic transmitting devices determine the bandwidth, not the fibers
themselves. Bandwidth is measured in Hertz (analog) or Bits Per Second
(digital).
Capacity. Refers to transmission.
Carrier. A provider of communications transmission services by fiber, wire
or radio.
CCITT. International Telegraph and Telephone Consultative Committee.
Closed User Group. A group of customers with some affiliation with one
another and which are treated for regulatory purposes as not being the public.
Competitive Local Telecommunications Provider. A company that provides its
customers with an alternative to the local telephone company for local transport
of private line, special access and transport of switched access
telecommunications services. Competitive Local Telecommunications Providers are
also referred to in the industry as alternative local telecommunications service
providers (ALTS), Competitive Access Providers (CAPs) and Competitive Local
Exchange Carriers (CLECs).
Dark Fiber. Fiber that lacks the requisite electronic and optronic
equipment necessary to use the fiber for transmission.
Dedicated. Refers to telecommunications lines dedicated to or reserved for
use by particular customers along predetermined routes (in contrast to
telecommunications lines within the local telephone company's public switched
network).
Digital. Describes a method of storing, processing and transmitting
information through the use of distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital transmission/switching technologies
employ a sequence of discrete, distinct pulses to represent information, as
opposed to the continuously variable analog signal.
E1. Data transmission rate of approximately 2 Mbps.
E3. Data transmission rate of approximately 34 Mbps.
Enhanced Network Services. Telecommunications services providing digital
connectivity, primarily for data applications, via frame relay, ATM, or digital
interexchange private line facilities. Enhanced network services also include
applications on such networks, including Internet access and other Internet
services.
Frame Relay. A wide area transport technology that organizes data into
units called frames instead of providing fixed bandwidth as with private lines.
A high-speed, data-packet switching service used to transmit data between
computers. Frame Relay supports data units of variable lengths at access speeds
ranging from 56 kilobits per second to 1.5 megabits per second. This service is
well-suited for connecting local area networks, but is not presently well suited
for voice and video applications due to the variable delays which can occur.
Frame Relay was designed to operate at high speeds on modern fiber optic
networks.
96
<PAGE> 103
Gbps. Gigabits per second, which is a measurement of speed for digital
signal transmission expressed in billions of bits per second.
Hertz. The unit for measuring the frequency with which an electromagnetic
signal cycles through the zero-value state between lowest and highest states.
One Hz (Hertz) equals one cycle per second. kHz (kilohertz) stands for thousands
of Hertz; MHz (megahertz) stands for millions of Hertz.
Interconnect. Connection of a telecommunications device or service to the
PSTN.
International Simple Resale. Refers to the wholesale purchase of IPLCs
from facilities-based carriers and the reselling of such capacity to customers
for switched telephone service.
IPLC. International Private Leased Circuits.
ITU. International Telecommunications Union, a worldwide
telecommunications organization under the auspices of the United Nations.
Kbps. Kilobits per second, which is a measurement of speed for digital
signal transmission expressed in thousands of bits per second.
Local Area Network (LAN). The interconnection of computers for the purpose
of sharing files, programs and peripheral devices such as printers and
high-speed modems. LANs may include dedicated computers or file servers that
provide a centralized source of shared files and programs. LANs are generally
confined to a single customer's premises and may be extended or interconnected
to other locations through the use of bridges and routers.
Local Loop. The local loop is that portion of the local telephone network
that connects the customer's premises to the local exchange provider's central
office or switching center. This includes all the facilities starting from the
customer premise interface which connects to the inside wiring and equipment at
the customer premise to a terminating point within the switching wire center.
Mbps. Megabits per second, which is a measurement of speed for digital
signal transmission expressed in millions of bits per second.
Multiplexing. The use of some means to inter-leave narrow-band or
slow-speed data from multiple sources in order to make use of a wide-band or
high-speed channel.
Nodes. Locations within the network housing electronic equipment and/or
switches which serve as intermediate connection points to send and receive
transmission signals.
Plesiochronous Digital Hierarchy (PDH). A method of controlling the timing
between transmission and switching systems that is not synchronized but rather
relies on highly accurate clocks to minimize the slip rates between switching
nodes.
Points of Presence (POPs). Locations where a carrier has installed
transmission equipment in a service area that serves as, or relays calls to, a
network switching center of that carrier.
PSTN. Public switched telecommunications network.
Public Telecommunications Operator (PTO). A licensed telecommunications
common carrier.
Redundant Electronics. Describes a telecommunications facility using two
separate electronic devices to transmit the telecommunications signal so that if
one device malfunctions, the signal may continue without interruption.
Regeneration/amplifier. Devices which automatically re-transmit or boost
signals on an out-bound circuit.
Route Kilometers. The number of kilometers along which fiber optic cables
are installed.
Route Mile. The number of miles along which fiber optic cables are
installed.
STM-1. Data transmission rate of approximately 155 Mbps.
97
<PAGE> 104
STM-4. Data transmission rate of approximately 622 Mbps.
STM-16. Data transmission rate of approximately 2,488 Mbps.
STM-64. Data transmission rate of approximately 9,952 Mbps.
Switch. A sophisticated computer that accepts instructions from a caller
in the form of a telephone number. Like an address on an envelope, the numbers
tell the switch where to route the call. The switch opens or closes circuits or
selects the paths or circuits to be used for transmission of information.
Switching is a process of interconnection circuits to form a transmission path
between users. Switches allow local telecommunications service providers to
connect calls directly to their destination, while providing advanced features
and recording connection information for future billing.
Synchronous Digital Hierarchy (SDH). SDH is a set of standards for optical
communications transmission systems that define optical rates and formats,
signal characteristics, performance, management and maintenance information to
be embedded within the signals and the multiplexing techniques to be employed in
optical communications transmission systems. SDH facilitates the
interoperability of dissimilar vendors' equipment and benefits customers by
minimizing the equipment necessary for telecommunications applications. SDH also
improves the reliability of the local loop connecting customers' premises to the
local exchange provider, historically one of the weakest links in the service
delivery.
Time Division Multiplexing (TDM). A multiplexing technique allowing
multiple signals to be carried simultaneously on a fiber by allocating resources
on a time interval basis.
Trunk. A telephone circuit with a switch at both ends.
Wavelength Division Multiplexing (WDM). A multiplexing technique allowing
multiple different signals to be carried simultaneously on a fiber by allocating
resources according to frequency on non-overlapping frequency bands.
X.25. A CCITT standard governing the interface between data terminals and
data circuit termination equipment for terminals on packet-switched data
networks.
98
<PAGE> 105
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YEAR END FINANCIAL STATEMENTS
Report of Ernst & Young Reviseurs d'Entreprises S.C.C., Independent Auditors.......... F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996........................ F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996 and from inception (July 6, 1993) to December 31, 1996.................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996 and from inception (July 6, 1993) to December 31, 1996.................. F-5
Consolidated Statements of Shareholders' Equity from inception (July 6, 1993) to
December 31, 1993 and for the years ended December 31, 1994, 1995 and 1996....... F-6
Notes to Consolidated Financial Statements............................................ F-7
SECOND QUARTER FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997....... F-16
Condensed Consolidated Statements of Operations for the three and six months ended
June 30, 1996 and 1997.............................................................. F-17
Condensed Consolidated Statements of Cash Flows for the three and six months ended
June 30, 1996 and 1997.............................................................. F-18
Notes to the Condensed Consolidated Financial Statements.............................. F-19
</TABLE>
F-1
<PAGE> 106
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Board of Directors and
the Shareholders of
Hermes Europe Railtel B.V.
We have audited the accompanying consolidated balance sheets of Hermes
Europe Railtel B.V. (a development stage company) as of December 31, 1995 and
1996, and the related consolidated statements of operations, cash flows, and
shareholders' equity for the years ended December 31, 1995 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hermes Europe
Railtel B.V. at December 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with United
States generally accepted accounting principles.
June 11, 1997 except for Note 9, which
is as of July 15, 1997
Ernst & Young Reviseurs d'Entreprises S.C.C.
Represented by
L. SWOLFS
Partner
F-2
<PAGE> 107
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA AT
DECEMBER 31,
DECEMBER 31, DECEMBER 31, 1996
1995 1996 (UNAUDITED)
------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................... $ 5,784 $ 2,013 $ 1,125
Restricted cash......................................... -- 3,840 3,840
Accounts receivable..................................... -- 84 84
Due from affiliated companies........................... 67 491 491
Other assets............................................ 579 1,100 1,100
------------ ------------ ------------
Total current assets............................ 6,430 7,528 6,640
Property and equipment, net............................... 4,671 20,303 20,303
------------ ------------ ------------
Total Assets.................................... $ 11,101 $ 27,831 $ 26,943
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses................... $ 4,659 $ 8,476 $ 8,476
Due to affiliated companies............................. 2,117 3,344 3,344
Debt maturing within one year........................... 9 63 63
Other current liabilities............................... -- 24 24
------------ ------------ ------------
Total current liabilities....................... 6,785 11,907 11,907
Long-term debt, less current portion...................... 10 499 499
Pension obligation........................................ -- 8 8
------------ ------------ ------------
Total Liabilities............................... 6,795 12,414 12,414
Commitments and contingencies
Shareholders' loans....................................... 8,353 34,863 --
SHAREHOLDERS' EQUITY
Common stock, 1,000 Dutch guilders par value (305 shares
authorized and 80 shares issued and outstanding at
December 31, 1995 and 1996; 297,000 shares authorized
and 174,679 shares issued and outstanding on a pro
forma basis at December 31, 1996).................... 45 45 88,829
Additional paid-in capital.............................. 2,884 2,884 6,612
Shareholder receivable.................................. -- -- (58,537)
Cumulative translation adjustment....................... (254) 316 316
Deficit accumulated during the development stage........ (6,722) (22,691) (22,691)
------------ ------------ ------------
Total Shareholders' Equity...................... (4,047) (19,446) 14,529
------------ ------------ ------------
Total Liabilities and Shareholders' Equity...... $ 11,101 $ 27,831 $ 26,943
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 108
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ACTIVITY
FROM
YEAR ENDED INCEPTION
------------------------------------------ (JULY 6,
DECEMBER 31, 1993) TO
1994 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1995 1996 1996
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues...................................... $ -- $ -- $ 48 $ 48
Operating costs and expenses:
Cost of revenues............................ -- -- 4,694 4,694
Selling, general and administrative......... 183 6,637 10,552 17,372
------------ ------------ ------------ ------------
183 6,637 15,246 22,066
------------ ------------ ------------ ------------
Loss from operations.......................... (183) (6,637) (15,198) (22,018)
Other income/(expense):
Interest income............................. 18 125 508 651
Interest expense............................ -- (9) (153) (162)
Foreign currency (losses) gains............. (55) 19 (1,126) (1,162)
------------ ------------ ------------ ------------
(37) 135 (771) (673)
------------ ------------ ------------ ------------
Loss before income taxes...................... (220) $ (6,502) $(15,969) $(22,691)
Income taxes.................................. -- -- -- --
------------ ------------ ------------ ------------
Net Loss...................................... $ (220) $ (6,502) $(15,969) $(22,691)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 109
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED ACTIVITY FROM
------------------------------------------ INCEPTION
DECEMBER 31, (JULY 6, 1993) TO
1994 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1995 1996 1996
------------ ------------ ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................. $ (220) $ (6,502) $(15,969) $ (22,691)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......... 5 11 658 674
Deferred interest..................... -- -- 125 125
Changes in assets and liabilities:
Accounts receivable................. -- -- (84) (84)
Deposits............................ -- (17) (589) (606)
Accounts payable and accrued
expenses......................... 89 4,570 3,817 8,476
Other changes in assets and
liabilities...................... (41) (521) 100 (462)
------------ ------------ ------------ -----------------
Net cash used in operating
activities..................... (167) (2,459) (11,942) (14,568)
INVESTING ACTIVITIES
Purchases of property and equipment...... (52) (4,635) (16,290) (20,977)
Restricted cash.......................... -- -- (3,840) (3,840)
------------ ------------ ------------ -----------------
Net cash used in investing
activities..................... (52) (4,635) (20,130) (24,817)
FINANCING ACTIVITIES
Proceeds from debt....................... -- 19 543 562
Net proceeds from issuance of common
stock................................. 1,028 1,901 -- 2,929
Proceeds from shareholders' loans........ -- 8,353 26,385 34,738
Due to affiliated companies, net......... -- 2,050 803 2,853
------------ ------------ ------------ -----------------
Net cash provided by financing
activities..................... 1,028 12,323 27,731 41,082
Effect of exchange rate changes on cash and
cash equivalents......................... 58 (312) 570 316
------------ ------------ ------------ -----------------
Net increase (decrease) in cash and cash
equivalents.............................. 867 4,917 (3,771) 2,013
Cash and cash equivalents at beginning of
period................................... -- 867 5,784 --
------------ ------------ ------------ -----------------
Cash and cash equivalents at end of
period................................... $ 867 $ 5,784 $ 2,013 $ 2,013
========== ========== ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 110
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the period from July 6, 1993 (date of inception) to December 31, 1993
and the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL CUMULATIVE DURING THE TOTAL
-------------- PAID-IN TRANSLATION DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT STAGE EQUITY
------ ------ ---------- ----------- ------------ -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares on July 6, 1993 (date of
inception)................................... 40 $ 21 $ -- $ -- $ -- $ 21
--
--- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1993................... 40 21 -- -- -- 21
Proceeds from the sale of common stock......... 21 11 996 -- -- 1,007
Translation adjustment......................... -- -- -- 58 -- 58
Net loss....................................... -- -- -- -- (220) (220)
--
--- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1994................... 61 32 996 58 (220) 866
Proceeds from the sale of common stock......... 19 13 1,888 -- -- 1,901
Translation adjustment......................... -- -- -- (312) -- (312)
Net loss....................................... -- -- -- -- (6,502) (6,502)
--
--- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1995................... 80 45 2,884 (254) (6,722) (4,047)
Translation adjustment......................... -- -- -- 570 -- 570
Net loss....................................... -- -- -- -- (15,969) (15,969)
--
--- ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1996................... 80 $ 45 $2,884 $ 316 $(22,691) $ (19,446)
== === ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 111
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS OPERATIONS
Hermes Europe Railtel B.V. (the "Company") intends to become the leading
pan-European carriers' carrier by constructing and operating a managed,
seamless, fiber optic, pan-European network, and providing high-quality
trans-border transmission services to telecommunications carriers across Europe.
The Company is 50% owned by HIT Rail B.V.("HIT Rail"), a consortium of
eleven European railway companies and 50% owned by GTS-Hermes,
Inc.("GTS-Hermes"), a U.S. holding company that is a wholly-owned subsidiary of
Global TeleSystems Group, Inc., a provider of a broad range of
telecommunications services to businesses, other telecommunications service
providers and consumers through its operations of voice and data networks,
international gateways, local access and cellular networks and the provision of
various value added services in markets outside of the United States.
The Company is still a development stage enterprise, as currently the
telecommunications network is being configured. The buildout of the network
started in 1996; full commercial services are anticipated to commence in the
first half of 1998.
The Company had working deficits of approximately $4.4 million and $0.4
million as of December 31, 1996 and 1995, respectively. The Company had an
accumulated deficit of $22.7 million as of December 31, 1996, including a net
loss of approximately $16.0 million for the year then ended. During 1997, the
Company expects to incur substantial expenditures for working capital and
capital expenditure requirements. The Company's working capital at December 31,
1996, plus its anticipated cash flows from operations for 1997, will not be
sufficient to meet such objectives as presently planned.
Management recognizes that the Company must generate additional capital
resources in order to continue its buildout of the network. The Company is
pursuing other equity and debt financing sources and has entered into
substantive negotiations with various financial institutions in order to obtain
further debt financing and is expecting to complete a recapitalization (the
"Recapitalization") by the end of August, 1997 (see Note 9, "Subsequent Events
and Pro Forma Adjustments").
The financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assumes that the Company will
continue in the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of business. If the going concern
assumptions were not appropriate for these financial statements, then
adjustments would have been necessary in the carrying value of assets and
liabilities and the reported revenues and expenses.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of Hermes Europe Railtel
B.V., its Belgian branch and of Hermes Europe Railtel N.V. All significant
intercompany accounts and transactions are eliminated upon consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 consolidated financial
statements in order to conform to the 1996 presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents. The Company
had $3.8 million of restricted cash at December 31, 1996.
F-7
<PAGE> 112
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The restricted cash is primarily related to cash held in escrow in compliance
with an agreement with a major vendor.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is calculated on a
straight-line basis over the estimated lives ranging from five to seven years
for telecommunications equipment and three to ten years for furniture, fixtures
and equipment and other property. A substantial part of the costs includes
construction in process, which is currently related to the configuration and
build-out of the network, and these costs primarily consist of labor. These
costs are transferred to telecommunications equipment in service as construction
is completed and/or equipment is placed into service. Depreciation is recorded
commencing with the first full month that the assets are in service. Maintenance
and repairs are charged to expense as incurred.
The Company intends to capitalize material interest costs associated with
the construction of telecommunications equipment; however, no interest costs
have been capitalized as of December 31, 1996.
LONG-LIVED ASSETS
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance
with SFAS No. 121, long-lived assets to be held and used by the Company are
reviewed to determine whether any events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. For long-lived
assets to be held and used, the Company bases its evaluation on such impairment
indicators as the nature of the assets, the future economic benefit of the
assets, any historical or future profitability measurements, as well as other
external market conditions or factors that may be present. If such impairment
indicators are present or other factors exist that indicate that the carrying
amount of the asset may not be recoverable, the Company determines whether an
impairment has occurred through the use of an undiscounted cash flow analysis of
assets at the lowest level for which identifiable cash flows exist. If an
impairment has occurred, the Company recognizes a loss for the difference
between the carrying amount and the estimated value of the asset. The fair value
of the asset is measured using quoted market prices or, in the absence of quoted
market prices, fair value is based on an estimate of discounted cash flow
analysis. During the years ended December 31, 1995 and 1996, the Company's
analyses indicated that there was not an impairment of its long-lived assets.
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Deferred income taxes result from temporary differences between the tax basis of
assets and liabilities and the basis as reported in the consolidated financial
statements.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Dutch B.V. company are maintained in Dutch
guilders. The accounting records of the Belgian branch and the Belgian N.V.
company are maintained in Belgian francs. The functional currency for the
Company has been determined to be the Belgian franc. Therefore, the Dutch
guilder statements have been remeasured into Belgian franc equivalents,
consolidated with the Belgian branch and Belgian N.V. statements and then
translated into U.S. dollar equivalents for the purpose of preparing the
accompanying financial statements, in accordance with accounting principles
generally accepted in the United States.
F-8
<PAGE> 113
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company follows a translation policy in accordance with SFAS No. 52,
"Foreign Currency Translation." Assets and liabilities are translated at the
rates of exchange at the balance sheet date. Income and expense accounts are
translated at average monthly rates of exchange. The resultant translation
adjustments are included in the cumulative translation adjustment, a separate
component of shareholders' equity. Gains and losses from foreign currency
transactions are included in the operations.
REVENUE RECOGNITION
The Company's revenue is associated with its customers right to use the
network and is recognized on a straight-line basis over the terms of the
customer contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amount of its assets and liabilities
reported in the balance sheets approximates their fair value.
OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains most of its cash and cash equivalents in high
quality European financial institutions.
The Company does not now hedge against foreign currency fluctuations,
although the Company may implement such practices in the future. Under current
practices, the Company's results from operations could be adversely affected by
fluctuations in foreign currency exchange rates.
USES OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of these consolidated financial statements, in conformity
with generally accepted accounting principles, requires management to make
estimates and assumptions that affect amounts in the financial statements and
accompanying notes and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3: SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Other assets consist of:
Deposits................................................... $ 17 $ 606
VAT receivable............................................. 272 402
Other assets............................................... 290 92
------------ ------------
Total other assets................................. $ 579 $ 1,100
========== ==========
</TABLE>
F-9
<PAGE> 114
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: SUPPLEMENTAL BALANCE SHEET INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment, net consists of:
Construction in process.................................... $3,879 $ 12,981
Telecommunications equipment in service.................... -- 4,947
Furniture, fixtures and equipment.......................... 807 2,507
Leasehold improvements..................................... 2 543
------------ ------------
4,688 20,978
Less: accumulated depreciation.......................... 17 675
------------ ------------
Total property and equipment, net.................. $4,671 $ 20,303
========== ==========
Accounts payable and accrued expenses consist of:
Trade accounts payable..................................... 2,225 5,445
Accrued salaries and bonuses............................... 668 1,924
Accrued vacation expense................................... 110 774
Accrued legal expenses..................................... 522 147
Accrued expense............................................ 1,134 186
------------ ------------
$4,659 $ 8,476
========== ==========
</TABLE>
NOTE 4: DEBT OBLIGATIONS
Company debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Debt obligation, vendor financing agreement with quarterly
principal payments and maturing on October 1, 2004 at 6.8%
interest................................................... $ -- $562
Other financing agreements with interest at 10.2%............ 19 --
--- ------
Less: debt maturing within one year.......................... 9 63
--- ------
Total long-term debt......................................... $ 10 $499
========== ==========
</TABLE>
Aggregate maturities of long-term debt, as of December 31, 1996, are as
follows: 1997 -- $0.06 million, 1998 -- $0.06 million, 1999 -- $0.06 million,
2000 -- $0.07 million, 2001 -- $0.07 million and $0.2 million thereafter.
The Company paid interest of $0.02 million and $0.01 million in 1996 and
1995, respectively. The Company did not pay interest in 1994.
NOTE 5: DEFINED BENEFIT PLAN
The Company established a defined benefit pension plan in 1995 that covers
substantially all of its employees upon twenty-five years of age and at least
one year of service. The benefits are based on years of service and the
employee's compensation. The Company has entered into an arrangement with an
insurance company for the provision of a group insurance policy (the "Policy").
Under the Policy, the insurance provider has undertaken a legal obligation to
provide specified benefits to participants in return for a fixed premium;
accordingly, the Company no longer bears significant financial risk. Premium
payments for the
F-10
<PAGE> 115
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5: DEFINED BENEFIT PLAN (CONTINUED)
Policy are partly paid by the employee; based on specified terms that consider
the employees annual salary, with the remaining premium paid by the employer.
Premiums are intended to provide not only for benefits attributed to service to
date but also for those expected to be earned in the future.
\ The following table sets forth the plan's funded status and amounts recognized
at December 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation....................................... $ (136)
-------
Projected benefit obligation for service rendered to date............ $ (388)
Plan assets at fair value, primarily Belgian bonds................... 338
-------
Projected benefit obligations in excess of plan assets............... (50)
Unrecognized net obligation.......................................... 42
-------
Pension obligation................................................... $ 8
===========
Net pension cost for 1996 included the following components:
Service cost -- benefits earned during the period.................... $ 365
Interest cost on projected benefit obligation........................ 3
Actual return on plan assets......................................... (9)
Net amortization..................................................... 2
-------
Net periodic pension cost.................................... $ 361
===========
</TABLE>
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligation
was 4.5%. The expected long-term rate of return on assets was 7.0%
NOTE 6: INCOME TAXES
The components of loss before income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
----- ------- --------
<S> <C> <C> <C>
Pretax loss:
Domestic (the Netherlands)........................... $ (95) $ (422) $ (608)
Foreign.............................................. (125) (6,080) (15,361)
----- ------- --------
$(220) $(6,502) $(15,969)
===== ======= ========
</TABLE>
No current income taxes are due as the Company incurred losses due to the
start-up activities in the Belgian branch and the Company.
F-11
<PAGE> 116
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6: INCOME TAXES (CONTINUED)
A deferred tax asset is recorded based on temporary differences between
earnings as reported in the financial statements and earnings for income tax
purposes. The following table summarizes major components of the Company's
deferred tax asset:
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 31,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 3,919 $ 11,729
----------- -----------
Net deferred tax assets..................................... 3,919 11,729
Less: valuation allowance................................... (3,919) (11,729)
----------- -----------
Total............................................. $ -- $ --
========= =========
</TABLE>
As of December 31, 1996, the Company had net operating loss carryforwards
for Belgian and Dutch income tax purposes of approximately $29.3 million, which
are recoverable from profits for an unlimited period of time.
NOTE 7: COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Operating lease commitments are primarily for office space and car rental.
The office lease has a term of nine years, expiring on June 30, 2005, with an
option to cancel January 1, 2002 with a penalty of six months, rental payment as
well as the remaining principal due on the debt obligation (see Note 4, "Debt
Obligations"). In addition, the Company received a reduction in annual expense
during the first three years of the lease. This reduction is being amortized
over the first six years of the lease, using a straight-line method.
Rental expense aggregated approximately $0.5 million and $0.7 million, net
of sublease income of $0.01 million and $0.08 million for the years ended
December 31, 1996 and 1995, respectively. The Company did not have rent expense
in 1994.
Future minimum lease payments under these non-cancelable operating leases
with terms of one year or more, as of December 31, 1996, are as follows:
1997 -- $1.1 million, 1998 -- $1.1 million, 1999 -- $1.2 million, 2000 -- $1.2
million, 2001 -- $1.2 million and $0.6 million thereafter.
OTHER MATTERS
In the ordinary course of business, the Company may be party to various
legal and tax proceedings, and subject to claims, certain of which relate to the
regulatory environments in which the Company currently or intends to operate. In
the opinion of management, the Company's liability, if any, in all pending
litigation, or other legal proceeding or other matter other than what is
discussed above, will not have a material effect upon the financial condition,
results of operations or liquidity of the Company.
F-12
<PAGE> 117
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8: RELATED PARTY TRANSACTIONS
The Company received financing through shareholders' loan transactions
provided by HIT Rail and GTS-Hermes. The components of the Company's shareholder
loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
HIT Rail..................................................... $6,425 $ 13,999
GTS-Hermes................................................... 1,928 20,864
------------ ------------
Total shareholders' loans.......................... $8,353 $ 34,863
========== ==========
</TABLE>
The amount due from GTS H.E.R. includes $0.1 million of accrued interest at
December 31, 1996. The loans will be converted into shares of the Company's
common stock as part of the Recapitalization which is expected to be completed
by the end of August, 1997 (see Note 9, "Subsequent Events and Pro Forma
Adjustments").
NOTE 9: SUBSEQUENT EVENTS AND PRO FORMA ADJUSTMENTS
Subsequent to December 31, 1996, Hermes Europe Railtel N.V. began
negotiating a new lease on a second office building, which is currently being
constructed. The terms of the lease are expected to be finalized by the fourth
quarter of 1997, the expected completion date of the construction. The lease
period will be for eight years and will have an annual expense of $0.4 million
to be paid in quarterly installments.
In January and February 1997, additional loans of ECU 6.4 million
(approximately $7.5 million) were advanced to the Company by GTS-Hermes. These
loans were converted into shares of the Company's common stock ("Common Stock")
as part of the Recapitalization. In addition, loans of ECU 5.4 million
(approximately $6.1 million) were advanced to the Company in February and April
1997 by individual members of HIT Rail. These loans are expected to be converted
into Common Stock as part of the Recapitalization discussed below.
To increase the equity of the Company by means of the contribution of fiber
optic cable leases and/or cash by its current partners and individual
shareholders of HIT Rail, the Company expects to complete the Recapitalization
by the end of August, 1997.
Pursuant to the Recapitalization, the Company extended rights to subscribe
to additional Common Stock to GTS-Hermes, HIT Rail and the eleven individual
members of the HIT Rail consortium. HIT Rail and eight of the members of HIT
Rail have declined to exercise their rights, while GTS-Hermes and three of the
members of HIT Rail have indicated that they intend to exercise their rights.
The first phase of the Recapitalization was completed on July 7, 1997. As a
result, all shareholders' loans from GTS-Hermes and HIT Rail were converted into
Common Stock. In addition, GTS-Hermes exercised its right to subscribe to
additional Common Stock, resulting in a contribution of ECU 46.0 million
(approximately $51.1 million), which will be paid to the Company by September
30, 1997. The first phase of the Recapitalization resulted in the following
ownership of the Company:
<TABLE>
<CAPTION>
SHARES CONVERSION OF EXERCISE SHARES
DECEMBER 31, 1996 SHAREHOLDERS' LOANS OF RIGHTS JULY 7, 1997
----------------- ------------------- --------- ------------
<S> <C> <C> <C> <C>
GTS-Hermes...................... 40 50,197 100,395 150,632
HIT Rail........................ 40 24,007 -- 24,047
--
------ ------- -------
80 74,204 100,395 174,679
== ====== ======= =======
</TABLE>
F-13
<PAGE> 118
HERMES EUROPE RAILTEL B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9: SUBSEQUENT EVENTS AND PRO FORMA ADJUSTMENTS (CONTINUED)
Under Dutch law, the Company is required to pay a 1% capital duty tax on
all issuances of common stock, which will result in the Company paying a capital
duty tax of approximately $0.9 million. The pro forma balance sheet at December
31, 1996 gives effect to the first phase of the Recapitalization as discussed
above.
Additional phases of the Recapitalization are expected to include the
conversion of loans of ECU 5.4 million (approximately $6.1 million) advanced to
the Company by two of the individual members of HIT Rail, as well as the
contribution of fiber optic cable leases. If all three individual members of HIT
Rail participate in the Recapitalization as anticipated, it will result in the
following ownership of the Company:
<TABLE>
<CAPTION>
SHARES ADDITIONAL SHARES AT COMPLETION
JULY 7, 1997 SHARES OF RECAPITALIZATION
------------ ---------- --------------------
<S> <C> <C> <C>
GTS-Hermes................................... 150,632 150,632
HIT Rail..................................... 24,047 24,047
Individual members of the HIT Rail
consortium................................. -- 21,385 21,385
------- ------ -------
174,679 21,385 196,064
======= ====== =======
</TABLE>
F-14
<PAGE> 119
HERMES EUROPE RAILTEL B.V.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SECOND QUARTER OF 1997
UNAUDITED
F-15
<PAGE> 120
HERMES EUROPE RAILTEL B.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA AT
DECEMBER 31, JUNE 30, JUNE 30, 1997
1996 1997 (SEE NOTE 3)
------------ -------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................ $ 2,013 $ 1,050 $ 240,542
Restricted cash.......................................... 3,840 1,142 29,392
Accounts receivable...................................... 84 749 749
Due from affiliated companies............................ 491 624 --
Other assets............................................. 1,100 5,995 5,995
------ -------- --------
Total current assets............................. 7,528 9,560 276,678
Property and equipment, net................................ 20,303 23,950 23,950
Deferred financing costs................................... -- -- 13,500
Restricted cash............................................ -- -- 28,250
------ -------- --------
Total assets..................................... $ 27,831 $ 33,510 $ 342,378
====== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses.................... 8,476 9,654 9,654
Due to affiliated companies.............................. 3,344 6,295 --
Debt maturing within one year............................ 63 29 29
Other current liabilities................................ 24 326 326
------ -------- --------
Total current liabilities........................ 11,907 16,304 10,009
Long-term debt, less current portion....................... 499 444 265,444
Pension obligation......................................... 8 8 8
------ -------- --------
Total liabilities................................ 12,414 16,756 275,461
Commitments and contingencies
Shareholders' loans........................................ 34,863 48,491 6,142
Shareholders' equity
Common stock, 1,000 Dutch guilders par value (305 shares
authorized and 80 shares issued and outstanding at
December 31, 1996 and June 30, 1997; 297,000 shares
authorized and 174,679 shares issued and outstanding
on a pro forma basis at June 30, 1997)................ 45 45 88,829
Additional paid-in capital............................... 2,884 2,884 6,612
Cumulative translation adjustment........................ 316 (1,945) (1,945)
Accumulated deficit...................................... (22,691) (32,721) (32,721)
------ -------- --------
Total shareholders' equity....................... (19,446) (31,737) 60,775
------ -------- --------
Total liabilities and shareholders' equity....... $ 27,831 $ 33,510 $ 342,378
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed, consolidated
financial statements.
F-16
<PAGE> 121
HERMES EUROPE RAILTEL B.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1996 1997 1996 1997
------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................................... $ -- $ 404 $ -- $ 593
-------- ------- -------
Operating costs and expenses:
Cost of revenues................................. 1,103 1,487 2,251 3,304
Selling, general and administrative.............. 2,208 3,679 4,652 6,345
-------- ------- -------
3,311 5,166 6,903 9,649
-------- ------- -------
Loss from operations............................... (3,311) (4,762) (6,903) (9,056)
Other income/(expense):
Interest income/(expense), net................... 140 (352) 300 (569)
Foreign currency losses.......................... (302) (667) (514) (405)
-------- ------- -------
(162) (1,019) (214) (974)
-------- ------- -------
Loss before income taxes........................... (3,473) (5,781) (7,117) (10,030)
Income taxes....................................... -- -- -- --
-------- ------- -------
Net loss........................................... $(3,473) $(5,781) $(7,117) $(10,030)
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed, consolidated
financial statements.
F-17
<PAGE> 122
HERMES EUROPE RAILTEL B.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ---------------------
1996 1997 1996 1997
-------- ------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................. $ (3,473) $(5,781) $ (7,117) $(10,030)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization..... 101 335 179 832
Changes in assets and liabilities:
Accounts receivable............. 81 (574) -- (665)
Accounts payable and accrued
expenses..................... 3,799 3,626 4,826 1,178
Other changes in assets and
liabilities.................. (968) (4,575) (1,040) (4,595)
------- ------- --------
Net cash used in operating
activities................. (460) (6,969) (3,152) (13,280)
INVESTING ACTIVITIES
Purchases of property and
equipment......................... (3,885) (1,234) (5,530) (4,477)
Restricted cash...................... (6,579) 2,503 (6,579) 2,698
------- ------- --------
Net cash (used in) provided
by investing activities.... (10,464) 1,269 (12,109) (1,779)
FINANCING ACTIVITIES
Repayment of debt.................... -- (40) (2) (89)
Proceeds from shareholders' loans.... 62 3,850 19,543 13,628
Due to affiliated companies, net..... (105) 2,170 (23) 2,818
------- ------- --------
Net cash (used in) provided
by financing activities.... (43) 5,980 19,518 16,357
Effect of exchange rate changes on cash
and cash equivalents................. (55) (1,402) 128 (2,261)
------- ------- --------
Net (decrease) increase in cash and
cash equivalents..................... (11,022) (1,122) 4,385 (963)
Cash and cash equivalents at beginning
of period............................ 21,191 2,172 5,784 2,013
------- ------- --------
Cash and cash equivalents at end of
period............................... $ 10,169 $ 1,050 $ 10,169 $ 1,050
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed,
consolidated financial statements.
F-18
<PAGE> 123
HERMES EUROPE RAILTEL B.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: FINANCIAL PRESENTATION AND DISCLOSURES
In the opinion of management, the accompanying unaudited condensed,
consolidated financial statements of Hermes Europe Railtel B.V. (the "Company")
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the Company's financial position as of December 31, 1996, June
30, 1997 and pro forma at June 30, 1997 (see Note 3, "Subsequent Events and Pro
Forma Adjustments to Balance Sheet"), and the results of operations and cash
flows for the periods indicated.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Material intercompany affiliate account
transactions have been eliminated; however, other adjustments may have been
required had an audit been performed. It is suggested that these financial
statements be read in conjunction with the Company's 1996 audited consolidated
financial statements and the notes related thereto. The results of operations
for the three and six months ended June 30, 1997 may not be indicative of the
operating results for the full year.
The Company intends to become the leading pan-European carriers' carrier by
developing and operating a managed, seamless, fiber optic, pan-European network,
and providing high quality trans-border transmission services to
telecommunications carriers across Europe.
As of June 30, 1997, the Company was 50% owned by HIT Rail B.V. ("HIT
Rail"), a consortium of eleven European railway companies and 50% owned by
GTS-Hermes, Inc. ("GTS-Hermes"), a U.S. holding company that is a wholly-owned
subsidiary of Global TeleSystems Group, Inc. ("GTS"), a provider of a broad
range of telecommunications services to businesses, other telecommunications
service providers and consumers through its operation of voice and data
networks, international gateways, local access and cellular networks and the
provision of various value-added services in markets outside of the United
States. In an effort to increase the equity of the Company by means of the
contribution of fiber optic cable leases and/or cash by its current owners and
individual shareholders of HIT Rail, the Company undertook a recapitalization
(the "Recapitalization") during the first quarter of 1997 which is expected to
be completed by the end of August 1997 (see Note 3, "Subsequent Events and Pro
Forma Adjustments to Balance Sheet").
NOTE 2: RELATED PARTY TRANSACTIONS
The Company received financing through shareholders' loans transactions
provided by HIT Rail and GTS-Hermes and individual members of HIT Rail. The
components of the Company's shareholders' loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
----------------- -------------
(IN THOUSANDS)
<S> <C> <C>
HIT Rail................................................. $13,999 $13,999
GTS-Hermes............................................... 20,864 28,350
Individual members of HIT Rail........................... -- 6,142
------- -------
Total shareholders' loans...................... $34,863 $48,491
======= =======
</TABLE>
The shareholder loans from GTS-Hermes and HIT Rail were converted into
shares of the Company's common stock ("Common Stock") on July 7, 1997 as part of
the Recapitalization discussed below. The loans from the individual members of
HIT Rail are expected to be converted into Common Stock by the end of August
1997 as part of the Recapitalization.
F-19
<PAGE> 124
HERMES EUROPE RAILTEL B.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 3: SUBSEQUENT EVENTS AND PRO FORMA ADJUSTMENTS TO BALANCE SHEET
FINANCING TRANSACTION
Subsequent to June 30, 1997, the Company initiated a debt offering that is
expected to raise $265 million through a series of senior notes due August 15,
2007 ("Senior Notes"). The Senior Notes will be general unsecured obligations of
the Company, with interest payable semiannually at a rate of 11.5%.
Approximately $56.5 million of the net proceeds of the offering will be held in
escrow for the first four semi-annual interest payments commencing in 1998. The
offering includes an optional redemption clause that allows the Company to
redeem the Senior Notes, in whole or in part, any time on or after August 15,
2002 at specific redemption prices. The Company may also redeem the Senior Notes
at a price equal to 111.5% of the principal amount prior to August 15, 2000 with
cash proceeds of a public offering that results in gross proceeds of at least
$75 million or in certain other circumstances specified in the indenture for the
Senior Notes, provided, however, that at least two-thirds of the principal
amount of the Senior Notes originally issued remains outstanding after each such
redemption. Pursuant to the covenants in the offering, the Company will be
required to file a registration statement with the Securities Exchange
Commission within 90 days of the closing of the offering.
RECAPITALIZATION
To increase the equity of the Company by means of the contribution of fiber
optic cable leases and/or cash by its current partners and individual
shareholders of HIT Rail, the Company expects to complete the Recapitalization
by the end of August 1997.
Pursuant to the Recapitalization, the Company extended rights to subscribe
to additional Common Stock to GTS-Hermes, HIT Rail and the eleven individual
members of the HIT Rail consortium. HIT Rail and nine of the members of HIT Rail
have declined to exercise their rights, while GTS-Hermes and two of the members
of HIT Rail have indicated that they intend to exercise their rights.
The first phase of the Recapitalization was completed on July 7, 1997. As a
result, all shareholders' loans from GTS-Hermes and HIT Rail were converted into
Common Stock. In addition, GTS-Hermes exercised its right to subscribe to
additional Common Stock, resulting in a contribution of ECU 46.0 million
(approximately $51.1 million), which will be paid to the Company in cash, net of
the Company's outstanding payables to GTS and GTS-Hermes (approximately $5.7
million at June 30, 1997, as reflected in Due to/from affiliated companies on
the balance sheet) by September 30, 1997. The ECU 46.0 million obligation has
been reflected as paid in the pro forma balance sheet. The first phase of the
Recapitalization resulted in the following ownership of the Company.
<TABLE>
<CAPTION>
CONVERSION OF
SHARES SHAREHOLDERS' EXERCISE SHARES
JUNE 30, 1997 LOANS OF RIGHTS JULY 7, 1997
------------- ------------- --------- ------------
<S> <C> <C> <C> <C>
GTS-Hermes................................ 40 50,197 100,395 150,632
HIT Rail.................................. 40 24,007 -- 24,047
--
------ ------- -------
80 74,204 100,395 174,679
== ====== ======= =======
</TABLE>
In addition, under Dutch law, the Company is required to pay a 1% capital
duty tax on all issuances of common stock, which will result in the Company
paying a capital duty tax of approximately $0.9 million. The pro forma balance
sheet at June 30, 1997 gives effect to the financing transaction and the first
phase of the Recapitalization as discussed above.
The Recapitalization is expected to be completed by the end of August 1997.
Additional phases of the Recapitalization are expected to include the conversion
of loans of ECU 5.4 million (approximately $6.1 million) advanced to the Company
by two of the individual members of HIT Rail, as well as the
F-20
<PAGE> 125
HERMES EUROPE RAILTEL B.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 3: SUBSEQUENT EVENT AND PRO FORMA ADJUSTMENTS
TO BALANCE SHEET (CONTINUED)
contribution of fiber optic cable leases. If all members of HIT Rail participate
in the Recapitalization as anticipated, it will result in the following
ownership of the Company:
<TABLE>
<CAPTION>
SHARES AT
SHARES ADDITIONAL COMPLETION OF
JULY 7, 1997 SHARES RECAPITALIZATION
------------ ---------- ----------------
<S> <C> <C> <C>
GTS-Hermes..................................... 150,632 -- 150,632
HIT Rail....................................... 24,047 -- 24,047
Individual members of HIT Rail................. -- 15,789 15,789
------- ------ -------
174,679 15,789 190,468
======= ====== =======
</TABLE>
F-21
<PAGE> 126
PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY
HERMES EUROPE RAILTEL B.V.
Terhulpsesteenweg 6A
1560 Hoeilaart, Belgium
OFFICE IN COUNTRY OF ORGANIZATION
HERMES EUROPE RAILTEL B.V.
Strawinskylaan 305
1077 XX Amsterdam
The Netherlands
INDEPENDENT AUDITORS
ERNST & YOUNG REVISEURS D'ENTREPRISES S.C.C.
Avenue Marcel Thirty 204
B-1200 Brussels, Belgium
LEGAL ADVISERS
SHEARMAN & STERLING
599 Lexington Avenue
New York, New York 10022-6069
<TABLE>
<S> <C>
As to Dutch Company Law Matters As to Regulatory Matters
LOEFF CLAEYS VERBEKE COUDERT BROTHERS
Apollolaan 15 20 Old Bailey
P.O. Box 75088 London, EC4M 7JP
1070AB England
Amsterdam, The Netherlands
</TABLE>
EXCHANGE AND INFORMATION AGENT
THE BANK OF NEW YORK
101 Barclay Street
New York, New York 10286
LISTING AGENT, PAYING AND TRANSFER AGENT
BANQUE INTERNATIONALE A LUXEMBOURG S.A.
69 route d'Esch
L-1470 Luxembourg
<PAGE> 127
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY THE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Service of Process and Enforceability
of Civil Liabilities................ iv
Certain Definitions................... iv
Prospectus Summary.................... 1
Risk Factors.......................... 11
Use of Proceeds....................... 19
Capitalization........................ 27
Selected Consolidated Financial
Data................................ 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Industry Overview..................... 31
Business.............................. 35
Licenses and Regulatory Issues........ 43
Management............................ 47
Executive Compensation and Other
Information......................... 51
Security Ownership of Principal
Shareholders and Management......... 55
Certain Relationships and Related
Transactions........................ 55
Description of the Exchange Notes..... 58
Certain Tax Considerations............ 89
Plan of Distribution.................. 93
Legal Matters......................... 94
Independent Auditors.................. 94
General Listing Information........... 94
Glossary.............................. 96
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
$265,000,000
HERMES EUROPE
RAILTEL B.V.
11 1/2% SENIOR NOTES DUE 2007
[HERMES EUROPE RAILTEL LOGO]
----------------------
PROSPECTUS
----------------------
, 1997
======================================================
<PAGE> 128
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Dutch Company Law ("Netherlands Law") permits indemnification of directors,
employees and agents of corporations under certain conditions and subject to
certain limitations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C>
(A) EXHIBITS.
3.1 -- Deed of Incorporation and Articles of Association, as amended to date
4.1 -- Form of Outstanding Note (contained in Indenture filed as Exhibit 4.3)
4.2 -- Form of Exchange Note (contained in Indenture filed as Exhibit 4.3)
4.3 -- Indenture, dated August 19, 1997, among the Company, Global TeleSystems Group,
Inc. and The Bank of New York, as Trustee
4.4 -- Registration Rights Agreement, dated August 19, 1997, between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, UBS Securities LLC and
Lehman Brothers Inc.
4.5 -- Escrow Agreement, dated August 19, 1997, among the Company and The Bank of New
York, as Trustee and as Escrow Agent
5.1* -- Opinion of Shearman & Sterling regarding the legality of the securities being
registered
5.2* -- Opinion of Loeff Claeys Verbeke
8.1* -- Opinion of Shearman & Sterling regarding tax matters
10.1* -- Shareholders Agreement, dated as of July , 1997, among the Company,
GTS-Hermes Inc., HIT Rail B.V., SNCB/NMBS and AB Swed Carrier
10.2 -- Employment Agreement, dated as of January 3, 1995, between SFMT, Inc. and Jan
Loeber
10.3 -- Employment Agreement, dated as of January 3, 1995, between SFMT, Inc. and
Gerard Caccappolo
10.4 -- Employment Agreement, dated as of January 1, 1996, between GTS Group, Inc. and
Bruce Rudy
10.5 -- Employment Agreement between the Company and Peter Magnus
10.6 -- Employment Agreement, dated as of September 26, 1995, between the Company and
J.A. Shearing
10.7 -- License, dated December 18, 1996, granted by the Secretary of State for Trade
and Industry relating to the United Kingdom
10.8* -- Registration, dated July 26, 1996, granted by IBPT relating to Belgium
10.9* -- Authorization Letter, dated August 1, 1996, granted by Hoofdirectie
Telecommunicate & Post relating to the Netherlands
10.10* -- License, dated May 28, 1997, granted by BMPT relating to Germany
10.11*+-- Agreement, dated April 1, 1997, between Eastern Group Telecoms Limited and the
Company
10.12*+-- Agreement, dated January 16, 1997, between SNCB/NMBS and the Company
10.13*+-- Agreement, dated February 3, 1997, between SANEF and the Company
12.1 -- Statements re computation of deficiency of earnings to fixed charges
21.1 -- List of Subsidiaries
23.1 -- Consent of Ernst & Young LLP
23.2* -- Consent of Shearman & Sterling (included in its opinion filed as Exhibit 5.1)
24.1 -- Powers of Attorney (included on the signature pages of this Registration
Statement)
25.1 -- Statement of Eligibility of The Bank of New York on Form T-1
27.1 -- Financial Data Schedule for 1996
27.2 -- Financial Data Schedule for Second Quarter 1997
99.1* -- Form of Letter of Transmittal
99.2* -- Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential material to be redacted and filed separately with the Securities
and Exchange Commission.
II-1
<PAGE> 129
(B) FINANCIAL STATEMENT SCHEDULES.
(1) Financial Statements
The financial statements filed as part of this Registration Statement are
listed in the Index to Financial Statements on page F-1.
(2) Schedules
The financial statement schedules of the Company have been omitted because
the information required to be set forth therein is not applicable or is shown
in the Financial Statements or Notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The undersigned registrant hereby undertakes that every prospectus (i) that
is filed pursuant to the immediately preceding paragraph, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, 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.
The undersigned registrant hereby undertakes: (i) to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means; and (ii) to arrange or provide for a facility in the
U.S. for the purpose of responding to such requests. The undertaking in
subparagraph (i) above includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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 20 "Indemnification
of Directors and Officers," above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the paying 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 is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act, Hermes Europe Railtel
B.V. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Hoeilaart, Belgium, on October
10, 1997.
HERMES EUROPE RAILTEL B.V.
By: /s/ Jan Loeber
------------------------------------
JAN LOEBER
Managing Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Jan
Loeber and Peter Magnus, and each of them singly, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him, and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) and supplements to this
Registration Statement, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as full to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on October 10, 1997.
<TABLE>
<CAPTION>
Signature TITLE
- ------------------------------------------ -----------------------------------------------
<C> <S>
/s/ Jan Loeber Managing Director (Principal Executive Officer)
- ------------------------------------------
(Jan Loeber)
/s/ Peter Magnus Corporate Financial Director -- Chief Financial
- ------------------------------------------ Officer (Principal Financial and Accounting
(Peter Magnus) Officer)
/s/ Gerald W. Thames Member of Board of Supervisory Directors
- ------------------------------------------
(Gerald W. Thames)
/s/ Bernard J. McFadden Member of Board of Supervisory Directors
- ------------------------------------------
(Bernard J. McFadden)
/s/ Lars Stig M. Larsson Member of Board of Supervisory Directors
- ------------------------------------------
(Lars Stig M. Larsson)
/s/ Svend Laursen Member of Board of Supervisory Directors
- ------------------------------------------
(Svend Laursen)
/s/ Jan Loeber Member of Board of Managing Directors
- ------------------------------------------
GTS-Hermes, Inc.
By Jan Loeber,
Senior Vice President and Representative
</TABLE>
II-3
<PAGE> 131
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
---------- ------------------------------------------------------------------ ------------
<S> <C> <C>
3.1 -- Deed of Incorporation and Articles of Association, as amended to
date
4.1 -- Form of Outstanding Note (contained in Indenture filed as Exhibit
4.3)
4.2 -- Form of Exchange Note (contained in Indenture filed as Exhibit
4.3)
4.3 -- Indenture, dated August 19, 1997, among the Company, Global
TeleSystems Group, Inc. and The Bank of New York, as Trustee
4.4 -- Registration Rights Agreement, dated August 19, 1997, between the
Company and Donaldson, Lufkin & Jenrette Securities Corporation,
UBS Securities LLC and Lehman Brothers Inc.
4.5 -- Escrow Agreement, dated August 19, 1997, among the Company and The
Bank of New York, as Trustee and as Escrow Agent
5.1* -- Opinion of Shearman & Sterling regarding the legality of the
securities being registered
5.2* -- Opinion of Loeff Claeys Verbeke
8.1* -- Opinion of Shearman & Sterling regarding tax matters
10.1* -- Shareholders Agreement, dated as of July , 1997, among the
Company, GTS-Hermes Inc., HIT Rail B.V., SNCB/NMBS and AB Swed
Carrier
10.2 -- Employment Agreement, dated as of January 3, 1995, between SFMT,
Inc. and Jan Loeber
10.3 -- Employment Agreement, dated as of January 3, 1995, between SFMT,
Inc. and Gerard Caccappolo
10.4 -- Employment Agreement, dated as of January 1, 1996, between GTS
Group, Inc. and Bruce Rudy
10.5 -- Employment Agreement between the Company and Peter Magnus
10.6 -- Employment Agreement, dated as of September 26, 1995, between the
Company and J.A. Shearing
10.7 -- License, dated December 18, 1996, granted by the Secretary of
State for Trade and Industry relating to the United Kingdom
10.8* -- Registration, dated July 26, 1996, granted by IBPT relating to
Belgium
10.9* -- Authorization Letter, dated August 1, 1996, granted by
Hoofdirectie Telecommunicate & Post relating to the Netherlands
10.10* -- License, dated May 28, 1997, granted by BMPT relating to Germany
10.11*+-- Agreement, dated April 1, 1997, between Eastern Group Telecoms
Limited and the Company
10.12*+-- Agreement, dated January 16, 1997, between SNCB/NMBS and the
Company
10.13*+-- Agreement, dated February 3, 1997, between SANEF and the Company
12.1 -- Statements re computation of deficiency of earnings to fixed
charges
21.1 -- List of Subsidiaries
23.1 -- Consent of Ernst & Young LLP
23.2* -- Consent of Shearman & Sterling (included in its opinion filed as
Exhibit 5.1)
24.1 -- Powers of Attorney (included on the signature pages of this
Registration Statement)
25.1 -- Statement of Eligibility of The Bank of New York on Form T-1
27.1 -- Financial Data Schedule for 1996
27.2 -- Financial Data Schedule for Second Quarter 1997
99.1* -- Form of Letter of Transmittal
99.2* -- Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential material to be redacted and filed separately with the Securities
and Exchange Commission.
<PAGE> 1
Exhibit 3.1
1
TRENITE VAN DOORNE, attorneys-at-law and civil law notaries
BB**06*3.27
MCM/TS 4010/23.520
Deed of INCORPORATION of:
Hermes Europe B.V.,
whose principal office is in Almere.
This sixth day of July nineteen-hundred and ninety-three, before me, Rickert Jan
Frederik Blokhuis, Civil Law Notary in the City of Amsterdam personally
appeared:
Mr Martinus Cornelis Moerenhout, Civil Law Notary awaiting Crown appointment, of
2555 VV The Hague (the Netherlands), Rigolettostraat 152, born at Den Helder
(the Netherlands), on the fifteenth day of January nineteen hundred and
thirty-three, married, who stated to act as a representative of HIT RAIL B.V., a
private company with limited liability whose principal office is at 1324 KW
Almere, 2 Radioweg, and as such representing that company.
The person appearing, acting on behalf of HIT RAIL B.V., declared to hereby
incorporate a private company with limited liability and to establish therefor
the following:
ARTICLES OF ASSOCIATION:
Name and office.
Article 1.
The Company shall bear the name of: Hermes Europe Railtel B.V. and shall have
its principal office in Almere.
Objects.
Article 2.
1. The objects of the Company are:
a. to promote, develop, implement and turn to account digital
communication networks and systems, particularly in the area of
and/or departing from railway infrastructure;
b. to participate in, to administer and/or manage and finance other
enterprises and to have an interest, in whatever way, in other
enterprises, as well as to guarantee the debts of third parties;
c. all that is related or conducive to the objects, mentioned under a.
and b.
2. When performing activities in the general course of affaires in the
company, the working language is the English language.
Duration.
Article 3.
The Company has been established for an indefinite period of time.
<PAGE> 2
2
Capital.
Article 4.
1. The authorized share capital of the Company amounts to two hundred thousand
Dutch guilders (NLG 200,000), and is divided into two hundred (200) shares of a
nominal value of one thousand Dutch guilders (NLG 1,000) each.
2. Shares not yet issued shall only be issued by notarial deed under the
obligation of payment of at least twenty-five per cent (25%) of their nominal
value, at a rate - provided not below par - and on such conditions and dates as
determined by the Board of Supervisory Directors.
Options on shares still to be issued may only be granted by the Board of
Supervisory Directors.
Payment in foreign currency of shares, to be issued after the incorporation, can
only be made with the approval of the Company.
3. Shareholders shall have a pre-emption right to the shares to be issued and
options on shares to be issued in proportion to the total nominal value of the
shares held by each of them.
However, individual shareholders shall not have a pre-emption right to shares,
issued to employees of the Company or a group company in virtue of a resolution
of the general meeting or to shares, issued in case of a merger.
4. A pre-emption right is transferable with due observance of the stipulations
of the present Articles of Association regarding the transfer and transition of
shares.
5. Issue of shares with a pre-emption right and the term, during which it may be
exercised, shall be notified in writing by the Company to all shareholders. A
pre-emption right can be exercised during at least four weeks after the day the
notice was sent.
The Board of Supervisory Directors, or the Board of Managing Directors after
having obtained the approval thereto of the Board of Supervisory Directors,
shall determine when and at which amount additional payment of shares that have
not been paid up in full, shall take place. The Board of Managing Directors
shall inform the shareholders concerned thereof without any delay. If a
shareholder has not complied with his obligation to pay on the shares in time,
he cannot execute the rights to meet and to vote in respect of his shares as
long as he is default, and his right to dividends is deferred.
6. The Board of Managing Directors shall carry out the resolution of the Board
of Supervisory Directors to issue shares with due observance of the law, the
formalities therein mentioned and on the conditions determined by the Board of
Supervisory Directors.
7. If the capital of the Company consists of different classes of shares, the
general meeting may pass a resolution with respect to each class of shares,
aiming at refunding on shares, at exemption from the obligation to pay on
shares, as well as at drawing and/or cancellation of shares with refunding of
the capital paid thereon.
8. In order to subscribe or acquire shares in its capital or certificates of
beneficial ownership thereof, the Company
<PAGE> 3
3
may only grant loans not exceeding the amount of the payable reserves and
provided that the general meeting has granted its approval; the Company shall
then keep a non-payable reserve to the amount of the outstanding loans.
9. The Company shall not cooperate in the issue of depositary receipts of shares
in the Company.
Shares.
Article 5.
1. All shares shall be registered and shall be numbered consecutively from 1 on.
2. Neither share-certificates nor bearer certificates of beneficial ownership
shall be issued in respect of shares.
Register of shareholders.
Article 6.
1. The Board of Managing Directors shall keep a register into which the names of
all the holders of shares are entered together with the nominal amount paid on
every share, and the quantity and the numbers of the shares, held by every
shareholder; as far as shares that have not paid up in full are concerned, each
release from liability for payment not yet made shall be recorded.
2. The register shall likewise contain the names and addresses of those who have
a right of usufruct or a pledge with regard to such shares, stating to which
rights attached to the shares they are entitled pursuant to paragraphs 8 and 9
of this article.
3. Furthermore, the register shall contain the names and addresses of the
holders of registered certificates of beneficial ownership in respect of shares,
issued with the co-operation of the Company.
4. Every shareholder, usufructuary and pledge and every holder of registered
certificates in respect of shares issued with the co-operation of the Company,
shall have the obligation to take care that his address is known to the Company.
5. The register should be kept up regularly.
Any entry in the register and any extract, as referred to in paragraph 6, shall
be signed by a managing director.
6. Upon request, the Board of Managing Directors shall provide a shareholder,
usufructuary or pledgee with a free extract from the register concerning his
rights with respect to the shares.
In case a right of usufruct or a pledge is established on a share, the register
shall indicate who shall be entitled to the rights referred to in paragraphs 8
and 9 of this article.
7. The Board of Managing Directors shall deposit the register at the office of
the Company for inspection by shareholders as well as by usufructuaries and
pledgees entitled to vote and to attend meetings.
The particulars in respect of shares that have not been paid up in full shall be
available for public inspection; a copy of or an extract from such particulars
shall be provided at cost price.
8. The shares may be encumbered with usufruct and a pledge. The voting right in
respect of the shares shall, however,
<PAGE> 4
4
remain vested in the pledgee.
9. The usufructuary and the pledgee shall not have the rights conferred by law
to the holders of depositary receipts of shares issued with the co-operation of
the Company.
10. Rights ensuing from a share and aiming at the acquisition of shares, shall
belong to the shareholder, provided that he shall compensate the usufructuary
for the value thereof as far as the latter is entitled to such compensation
pursuant to his right of usufruct.
Article 7.
If a share is held jointly by more than one person, the Company may require that
the joint holders shall grant one person a written power of attorney to
represent them in their relations to the Company.
Transfer and transition of shares (Blocking rules).
Article 8.
1. Every transfer of one or more shares by a shareholder may only be effectuated
in the way and with due observance of the provisions of this article and article
9. These provisions need not to be observed, if within a period of two months
after the shareholder who wants to transfer, has requested for the permission,
all shareholders have granted written permission for the transfer and, moreover,
the transfer is effected within three months after the approval has been granted
by all shareholders.
2. A shareholder intending to alienate one or more of his shares shall give
notice thereof to the Board of Managing Directors and to the Board of
Supervisory Directors, which notice shall be considered to be an offer for sale.
3. Within one month after receipt of that notice, the Board of Managing
Directors shall give relevant notice to all shareholders.
4. Within one month after the date of the notice to the shareholders, the
shareholders shall inform the Board of Managing Directors, if they wish to take
over either all the shares offered or part thereof.
5. If shareholders apply for a number of shares exceeding the number that is
available, shares shall be allocated by the Board of Managing Directors as far
as possible in proportion to the total nominal amount of shares held by each
applicant and, insofar proportional distribution is impossible, to several
applicants jointly.
6. As soon as it becomes clear that not all the shares offered are taken over by
other shareholders, the offeror shall have the rights as hereinafter referred to
in paragraph 14.
Without the offeror being bound thereto in whatever way, within three months
after receipt of the notice referred to in paragraph 2 the Board of Managing
Directors may apply for the shares that are not taken over, on behalf of the
Company with due observance of the provisions of article 11.
If the offeror wishes to accept, he may do so on the condition that the price to
be paid be increased by the additional income tax due he has to pay as compared
with the income tax to be paid in case of a sale to a third party.
<PAGE> 5
5
7. Within three months after receipt of the notice referred to in paragraph 2,
the Board of Managing Directors shall inform the offeror whether or not
application was made for the shares and in the affirmative, inform him of the
name(s) of the applicant(s) and the number of shares he/they wish(es) to buy,
while at the same time the Board of Managing Directors shall inform the
applicant(s) of the number or shares, allocated to him/them for the time being,
pursuant to paragraph 5.
8. The price at which shares are to be transferred shall be fixed by the offeror
and the applicant(s) by common agreement.
If they fail to reach an agreement on the price within one month after the date
of the informing notice referred to in the preceding paragraph, the price shall
be the value of the offered shares as determined by an independent expert, to be
appointed by the Chairman of the Chamber of Commerce and Industry of the
district in which the Company has its principal office, upon request of the most
diligent party.
9. The costs of valuation shall be paid by the Company.
If the right referred to in the paragraphs 11 or 13 of the present article is
made use of, half of the valuation costs shall be paid by the person who
withdraws.
The Company is obliged to provide the expert(s) with all the data relevant for
the valuation, upon first request and without any delay.
10. The expert shall inform the Board of Managing Directors of his decision.
Within one week after receipt of that decision, the Board of Managing Directors
shall notify the same to the offeror and to the applicant(s).
11. Until one month after the date of that notification, each applicant shall
have the right to withdraw by means of a notice to the Board of Managing
Directors.
In case of withdrawal by an applicant the Board of Managing Directors shall
inform the applicant(s) who has/have not withdrawn, and the offeror thereof
within one week after receipt of the notice referred to above.
After the price of all the shares has been determined by common agreement
respectively after expiry of the term of one month referred to in the present
paragraph, the offeror may demand that each of the applicants, who did not
withdraw, provide security - by means of an irrevocable bank guarantee or
otherwise - for the payment of the purchase price within a reasonable period of
time.
12. In case of withdrawal by an applicant or failure of a purchaser to grant the
security referred to in paragraph 11, the shares that have come out, shall be
offered again to the other applicants at the determined price and in the way
described above, or may also be purchased by the Company in accordance with the
provisions, mentioned in paragraph 6 of this article, be it that (an)
applicant(s) who take(s) up the offer shall no longer be entitled to withdraw
and on the understanding, that it shall not be possible to offer to a
shareholder/buyer in default and/or the person who has withdrawn.
A renewed offer needs not to be made more than once; the
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offeror should be notified thereof by the Board of Managing Directors.
13. The offeror shall always be entitled to withdraw his offer, provided he does
so within one month after having been informed of the applicant(s) to whom he
may transfer all the shares offered and at which price.
Shares should be transferred within one month after the expiration of the term
within which the offeror may withdraw.
Without prejudice to the offeror's right to demand cash payment, the failure to
pay the entire purchase amount or part thereof at the time of or before the
transfer of shares, shall be for account and at the risk of the offeror.
14. Finally, if not all the shares offered are taken over or the above mentioned
security, demanded by the offeror for the payment to him of the purchase price
of all his shares, has not been granted, the offeror shall be entitled to
withdraw in respect of all the shares offered, he may consider the purchase
agreements and any transfer with respect to part of the shares as cancelled and
he shall be free to transfer all the shares offered to whatever party he wishes,
within three months after having been informed of the fact that there are no or
not sufficient applicants or after it appeared that the security referred to
above was not granted within the term fixed.
15. In case the offeror fails to co-operate to the transfer, notwithstanding
payment or security for payment of the purchase price, the Company shall be
irrevocably authorized to effectuate the transfer and to record the transfer in
the register of shareholders.
16. All notices and communications referred to in this article shall be made by
registered mail with postal receipt or by means of service of a writ.
17. The Board of Managing Directors is obliged to keep the Board of Supervisory
Directors informed of the progress and the results of the actions meant in the
present article.
Article 9.
1. The shares of a shareholder, being a legal entity, which is dissolved,
adjudicated bankrupt or has obtained a provisional official moratorium, and the
shares being part of any community which is dissolved, shall be offered for sale
by the person or persons entitled to transfer, within two months after the
decease or dissolution referred to above or after any of the other events
referred to above is irrevocably established, respectively after expiry of the
term of two years referred to in paragraph 4 without the allotment mentioned
therein being effectuated.
As long as the transfer has not been effectuated, all the rights in respect of
the shares involved may be exercised.
2. The relevant provisions of article 8 - including paragraph 1 of that article
- - shall be applicable to the offer referred to above and the subsequent
execution thereof, on the understanding however, that the offeror shall not be
entitled to withdraw as mentioned in paragraph 13 of article 8 and in case no
offer is made the Company shall also be irrevocably authorized to make an offer
and to
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effectuate the transfer.
If not all the shares thus offered are taken over, the shareholder shall be
bound, however, to keep his shares and he shall be deprived of the right,
provided for in paragraph 14 of article 8, to alienate the shares to whomever he
wishes.
3. The obligation to make an offer shall not apply in case of allotment to the
person who contributed the share or the shares to the community which has been
dissolved.
4. The allotment referred to in the preceding paragraph shall be effectuated
within two years after the dissolution and the Company shall be informed of the
allotment within one month.
5. If, owing to the same legal fact, several persons are bound to offer, they
shall be entitled to offer the shares concerned as one package.
Transfer of shares.
Article 10.
1. The transfer of shares shall be effected in accordance with the applicable
statutory regulations.
2. In case of allotment of shares as a result of a division of a community and
in case of establishment and transfer of a right of usufruct or pledge on
shares, paragraph 1 shall apply accordingly.
3. The provisions of this article can be only applied with regard to a transfer
and allotment of shares and division of any community, if the provisions of
article 8 and 9 have been observed.
Acquisition and possession of shares by the Company.
Article 11.
1. Unless the Company acquires shares for no value or under an universal title,
the Company may only acquire fully paid-up shares in its own capital, if the
acquisition has been authorized by the Board of Supervisory Directors and:
a. the shareholders' equity of the Company, decreased with the acquisition
price, is not less than the paid-up and claimed part of the capital, increased
with the reserves to be kept in accordance with the law or the Articles of
Association;
b. the nominal amount of the shares to be acquired and those already held by the
Company and its subsidiaries jointly, amounts to no more than half of the issued
share capital;
c. - in the event that the current financial year has ended more than six months
ago - the annual accounts of the preceding year have been adopted. In this
paragraph shares also include depositary receipts of shares.
A subsidiary of the Company may not subscribe or cause the subscription for
shares in the Company's capital for its own account. A subsidiary of the Company
may only acquire such shares for its own account and on a particular basis of
title insofar as the Company itself may acquire shares in its own capital
pursuant to the provisions of this paragraph.
2. The Company cannot exercise voting rights in respect of
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shares, held by the Company itself, or of which it has a right of usufruct or a
pledge, or of which it holds depositary receipts.
Such shares shall not be taken into consideration when calculating the
distribution of profits or liquidation balance, unless a right of usufruct or a
pledge has been established on those shares in behalf of another person than the
Company.
The provision of the first sentence of this paragraph is accordingly applicable
to shares or depositary receipts of shares held by subsidiaries of the Company
or on which subsidiaries have a right of usufruct or a pledge.
3. Cancellation of shares held by the Company in its capital and cancellation
after refunding of shares drawn by lot after drawing, is possible; resolutions
with respect to cancellation shall be passed in a general meeting of
shareholders, convened with notification of the purpose of the cancellation and
its procedure. A cancellation is not allowed to result in a paid and claimed
part of the capital being lower than one/fifth part of the authorized capital or
than the minimal capital prescribed by law at the moment of the resolution.
4. Shares held by the Company itself can only be alienated in the manner
prescribed for issue of shares not yet issued. The articles 8 and 9 do not apply
to this alienation.
Boards.
Article 12.
1. The Company shall have a Board of Managing Directors and a Board of
Supervisory Directors, the members of which shall be appointed by the general
meeting which may at all times suspend or remove them from office. The number of
Supervisory Directors, to be determined by the general meeting, shall be at
least four and at most ten; the number of managing directors shall be determined
by the Board of Supervisory Directors, but shall be at most three.
The general meeting shall determine the conditions of employment of the managing
directors and the remuneration of the managing directors, after having obtained
the approval of the Board of Supervisory Directors. The remuneration and/or
compensation of Supervisory Directors shall also be determined by the general
meeting.
A legal entity can be a managing director but cannot be a Supervisory Director.
A person, who has an employment contract with a shareholder shall not be
appointed managing director; a managing director is not allowed to enter into an
employment contract with a shareholder.
2. A person who has reached the age of seventy-two, cannot be appointed
Supervisory Director. A Supervisory Director shall retire at the latest on the
moment of the closing of the annual general meeting, held in the financial year,
in which he will be seventy-two years old.
3. The nomination or recommendation for the appointment of a Supervisory
Director shall comply with the legal requirements.
Suspension of managing directors by the board of
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supervisory directors.
Article 13.
Also the Board of Supervisory Directors may suspend a managing director; then
that board shall be obliged to convene a general meeting within three months
after the suspension, provided the suspension is still in force and effect,
which meeting shall decide, after having heard the suspended managing director
and the Board of Supervisory Directors or having given the opportunity thereto,
whether the suspended managing director will be dismissed, or the suspension
will be cancelled or be maintained until further investigation.
Board of Managing Directors; representation.
Article 14.
1. The Board of Managing Directors shall be charged with the management of the
Company in accordance with the Business Plan of the Company.
2. Subject to the approval of the Board of Supervisory Directors the members of
the Board of Managing Directors shall divide their activities among themselves.
3. The Board of Managing Directors shall pass resolutions by absolute majority
of the votes of all managing directors in office. In case of equality of votes
the Board of Supervisory Directors shall decide, but only after a request
thereto, made by the Board of Managing Directors.
4. The Board of Managing Directors may draw up rules in order to determine its
functioning and the fulfilment of its task and that of each member separately. A
resolution to determine, amend or cancel such rules requires the approval of the
Board of Supervisory Directors.
5. Each managing director shall be fully qualified to represent the Company in
court and otherwise.
6. The Company may grant one or more persons, who need not be managing
directors, a limited or unlimited mandate to represent it.
7. The Board of Managing Directors shall need prior approval of the Board of
Supervisory Directors in case explicitly described resolutions of the Board of
Managing Directors are concerned, with regard to which resolutions the Board of
Supervisory Directors has decided that they need its approval. This description
may contain, inter alia, resolutions of the Board of Managing Directors
concerning the undertaking of obligations exceeding an amount determined by the
Board of Supervisory Directors.
The Board of Supervisory Directors shall provide the Board of Managing Directors
with a statement of those resolutions and is entitled to amend that statement at
any time. Moreover, the Board of Managing Directors needs the prior approval of
the Board of Supervisory Directors for resolutions:
a. to adopt and alter the Business Plan of the Company;
b. to adopt and alter the annual budget of the Company;
c. to incur expenses in excess of the adopted or altered annual budget;
d. to encumber and let registered properties;
e. to encumber other goods than mentioned under d.;
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f. to take up money loans to the charge of the Company, with the exception of
drawings on the Company's account with a bank designated by the Board of
Supervisor Directors, as a result of which the account is overdrawn to a
sum not exceeding the amount previously determined by the Board of
Supervisory Directors and communicated by it to that bank;
g. to lend moneys outside the ordinary business activities, insofar as in
consequence thereof any one debtor becomes indebted to the Company on
account of money borrowed for a sum exceeding an amount to be determined
by the Board of Supervisory Directors;
h. to commit the Company for debts of third parties, under a guaranty or
otherwise;
i. to enter into agreements - insofar as they are not part of standard
contracts - in pursuance of which disputes will be submitted to
arbitration or a binding opinion, and to enter into compromises and
settlement agreements, to waive rights or to undertake liabilities on
behalf of the Company, insofar as the value involved in these legal acts
exceeds the amount of three hundred thousand Ecus (ECU 300,000);
j. to establish and to close offices or branches;
k. to extend the Company's business by a new line of business and to
discontinue - including the transfer of ownership or enjoyment of - the
business of the Company or any part thereof;
l. to participate in or to assume or relinquish control of other enterprises,
and to terminate such participations;
m. to alienate a considerable part of the assets of the Company, which for
the purposes hereof shall include the alienation, in each individual case,
except as part of the ordinary business activities, of assets which
individually or jointly represent a value of three hundred thousand Ecus
(ECU 300,000) or more;
Resolutions as referred to above under a. to m. inclusive shall be adopted by
the Board of Supervisory Directors, passed by a unanimous vote at a meeting at
which at least four Supervisory Directors are present or represented.
Article 15.
1. The office of one or more managing director(s) being vacated or one or more
managing director(s) being prevented, the remaining managing directors, or the
only remaining director shall be charged temporarily with the entire management.
The office of all managing directors, respectively of the sole managing director
being vacated or all managing directors or the sole managing director being
prevented, the Board of Supervisory Directors shall be charged temporarily with
the entire management and may appoint one or more Supervisory Directors to
represent the Company solely or jointly.
2. Save insofar as the employment conditions of the Managing Directors are
concerned, the Company may not enter into agreements with Managing Directors in
their private
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capacities or with their relatives; for the purposes hereof, relatives shall
include: persons with whom the Managing Directors cohabit, whether or not in
matrimony, and blood relations and relations by marriage of Managing Directors
or those with whom they cohabit up to four times removed;
3. Transactions of the Company vis-a-vis the holder of all shares in the capital
of the Company, or vis-a-vis a co-owner of a community of matrimonial property
to which all shares in the capital of the Company belong, in which the Company
is represented by that shareholder or by one of the joint owners shall be
recorded in writing; shares held by the Company or its subsidiaries shall not be
taken into account.
This paragraph shall not apply to transactions which under the agreed terms
thereof are part of the normal course of business of the Company.
Board of Supervisory Directors.
Article 16.
1. The Board of Supervisory Directors shall supervise the management of the
Board of Managing Directors and the general course of affairs in the Company and
the Company's business.
It shall assist the Board of Managing Directors and the general meeting on an
advisory basis. When fulfilling their tasks the supervisory directors shall
conform to the Company's interest and business.
2. One or more supervisory directors, to be appointed thereto by the Board of
Supervisory Directors, shall always have access to the offices and premises of
the Company and shall be entitled to inspect all its books and documents; the
Board of Managing Directors is obliged to furnish the Board of Supervisory
Directors with all data and information desired.
The Board of Managing Directors shall timely furnish the Board of Supervisory
Directors all information necessary to fulfil its task.
3. Unless the general meeting of shareholders has provided for it, the Board of
Supervisory Directors shall charge an auditor - at the expense of the Company -
with the auditing of the annual account, which auditor shall report the result
of his audit in a statement and further shall inform the Board of Supervisory
Directors and the Board of Managing Directors about his audit.
4. The Board of Supervisory Directors shall elect a chairman and - if desired -
a delegated supervisory director from among its members. The election as
chairman shall be for four years; re-election for a new three-year term shall be
possible.
5. The delegated supervisory director shall more specifically be charged with
the daily contact with the Board of Managing Directors, for which task the
general meeting shall determine a remuneration apart from his remuneration as a
supervisory director.
6. The Board of Supervisory Directors shall meet twice a year at the office of
the Company, unless the Board should decide to meet elsewhere.
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The Board shall furthermore meet at the request of the chairman or at the
request or the Board of Managing Directors.
Meetings shall be convened by the chairman of the Board or Supervisory Directors
while enclosing an agenda in the English language. The two obligatory meetings
shall be convened at least four weeks in advance; other meetings shall be
convened within a reasonable term.
The costs of the meetings and the transportation and subsistence costs of the
Supervisory Directors incurred in connection with these meetings shall be
reimbursed by the Company.
7. Proposals to be dealt with by the Board of Supervisory Directors may be
submitted to the chairman by every Supervisory Director and by the Board of
Management.
8. The Board of Supervisory Directors shall pass resolutions at meetings by an
absolute majority of votes, unless these Articles of Association require or
allow a different form of decision-making; for the purposes hereof "meeting"
shall include meeting by telephone or by video, provided the decision-making is
recorded in writing before the resolution is implemented. Resolutions may be
passed outside meetings only if it has been shown that all the Supervisory
Directors have stated to be in favour of the proposal concerned in writing; for
the purposes hereof "in writing" shall also mean a message by telex, telefax,
telegram or any other means of communication, capable of transmitting written
texts.
9. In case of one or more vacancy/vacancies in the Board of Supervisory
Directors, the Board of Supervisory Directors shall remain fully qualified to
fulfil its legal and statutory duties.
General meetings.
Article 17.
1. General meetings must be held in the municipality where the Company has its
principal office or in the municipalities of Amsterdam or Haarlemmermeer;
resolutions passed in a general meeting, held in another municipality, can only
be passed validly, if the entire issued share capital is represented.
2. The annual meeting shall be held ultimately within six months after expiry of
the financial year. In the annual meeting shall be adopted inter alia: the
balance sheet and the profit and loss account with explanatory notes
- - hereinafter to be called jointly: the annual account -, covering the past
financial year, and the distribution of profits, while the general meeting shall
also deal with the written business report of the Board of Managing Directors on
the past financial year, to be presented to it by that board, unless section
403, Volume 2 of the Civil Code is applicable.
3. Extraordinary general meetings shall be held as often as the Board of
Managing Directors or the Board of Supervisory Directors desires, or upon
written request of one or more shareholders, together representing at least
one/tenth part of the issued capital, addressed to the Board of Managing
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Directors and stating exactly the subjects to be dealt with. In that case the
Board of Managing Directors or the Board of Supervisory Directors shall be
obliged to convene a general meeting to be held within six weeks after receipt
of this request.
If no convening notification is sent within three weeks after receipt of the
request, each requesting party may send a notification himself with due
observance of the provisions of the law and this article.
Moreover, the holders of at least twenty-five per cent (25%) of the issued
capital of the Company are entitled to convene a general meeting with due
observance of the provisions of this article and the law; the Company has also
to be informed of such a convocation.
4. If the annual meeting is not convened, each shareholder may do so himself,
likewise with due observance of the provisions of the law and this article.
5. Without prejudice to the provisions of the paragraphs 3. and 4., the
notification, convening a general meeting, shall be sent by registered mail by
the Board of Managing Directors to the addresses of the shareholders, as
mentioned in the shareholders' register, at least fifteen days before the
meeting is to be held. The day of mailing shall be regarded as the day of
notification.
Notifications shall contain the agenda.
The receipt issued by the post office shall serve as evidence that the
notification has been mailed.
6. Meetings shall provide for their presidency themselves.
7. Unless a notarial report of the business of the meeting is drawn up, minutes
shall be drawn up of the business, transacted in each meeting. This secretary
needs not to be a shareholder.
The minutes shall be confirmed at the same or at the next meeting and are to be
signed by the chairman and the secretary in office.
The chairman of the meeting and each managing or supervisory director can order
at any time that a notarial report of the meeting shall be made for account of
the Company.
8. The minute book shall be available at the office of the Company for
inspection by the shareholders. A copy of or an extract from the minutes of any
meeting shall be supplied to each of them upon request and at a charge not
exceeding cost.
9. Shareholders may also pass resolutions without holding a meeting, provided
the resolutions are passed unanimously and votes are cast in writing by all
shareholders. A resolution passed in this way shall be deemed to be a resolution
of the general meeting of shareholders.
In this paragraph votes cast by telex-message, telefax, telegram or any other
means of communication capable of transmitting written texts, shall likewise be
considered as votes cast in writing.
Article 18.
1. Shareholders may only be represented at meetings by proxy, duly authorized in
writing.
2. With respect to the passing of resolutions whereby the
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Company will grant rights or a release from obligations to particular persons,
otherwise than in their capacity of shareholder or member of a body of the
Company, valid votes on such resolutions may be cast by said persons, their
spouses and their blood relatives in the direct line.
Article 19.
1. Every share shall represent the right to cast one vote.
Blank and invalid votes shall be deemed not to be cast.
When determining to what extent shareholders vote, are present or represented,
or to what extent the share capital is furnished or represented, shares, in
respect of which the Articles of Association prescribe that in respect of those
shares no vote can be cast, are not taken into account.
2. Voting in respect of business shall be orally, voting in respect of persons
by unsigned ballots, unless the meeting determines a different way of voting.
Voting by acclamation shall be allowed as long as nobody is opposed thereto.
3. All resolutions shall be passed by absolute majority of votes, unless the law
or the Articles of Association prescribe a larger majority.
4. In case votes are equally divided with regard to a proposal, on which a
resolution may be passed by absolute majority of votes, the following rules
shall apply:
a. Within two weeks after the meeting referred to under (b) was held, the Board
of Managing Directors of the Company shall be bound - unless the proposal
hereinafter stated under (b) is adopted - to request the President of the
Chamber of Commerce and Industry, within the jurisdiction of which the Company
is situated, to appoint a committee of three experts which shall decide whether
the proposal on which votes were equally divided, shall be adopted or rejected.
b. As soon as there is an equal division of votes during a general meeting, the
chairman of the meeting shall be obliged to bring up for discussion a new
proposal aiming at not submitting the proposal, in respect of which during the
discussions the votes were equally divided, to the committee of experts referred
to under (a).
In case such new proposal is adopted, the proposal on which the votes were
equally divided, shall be rejected and, therefore, shall not be submitted to the
committee of experts referred to above for decision;
in case votes are equally divided on the new proposal, made by the chairman,
that proposal shall be deemed to be rejected and the Board of Managing Directors
of the Company shall therefore have the obligation referred to under (a).
c. When taking its decision the committee shall first of all take into account
the interests of the Company.
d. Its fees shall be paid entirely by the Company.
e. After being appointed the committee shall render its decision as soon as
possible and shall inform every shareholder and the Company of its decision in
writing.
The committee shall not take a decision before having heard all parties involved
in the relevant proposal or at least before having summoned them properly.
The members of the committee of experts shall render their
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decision as good men in equity. They shall establish proceeding rules themselves
and may extend the term of their mandate. They may take advice from third
parties. The members of the committee of experts shall have access to the
offices and to other rooms of the Company and they shall be entitled to inspect
all books, registers and other documents of the Company; moreover, the Board of
Managing Directors is obliged to provide the members of the committee with every
information they ask.
f. The decision of the committee of experts shall be recorded in the minute book
of the Company.
A decision taken in the way described above, shall be considered as a resolution
of the general meeting.
Financial year, annual account and annual report.
Article 20.
1. The financial year of the Company coincides with the calendar year.
2. At least two months prior to the beginning of a new financial year, the Board
of Managing Directors shall submit a budget for that financial year to the Board
of Supervisory Directors for its approval. The Board of Supervisory Directors
may approve this budget only by a unanimous vote at a meeting at which at least
four Supervisory Directors are present or represented.
3. Within five months after the expiration of each financial year, except in
case of extension of this term by no more than six months by the general meeting
based on extraordinary circumstances, the Board of Managing Directors shall draw
up the annual account, and shall submit the same - provided with an advice
thereto it took from the Board of Supervisory Directors - and the annual report
to the general meeting within that, possibly extended, term; before the
aforesaid advice, the Board of Supervisory Directors shall pass resolutions in
the manner provided for in the second sentence of paragraph 2.
4. The annual report and the annual account, signed by all the managing
directors and supervisory directors, together with, in any case, besides other
information prescribed by the law:
a. the statement of the auditor;
b. a reproduction of the provisions of the Articles of Association regarding the
distribution of profits;
c. a statement on the distribution of the profits or the assimilation of the
losses; or as long as not yet determined, the proposal thereto, shall be
available at the offices of the Company for inspection by all shareholders as
from the day on which the annual meeting was convened. Shareholders may obtain
free copies of these documents.
5. The provisions of the paragraphs 3 and 4 of this article concerning the
annual report and the information prescribed in virtue of the law, are not
applicable, if section 403, Volume 2 of the Civil Code applies to the Company.
6. In case a signature of a managing or supervisory director is missing on the
annual account, the reason thereof shall be mentioned in that document.
7. Unconditional adoption of the annual accounts shall
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discharge the Board of Managing Directors in respect of its acts in the past
financial year and shall discharge the Board of Supervisory Directors in respect
of the fulfilment of its task.
Profits and Distribution of profits.
Article 21.
1. Profits shall be established in accordance with generally accepted accounting
standards.
2. The Board of Supervisory Directors shall determine with due observance of the
provisions of paragraph 7 whether profits made in any financial year shall be
paid out partly or wholly, or added to the reserves.
3. The Board of Supervisory Directors can only resolve to pay out profits and/or
reserves and the Company may only make payments out of profits and/or reserves
open to payment, as far as the shareholders' equity of the Company exceeds the
amount of the paid- up and claimed part of the capital, increased with reserves,
to be kept according to the law; the resolutions referred to above shall be
adopted with due observance of the provisions of paragraph 7.
4. Dividends shall be made payable within one month after the adoption of the
annual account. The general meeting may determine that dividends shall be paid,
wholly or partly, otherwise than in cash.
5. The Board of Supervisory Directors or, subject to approval of the Board of
Supervisory Directors, the Board of Managing Directors is authorized to decide,
with due observance of the provisions of paragraph 7, to make interim payments
out of profits and/or reserves with due observance of the provisions of
paragraph 3.
6. The claim to pay dividend shall lapse five years after the dividend was made
payable.
7. The resolutions of the Board of Supervisory Directors as referred to in
paragraphs 2, 3 and 5 may be adopted only by unanimous vote at a meeting at
which at least four Supervisory Directors are present or represented.
Special resolutions.
Article 22.
Resolutions aiming at amendment of the Articles of Association can only be
passed in a general meeting with the prior approval of the Board of Supervisory
Directors; a resolution of approval may be passed by the Board of Supervisory
Directors only by unanimous vote at a meeting at which at least four Supervisory
Directors are present or represented.
Liquidation.
Article 23.
1. In case of dissolution of the Company the liquidation shall be executed by
the Board of Managing Directors, unless the general meeting decides otherwise.
2. The remuneration, which shall be granted to liquidator(s) and persons lending
assistance, if any, shall be determined simultaneously.
3. During the liquidation the provisions of the present Articles of Association
shall exist in force as much as possible. The relevant provisions in respect of
managing
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directors are then applicable to the liquidator(s) and the provisions in respect
of supervisory directors are applicable to the persons lending assistance.
4. Any assets of the Company remaining after the liabilities of the Company have
been satisfied shall be transferred to the shareholders in such a way that, as
far as possible, first the nominal amount paid on each share shall be paid on
that share to a maximum of the nominal value of that share, and any surplus then
remaining shall be paid to the shareholders in proportion to the amount paid up
by each of them in respect of the shares.
5. After the liquidation the books and other documents of the Company shall be
kept by the person, thereto appointed by the liquidator(s), for the term,
determined by law.
Final provision.
Article 24.
In all cases not provided for in the present Articles of Association and/or the
law, the general meeting of shareholders shall decide.
- --------------------------------------------------------------------------------
Finally the person appearing, acting as aforementioned, stated:
1. The share capital issued at the incorporation of the Company amounts to forty
thousand Dutch guilders (NLG 40,000).
In the issued share capital the founder HIT RAIL B.V. participates with forty
(40) shares of one thousand Dutch guilders (NLG 1,000) nominal value each.
The shares shall be issued at par and are fully paid up in Dutch currency.
2. Contrary to the aforementioned manner of appointment, for the first time HIT
RAIL B.V. is hereby appointed as managing director. Supervisory directors will
be appointed as soon as possible.
3. The first financial year shall end on the thirty-first day of December
nineteen hundred and ninety-three.
4. The statement, required by law, that no impediments are evidenced, is
apparent from a decree issued by the State Secretary of Justice on the seventh
day of April nineteen hundred ninety-three under number B.V. 458.569 that is
annotated on a draft of this deed.
5. The bank statement referred to in section 203a, paragraph 1, Volume 2 of the
Civil Code shall be attached to the minute of this deed.
6. As far as applicable, the Company accepts the remittance of forty thousand
Dutch guilders (NLG 40,000) as a payment of the shares, subscribed for by this
deed, which remittance is made before the Company's incorporation to a separate
account, referred to in the bank statement, mentioned under 5.
The person appearing is known to me, the notary.
Whereof this deed has been passed in minute at Rotterdam on the date figuring in
the beginning of this deed.
After the substance of this deed has been made known to the person appearing,
the latter has declared to have taken note
<PAGE> 18
18
of the contents of this deed and not to wish the deed to be read out in full.
Thereupon this deed, after having been read out partly, was signed by the person
appearing and by me, the notary. (Signed: M.C. Moerenhout, R.J.F. Blokhuis Civil
Law Notary)
SEAL CERTIFIED FOR TRUE COPY:
& by me, Michel Dick van
SIGNATURE Waateringe, Civil Law Notary
awaiting Crown appointment, of
Amsterdam, as deputy of Rickert
Jan Frederik Blokhuis, Civil Law
Notary in the City of Amsterdam,
on the second of August nineteen
hundred and ninety-three
<PAGE> 19
[Annex A]
1
Draft June 1, 1994
AMENDMENT TO THE ARTICLES OF INCORPORATION
OF HERMES EUROPE RAILTEL B.V.
ARTICLES OF ASSOCIATION:
Name and office.
Article 1.
The Company shall bear the name of: Hermes Europe Railtel B.V. and shall have
its principal office in Amsterdam.
Objects.
Article 2.
1. The objects of the Company are:
a. to promote, develop, implement and turn to account digital
communication networks and systems, particularly in the area of
and/or, inter alia, departing from railway infrastructure;
b. to participate in, to administer and/or manage and finance other
enterprises and to have an interest, in whatever way, in other
enterprises, as well as to guarantee the debts of third parties:
c. all that is related or conducive to the objects, mentioned under a.
and b.
2. When performing activities in the general course of affairs in the
company, the working language is the English language.
Duration.
Article 2.
The Company has been established for an indefinite period of time.
Capital.
Article 4.
1. The authorized share capital of the Company amounts to three hundred five
thousand Dutch guilders (NLG 305,000), and is divided into three hundred
and five (305) shares of a nominal value of one thousand Dutch guilders
(NLG 1,000) each.
2. Shares not yet issued shall only be issued by notarial deed under the
obligation of payment of their nominal value in full, at a rate - provided
not below par - and on such conditions and dates as determined by the
Board of Supervisory Directors. The pre-emption right may, but only for
individual issues, be limited or excluded by a unanimous resolution of the
general meeting representing the entire issued share capital of the
Company.
Payment in foreign currency of shares, to be issued after the
incorporation, can only be made with the approval of the Company.
3. Shareholders shall have a pre-emption right to the shares to be issued and
options on shares to be issued
<PAGE> 20
2
in proportion to the total nominal value of the shares held by each of
them.
However, individual shareholders shall not have a pre-emption right to
shares, issued to employees of the Company or of a group company in virtue
of a resolution of the general meeting or to shares.
4. Issue of shares with a pre-emption right and the term, during which it may
be exercised, shall be notified in writing by the Company to all
shareholders. A pre-emption right can be exercised during at least four
weeks after the day the notice was received by all shareholders.
If a shareholder has not complied with his obligation to pay the shares in
time, he cannot execute the rights to meet and to vote in respect of his
shares as long as he is default, and his right to dividends is deferred.
5. In order to subscribe or acquire shares in its capital or certificates of
beneficial ownership thereof, the Company may only grant loans not
exceeding the amount of the payable reserves and provided that the general
meeting has granted its approval; the Company shall then keep a
non-payable reserve to the amount of the outstanding loans.
6. The Company shall not cooperate in the issue of depositary receipts of
shares in the Company.
7. Shares not yet issued shall be issued pursuant to a resolution of the
Board of Supervisory Directors setting out all the terms of such issue.
Shares.
Article 5.
1. All shares shall be registered and shall be numbered consecutively from 1
on.
2. Neither share-certificates nor bearer certificates of beneficial ownership
shall be issued in respect of shares.
Register of shareholders.
Article 6.
1. The Board of Managing Directors shall keep a register into which the names
and addresses of all the holders of shares are entered together with the
nominal amount paid on every share, and the quantity and the numbers of
the shares, held by every shareholder.
2. The register shall likewise contain the names and addresses of those who
have a right of usufruct or a pledge with regard to such shares, stating
to which rights attached to the shares they are entitled pursuant to
paragraphs 7 and 6 of this article.
3. Every shareholder, usufructuary and pledgee, shall have the obligation to
take care that his address is known to the Company.
4. The register should be kept up regularly.
Any entry in the register and any extract, as referred to in paragraph 5,
shall be signed by the managing director.
5. Upon request, the Board of Managing Directors shall provide a shareholder,
usufructuary or pledgee with a
<PAGE> 21
3
free extract from the register concerning his rights with respect to the
shares.
In case a right of usufruct or a pledge is established on a share, the register
shall indicate who shall be entitled to the rights referred to in paragraphs 7
and 8 of this article.
6. The Board of Managing Directors shall deposit the register at the office
of the Company for inspection by shareholders as well as by usufructuaries
and pledgees.
7. The shares may be encumbered with usufruct and a pledge. The voting right
in respect of the shares shall, however, remain vested in the shareholder.
8. The usufructuary and the pledgee shall not have the rights conferred by
law to the holders of depositary receipts of shares issued with the
co-operation of the Company.
9. Rights ensuing from a share and aiming at the acquisition of shares, shall
belong to the shareholder, provided that he shall compensate the
usufructuary for the value thereof as far as the latter is entitled to
such compensation pursuant to his right of usufruct.
Article 7.
If a share is held jointly by more than one person, the Company may require that
the joint holders shall grant one person a written power of attorney to
represent them in their relations to the Company.
Transfer and transition of shares (Blocking rules).
Article 8.
1. Every transfer of one or more shares by a shareholder may only be
effectuated in the way and with due observance of the provisions of this
article and article 9. These provisions need not to be observed, if within
a period of thirty days after the shareholder who wants to transfer, has
requested for the permission, all shareholders have granted written
permission for the transfer and, moreover, the transfer is effected within
three months after the approval has been granted by all shareholders.
2. A shareholder intending to alienate one or more of his shares shall give
notice thereof to the Board of Managing Directors and to the Board of
Supervisory Directors, which notice shall be considered to be an offer for
sale.
3. As soon as possible but no later than five working days after receipt of
that notice, the Board of Managing Directors shall give relevant notice to
all shareholders.
4. Within one month after the date of the notice to the shareholders, the
shareholders shall inform the Board of Managing Directors, if they wish to
take over either all the shares offered or part thereof.
5. If shareholders apply for a number of shares exceeding the number that is
available, shares shall be allocated by the Board of Managing Directors as
far as possible in proportion to the total nominal amount of shares held
by each applicant and, insofar proportional
<PAGE> 22
4
distribution is impossible, to several applicants jointly.
6. As soon as it becomes clear that not all the shares offered are taken over
by other shareholders, the offeror shall have the rights as hereinafter
referred to in paragraph 13.
Without the offeror being bound thereto in whatever way, within thirty
days after receipt of the notice referred to in paragraph 2 the Board of
Managing Directors may apply for the shares that are not taken over, on
behalf of the Company.
If the offeror wishes to accept, he may do so on the condition that the
price to be paid be increased by the additional income tax due he has to
pay as compared with the income tax to be paid in case of a sale to a
third party.
7. Within thirty days after receipt of the notice referred to in paragraph 2,
the Board of Managing Directors shall inform the offeror whether or not
application was made for the shares and in the affirmative, inform him of
the name(s) of the applicant(s) and the number of shares he/they wish(es)
to buy, while at the same time the Board of Managing Directors shall
inform the applicant(s) of the number of shares, allocated to him/them for
the time being, pursuant to paragraph 5.
8. The price at which shares are to be transferred shall be fixed by the
offeror and the applicant(s) by common agreement.
If they fail to reach an agreement on the price within one month after the
date of the informing notice referred to in the preceding paragraph, the
price shall be the value of the offered shares as determined by an
independent expert, to be appointed by the Chairman of the Chamber of
Commerce and Industry of the district in which the Company has its
principal office, upon request of the most diligent party. The expert so
appointed shall take into account any bona fide offer made by a third
party to purchase the shares, including the price and any other conditions
of such offer.
9. The costs of valuation shall be paid by the Company, except in case the
price determined by the expert is equal to or more than the price
originally offered by the offeror, in which case the costs shall be borne
by the party requesting the independent valuation.
If the right referred to in paragraph 12 of the present article is made
use of, half of the valuation costs shall be paid by the person who
withdraws.
The Company is obliged to provide the expert(s) with all the data relevant
for the valuation, upon first request and without any delay, including the
price and the conditions of the offer of a bona fide third party.
10. The expert shall inform the Board of Managing Directors of his decision.
Within five working days after receipt of that decision, the Board of
Managing Directors shall notify the same to the offeror and to the
applicant(s).
11. After the price of all the shares has been determined,
<PAGE> 23
5
the offeror may demand that each of the applicants, provides security - by
means of an irrevocable bank guarantee or otherwise - for the payment of
the purchase price within a reasonable period of time.
12. The offeror shall always be entitled to withdraw his offer, provided he
does so within one month after having been informed of the applicant(s) to
whom he may transfer all the shares offered and at which price. Shares
should be transferred within one month after the expiration of the term
within which the offeror may withdraw, against payment of the purchase
price.
13. If not all the shares offered are taken over or the above mentioned
security, demanded by the offeror for the payment to him of the purchase
price of all his shares, has not been granted, the offeror shall be
entitled to withdraw in respect of all the shares offered, he may consider
the purchase agreements and any transfer with respect to part of the
shares as cancelled and he shall be free to transfer all the shares
offered to whatever party he wishes, within three months after having been
informed of the fact that there are no or not sufficient applicants or
after it appeared that the security referred to above was not granted
within the term fixed, provided that the transfer price is not lower than
the price for which the shares were originally offered; in the event that
the transfer price is lower, the shares shall be offered to the other
shareholders first, in accordance with the rules as mentioned in this
article and in article 9.
14. In case the offeror fails to co-operate with the transfer, notwithstanding
payment or security for payment of the purchase price, the Company shall
be irrevocably authorized to effectuate the transfer and to record the
transfer in the register of shareholders.
15. All notices and communications referred to in this article shall be made
by registered mail with postal receipt or by means of service of a writ.
16. The Board of Managing Directors is obliged to keep the Board of
Supervisory Directors informed of the progress and the results of the
actions meant in the present article.
Article 9.
1. The shares of a shareholder, being a legal entity, which is dissolved,
adjudicated bankrupt or has obtained a provisional official moratorium,
and the shares being part of any community which is dissolved, shall be
offered for sale by the person or persons entitled to transfer, within two
months after the decease or dissolution referred to above or after any of
the other events referred to above is irrevocably established,
respectively after expiry of the term of two years referred to in
paragraph 4 without the allotment mentioned therein being effectuated.
As long as the transfer has not been effectuated, all the rights in
respect of the shares involved may not be
<PAGE> 24
6
exercised.
2. The relevant provisions of article 8 - including paragraph 1 of that
article - shall be applicable to the offer referred to above and the
subsequent effectuation thereof, on the understanding however, that the
offeror shall not be entitled to withdraw as mentioned in paragraph 12 of
article 8 and in case no offer is made the Company shall also be
irrevocably authorized to make an offer and to effectuate the transfer.
If not all the shares thus offered are taken over, the shareholder shall
be bound, however, to keep his shares and he shall be deprived of the
right, provided for in paragraph 13 of article 8, to alienate the shares
to whomever he wishes.
3. The obligation to make an offer shall not apply in case of allotment to
the person who contributed the share or the shares to the community which
has been dissolved.
4. The allotment referred to in the preceding paragraph shall be effectuated
within two years after the dissolution and the Company shall be informed
of the allotment within one month.
5. If, owing to the same legal fact, several persons are bound to offer, they
shall be entitled to offer the shares concerned as one package.
Transfer of shares.
Article 10.
1. The transfer of shares shall be effected in accordance with the applicable
statutory regulations.
2. In case of allotment of shares as a result of a division of a community
and in case of establishment and transfer of a right of usufruct or pledge
on shares, paragraph 1 shall apply accordingly.
3. The provisions of this article can be only applied with regard to a
transfer and allotment of shares and division of any community, if the
provisions of article 8 and 9 have been observed.
Acquisition and possession of shares by the Company.
Article 11.
1. Unless the Company acquires shares for no value or under an universal
title, the Company may, subject to prior authorization of the Board of
Supervisory Directors and pursuant to a resolution of the general meeting,
only acquire fully paid-up shares in its own capital, if.
a. the shareholders' equity of the Company, decreased with the
acquisition price, is not less than the paid-up and claimed part of
the capital, increased with the reserves to be kept in accordance
with the law or the Articles of Association;
b. the nominal amount of the shares to be acquired and those already
held by the Company and its subsidiaries jointly, amounts to no more
than half of the issued share capital;
c. in the event that the current financial year has ended more than six
months ago - the annual
<PAGE> 25
7
accounts of the preceding year have been adopted. In this paragraph
shares also include depositary receipts of shares.
A subsidiary of the Company may not subscribe or cause the
subscription for shares in the Company's capital for its own
account. A subsidiary of the Company may only acquire such shares
for its own account and on a particular basis of title insofar as
the Company itself may acquire shares in its own capital pursuant to
the provisions of this paragraph.
2. The Company cannot exercise voting rights in respect of shares, held by
the Company itself, or of which it has a right of usufruct or a pledge.
Such shares shall not be taken into consideration when calculating the
distribution of profits or liquidation balance, unless a right of usufruct
or a pledge has been established on those shares in favour of another
person than the Company.
The provision of the first sentence of this paragraph is accordingly
applicable to shares held by subsidiaries of the Company or on which
subsidiaries have a right of usufruct or a pledge.
3. Cancellation of shares held by the Company in its capital and cancellation
after refunding of shares drawn by lot after drawing, is possible;
resolutions with respect to cancellation shall be adopted in a general
meeting of shareholders, convened with notification of the purpose of the
cancellation and its procedure. A cancellation is not allowed to result in
a paid and claimed part of the capital being lower than one/fifth part of
the authorized capital or than the minimal capital prescribed by law at
the moment of the resolution.
4. Shares held by the Company itself can only be alienated in the manner
prescribed for issue of snares not yet issued.
The articles 8 and 9 do not apply to this alienation.
Boards.
Article 12.
1. The Company shall have a Board of Managing Directors and a Board of
Supervisory Directors, the members of which shall be appointed by the
general meeting which may at all times suspend or remove them from
office. The number of Supervisory Directors, to be determined by the
general meeting, shall be at least four and at most ten; there shall be
one managing director.
The general meeting shall determine the conditions of employment of the
managing director and the remuneration of the managing director. The
remuneration and/or compensation of Supervisory Directors shall also be
determined by the general meeting.
A legal entity can be a managing director but cannot be a Supervisory
Director.
2. A person who has reached the age of seventy-two, cannot be appointed
Supervisory Director. A Supervisory
<PAGE> 26
8
Director shall retire at the latest on the moment of the closing of the
annual general meeting, held in the financial year, in which he will be
seventy-two years old.
3. The nomination or recommendation or the appointment of a Supervisory
Director shall comply with the legal requirements.
Board of Managing Directors; representation.
Article 13.
1. The Board of Managing Directors, having one managing director, shall be
charged with the management of the Company in accordance with the Business
Plan of the Company.
2. The managing director shall be fully qualified to represent the Company in
court and otherwise.
3. The Company may grant one or more persons a limited or unlimited mandate
to represent it.
4. The Board of Managing Directors needs the prior approval of the Board of
Supervisory Directors for resolutions/actions:
a. to adopt and amend the Business Plan of the Company;
b. to adopt and amend the annual budget of the Company;
c. to incur expenses in excess of the adopted or amended annual budget;
d. to take up loans to the charge of the Company outside the ordinary
business activities, with the exception of drawings on the Company's
account with a bank designated by the Board of Supervisory
Directors, as a result of which the account is overdrawn to a sum
not exceeding the amount previously determined by the Board of
Supervisory Directors and communicated by it to that bank;
e. to lend money outside the ordinary business activities, insofar as
in consequence thereof any one debtor becomes indebted to the
Company on account of money borrowed for a sum exceeding an amount
to be determined by the Board or Supervisory Directors;
f. to commit the Company for debts of third parties, under a guaranty
or otherwise outside the ordinary business activities;
g. to extend the Company's business by a new line of business and to
discontinue - including the transfer of ownership or enjoyment of -
the business of the Company or any part thereof;
h. to alienate a considerable part of the assets of the Company, which
for the purposes hereof shall include the alienation, in each
individual case, except as part of the ordinary business activities,
of assets which individually or jointly represent a value from time
to time to be determined by the Board of Supervisory Directors;
Article 14.
1. The office of the sole managing director, being vacated
<PAGE> 27
9
or the sole managing director being prevented from acting, the Board of
Supervisory Directors shall be charged temporarily with the entire
management and may appoint one or more Supervisory Directors to represent
the Company solely or jointly.
2. Save insofar as the employment conditions of the managing director are
concerned, the Company may not enter into agreements with the managing
director in his private capacity or with his (personal) relatives; for the
purposes hereof, relatives shall include: the person with whom the
managing director cohabits, whether or not in matrimony, and blood
relations and relations by marriage of the managing director or those with
whom he cohabits up to four times removed;
3. Transactions of the Company vis-a-vis the holder of all shares in the
capital of the Company, or vis-a-vis a co-owner of a community of
matrimonial property to which all shares in the capital of the Company
belong, in which the Company is represented by that shareholder or by one
of the joint owners shall be recorded in writing; shares held by the
Company or its subsidiaries shall not be taken into account.
This paragraph shall not apply to transactions which under the agreed
terms thereof are part of the normal course of business of the Company.
Board of Supervisory Directors.
Article 15.
1. The Board of Supervisory Directors shall supervise the management of the
Board of Managing Directors and the general course of affairs in the
Company and the Company's business.
It shall assist the Board of Managing Directors and the general meeting on
an advisory basis. When fulfilling their tasks the Supervisory Directors
shall conform to the Company's interest and business.
2. One or more Supervisory Directors, to be appointed thereto by the Board of
Supervisory Directors, shall always have access to the offices and
premises of the Company and shall be entitled to inspect all its books and
documents; the Board of Managing Directors is obliged to furnish the Board
of Supervisory Directors with all data and information desired.
The Board of Managing Directors shall timely furnish the Board of
Supervisory Directors all information necessary to fulfil its task.
3. Unless the general meeting of shareholders has provided for it, the Board
of Supervisory Directors shall charge an auditor - at the expense of the
Company - with the auditing of the annual accounts, which auditor shall
report the result of his audit in a statement and further shall inform the
Board of Supervisory Directors and the Board of Managing Directors about
his audit.
4. The Board of Supervisory Directors shall elect a chairman from among its
members. The election as chairman shall be for one year.
5. The Board of Supervisory Directors shall meet twice a
<PAGE> 28
10
year at the office of the Company, unless the Board of Supervisory
Directors should decide to meet elsewhere. The Board shall furthermore
meet at the request of the chairman or at the request of the Board of
Managing Directors.
Meetings shall be called by the chairman of the Board of Supervisory
Directors while enclosing an agenda in the English language. The two
obligatory meetings shall be called, at least four weeks in advance; other
meetings shall be called within a reasonable term.
The costs of the meetings and the transportation and subsistence costs of
the Supervisory Directors incurred in connection with these meetings shall
be reimbursed by the Company.
6. Proposals to be dealt with by the Board of Supervisory Directors may be
submitted to the chairman by every Supervisory Director and by the Board
of Management.
7. The Board of Supervisory Directors shall adopt resolutions at meetings by
an absolute majority of votes in a meeting in which a majority of the
Supervisory Directors is present or represented, but in the event that
there are less than seven Supervisory Directors, the quorum shall be at
least four Supervisory Directors, unless these Articles of Association
require or allow a different form of decision-making; for the purposes
hereof "meeting" shall include meeting by telephone or by video, provided
the decision-making is recorded in writing before the resolution is
implemented. Resolutions may be adopted outside meetings only if it has
been shown that all the Supervisory Directors have stated to be in favour
of the proposal concerned in writing; for the purposes hereof "in writing"
shall also mean a message by telefax, telegram or any other means of
communication, capable of transmitting written texts.
8. In case of one or more vacancy/vacancies in the Board of Supervisory
Directors, the general meeting shall promptly fill such vacancy/vacancies.
General meetings.
Article 16.
1. General meetings must be held in the municipality where the Company has
its principal office or in the municipalities of Amsterdam or
Haarlemmermeer; resolutions adopted in a general meeting, held in another
municipality, can only be adopted validly, if the entire issued share
capital is represented.
2. The annual meeting shall be held ultimately within six months after expiry
of the financial year. In the annual meeting shall be adopted inter alia:
the balance sheet and the profit and loss account with explanatory notes -
hereinafter to be called jointly: the annual accounts -, covering the past
financial year, and the distribution of profits, while the general meeting
shall also deal with the written business report of the Board of Managing
Directors on the past financial year, to be presented to it by that board,
unless section
<PAGE> 29
11
403, Volume 2 of the Civil Code is applicable.
3. Extraordinary general meetings shall be held as often as the Board of
Managing Directors or the Board of Supervisory Directors desires, or upon
written request of one or more shareholders, together representing at
least one/tenth part of the issued capital, addressed to the Board of
Managing Directors and stating exactly the subjects to be dealt with. In
that case the Board of Managing Directors or the Board of Supervisory
Directors' shall be obliged to call a general meeting to be held within
six weeks after receipt of this request. If no calling notification is
sent within three weeks after receipt of the request, each requesting
party may send a notification himself with due observance of the
provisions of the law and this article.
4. If the annual meeting is not called, each shareholder may do so himself,
likewise with due observance of the provisions of the law and this
article.
5. Without prejudice to the provisions of the paragraphs 3. and 4., the
notification, convening a general meeting, shall be sent by registered
mail by the Board of Managing Directors to the addresses of the
shareholders, as mentioned in the shareholders' register, at least fifteen
days before the meeting is to be held. The day of mai1ing shall be
regarded as the day of notification.
Notifications shall contain the agenda.
The receipt issued by the post office shall serve as evidence that the
notification has been mailed.
6. Meetings shall be presided by the chairman of the Supervisory Board.
7. Unless a notarial report of the business of the meeting is drawn up,
minutes shall be drawn up of the business, transacted in each meeting.
This secretary needs not to be a shareholder.
The minutes shall be confirmed at the same or at the next meeting and are
to be signed by the chairman and the secretary in office.
The chairman of the meeting and each managing director or Supervisory
Director can order at any time that a notarial report of the meeting shall
be made for account of the Company.
8. The minute book shall be available at the offices of the Company for
inspection by the shareholders. A copy of or an extract from the minutes
of any meeting shall be supplied to each of them upon request and at a
charge not exceeding cost.
9. Shareholders may also adopt resolutions without holding a meeting,
provided the resolutions are adopted unanimously and votes are cast in
writing by all shareholders. A resolution adopted in this way shall be
deemed to be a resolution of the general meeting.
In this paragraph votes cast by telefax, telegram or any other means of
communication capable of transmitting written texts, shall likewise be
considered as votes cast in writing.
<PAGE> 30
12
Article 17.
1. Shareholders may only be represented at meetings by proxy, duly authorized
in writing.
2. With respect to the adopting of resolutions whereby the Company will grant
rights or a release from obligations to particular persons, otherwise than
in their capacity of shareholder or member of a body of the Company, valid
votes on such resolutions may be cast by said persons, their spouses and
their blood relatives in the direct line.
Article 18.
1. Every share shall represent the right to cast one vote. Blank and invalid
votes shall be deemed not to be cast. When determining to what extent
shareholders vote, are present or represented, or to what extent the share
capital is furnished or represented, shares, in respect of which the
Articles of Association prescribe that in respect of those shares no vote
can be cast, are not taken into account.
2. Voting in respect of business shall be verbally, voting in respect of
persons by unsigned ballots, unless the meeting determines a different way
of voting. Voting by acclamation shall be allowed as long as nobody is
opposed thereto.
3. All resolutions shall be adopted by a two/third majority of votes in a
meeting in which at least two/thirds of the shareholders is present or
represented, unless the law or the Articles of Association prescribe a
larger majority. If the quorum is not represented in such meeting, a
second meeting of shareholders will be called on a date which is at least
five business days and no more than four weeks after the date of the first
meeting of shareholders; in such second meeting resolutions on the
subjects put before the first meeting of shareholders can be adopted in
conformity with the two/third majority stipulated in this article
irrespective of the number of shareholders attending such second meeting.
4. In case votes are equally divided with regard to a proposal, on which a
resolution may be adopted by a two/third majority of votes, the following
rules shall apply:
a. Within two weeks after the meeting referred to under (b) was held,
the Board of Managing Directors of the Company shall be bound -
unless the proposal hereinafter stated under (b) is adopted - to
request the President of the Chamber of Commerce and Industry,
within the jurisdiction of which the Company is situated, to appoint
a committee of three experts which shall decide whether the proposal
on which votes were equally divided, shall be adopted or rejected.
b. As soon as there is an equal division of votes during a general
meeting, the chairman of the meeting shall be obliged to bring up
for discussion a new proposal aiming at not submitting
<PAGE> 31
13
the proposal, in respect of which during the discussions the votes
were equally divided, to the committee of experts referred to under
(a).
In case such new proposal is adopted, the proposal on which the
votes were equally divided, shall be rejected and, therefore, shall
not be submitted to the committee of experts referred to above for
decision;
in case votes are equally divided on the new proposal, made by the
chairman, that proposal shall be deemed to be rejected and the Board
of Managing Directors of the Company shall therefore have the
obligation referred to under (a).
c. When taking its decision the committee shall first of all take into
account the interests of the Company.
d. Its fees shall be paid entirely by the Company.
e. After being appointed the committee shall render its decision as
soon as possible and shall inform every shareholder and the Company
of its decision in writing.
The committee shall not take a decision before having heard all
parties involved in the relevant proposal or at least before having
summoned them properly.
The members of the committee of experts shall render their decision
as good men in equity. They shall establish proceeding rules
themselves and may extend the term of their mandate. They may take
advice from third parties. The members of the committee of experts
shall have access to the offices and to other rooms of the Company
and they shall be entitled to inspect all books, registers and other
documents of the Company; moreover, the Board of Managing Directors
is obliged to provide the members of the committee with every
information they ask.
f. The decision of the committee of experts shall be recorded in the
minute book of the Company.
A decision taken in the way described above, shall be considered as
a resolution of the general meeting.
Financial year, annual account and annual report.
Article 19.
1. The financial year of the Company coincides with the calendar year.
2. The Board of Managing Directors shall submit a budget for each financial
year to the Board of Supervisory Directors for its approval.
3. Within five months after the expiration of each financial year, except in
case of extension of this term by no more than six months by the general
meeting based on extraordinary circumstances, the Board of Managing
Directors shall draw up the annual accounts, and shall submit the same -
provided with an advice thereto it took from the Board of Supervisory
Directors
<PAGE> 32
14
- and the annual report to the general meeting within that, possibly
extended, term.
4. The annual report and the annual accounts, signed by the managing director
and Supervisory Directors, together with, in any case, besides other
information prescribed by the law:
a. the statement of the auditor;
b. a statement on the distribution of the profits or the assimilation
of the losses, or as long as not yet determined, the proposal
thereto, shall be available at the offices of the Company for
inspection by all shareholders as from the day on which the annual
meeting was called.
Shareholders may obtain free copies of these documents.
5. The provisions of the paragraphs 3 and 4 of this article concerning the
annual report and the information prescribed in virtue of the law, are not
applicable, if section 403, Volume 2 of the Civil Code applies to the
Company.
6. In case a signature of the managing or a Supervisory Director is missing
on the annual accounts, the reason thereof shall be mentioned in that
document.
7. Unconditional adoption of the annual accounts shall discharge the Board of
Managing Directors in respect or its acts in the past financial year and
shall discharge the Board of Supervisory Directors in respect of the
fulfillment of its task.
Profits and distribution of Profits.
Article 20.
1. Profits shall be established in accordance with generally accepted
accounting standards.
2. The Board of Supervisory Directors shall determine whether profits made in
any financial year shall be paid out partly or wholly, or added to the
reserves.
3. The Board of Supervisory Directors can only resolve to pay out profits
and/or reserves and the Company may only make payments out of profits
and/or reserves open to payment, as far as the shareholders' equity of the
Company exceeds the amount of the paid-up and claimed part of the
capital, increased with reserves, to be kept according to the law;
4. Dividends shall be made payable within one month after the adoption of the
annual account. The general meeting may determine that dividends shall be
paid, wholly or partly, otherwise than in cash.
5. The Board of Supervisory Directors or, subject to approval of the Board of
Supervisory Directors, the Board of Managing Directors is authorized to
decide to make interim payments out of profits and/or reserves with due
observance of the provisions of paragraph 3.
6. The claim to pay dividend shall lapse five years after the dividend was
made payable.
Special Resolutions
Article 21.
1. Resolutions to amend the Articles of Association, to merge the Company or
to liquidate the Company require
<PAGE> 33
15
prior approval of the Supervisory Board.
2. When a proposal to amend the Articles of Association, to merge the Company
or to dissolve the Company is made to the general meeting, this must be
mentioned in the notification of the general meeting.
3. As regards an amendment of the Articles of Association, a copy, of the
proposal including the text of the proposed amendment must at the same
time be deposited at the Company's offices for inspection by the
shareholders and held until the end of that meeting.
Liquidation.
Article 22.
1. In case of dissolution of the Company the liquidation shall be executed by
the Board of Managing Directors, unless the general meeting decides
otherwise.
2. The remuneration, which shall be granted to liquidator(s) and persons
lending assistance, if any, shall be determined simultaneously.
3. During the liquidation the provisions of the present Articles of
Association shall exist in force as much as possible. The relevant
provisions in respect of the managing director are then applicable to the
liquidator(s) and the provisions in respect of supervisory directors are
applicable to the persons lending assistance.
4. Any assets of the Company remaining after the liabilities of the Company
have been satisfied shall be transferred to the shareholders in such a way
that, as far as possible, first the nominal amount paid on each share
shall be paid on that share to a maximum of the nominal value of that
share, and any surplus then remaining shall be paid to the shareholders in
proportion to the amount paid up by each of them in respect of the shares.
5. After the liquidation the books and other documents of the Company shall
be kept by the person, thereto appointed by the liquidator(s), for the
term, determined by law.
Final Provision.
Article 23.
In all cases not provided for in the present Articles of Association and/or the
law, the general meeting shall decide.
<PAGE> 1
Exhibit 4.3
INDENTURE
DATED AS OF AUGUST 19, 1997
AMONG
HERMES EUROPE RAILTEL B.V., AS ISSUER,
GLOBAL TELESYSTEMS GROUP, INC.
AND
THE BANK OF NEW YORK, AS TRUSTEE
--------------------
$265,000,000
11-1/2% SENIOR NOTES DUE 2007
11-1/2% SENIOR NOTES DUE 2007, SERIES B
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT Section Section
----------- -------
<S> <C>
Section 310(a)(1)................................................................... 7.10
(a)(2)......................................................................... 7.10
(a)(3)......................................................................... N.A.
(a)(4)......................................................................... N.A.
(a)(5)......................................................................... 7.08, 7.10.
(b)............................................................................ 7.08; 7.10; 10.02
(c)............................................................................ N.A.
Section 311(a)...................................................................... 7.11
(b)............................................................................ 7.11
(c)............................................................................ N.A.
Section 312(a)....................................................................... 2.05
(b)............................................................................ 10.03
(c)............................................................................ 10.03
Section 313(a)....................................................................... 7.06
(b)(1)......................................................................... 7.06
(b)(2)......................................................................... 7.06
(c)............................................................................ 7.06; 10.02
(d)............................................................................ 7.06
Section 314(a)....................................................................... 4.07; 4.09; 10.02
(b)............................................................................ 11.02
(c)(1)......................................................................... 10.04
(c)(2)......................................................................... 10.04
(c)(3)......................................................................... N.A.
(d)............................................................................ 11.03
(e)............................................................................ 10.05
(f)............................................................................ N.A.
Section 315(a)....................................................................... 7.01(b)
(b)............................................................................ 7.05; 10.02
(c)............................................................................ 7.01(a)
(d)............................................................................ 7.01(c)
(e)............................................................................ 6.11
Section 316(a)(last sentence)........................................................ 2.09
(a)(1)(A)...................................................................... 6.05
(a)(1)(B)...................................................................... 6.04
(a)(2)......................................................................... N.A.
(b)............................................................................ 6.07
(c)............................................................................ 9.04
Section 317(a)(1).................................................................... 6.08
(a)(2)......................................................................... 6.09
(b)............................................................................ 2.04
Section 318(a)....................................................................... 10.01
</TABLE>
- --------------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01. Definitions...............................................................................1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.........................................18
SECTION 1.03. Rules of Construction.....................................................................19
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating...........................................................................19
SECTION 2.02. Execution and Authentication..............................................................20
SECTION 2.03. Registrar and Paying Agent................................................................21
SECTION 2.04. Paying Agent To Hold Assets in Trust......................................................21
SECTION 2.05. Securityholder Lists......................................................................22
SECTION 2.06. Transfer and Exchange.....................................................................22
SECTION 2.07. Replacement Securities....................................................................22
SECTION 2.08. Outstanding Securities....................................................................23
SECTION 2.09. Treasury Securities.......................................................................23
SECTION 2.10. Temporary Securities......................................................................23
SECTION 2.11. Cancellation..............................................................................23
SECTION 2.12. Defaulted Interest........................................................................24
SECTION 2.13. CUSIP Number..............................................................................24
SECTION 2.14. Deposit of Moneys.........................................................................24
SECTION 2.15. Book-Entry Provisions for Global Securities...............................................24
SECTION 2.16. Registration of Transfers and Exchanges...................................................25
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee........................................................................29
SECTION 3.02. Selection of Securities To Be Redeemed....................................................29
SECTION 3.03. Notice of Redemption......................................................................29
SECTION 3.04. Effect of Notice of Redemption............................................................30
SECTION 3.05. Deposit of Redemption Price...............................................................30
SECTION 3.06. Securities Redeemed in Part...............................................................31
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.....................................................................31
SECTION 4.02. Maintenance of Office or Agency...........................................................31
SECTION 4.03. Corporate Existence.......................................................................31
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 4.04. Payment of Taxes and Other Claims.........................................................32
SECTION 4.05. Notice of Defaults........................................................................32
SECTION 4.06. Maintenance of Properties and Insurance...................................................32
SECTION 4.07. Compliance Certificate....................................................................33
SECTION 4.08. Waiver of Stay, Extension or Usury Laws...................................................33
SECTION 4.09. Provision of Financial Information........................................................33
SECTION 4.10. Change of Control.........................................................................34
SECTION 4.11. Limitation on Restricted Payments.........................................................34
SECTION 4.12. Limitation on Incurrence of Indebtedness..................................................36
SECTION 4.13. Limitations on Restrictions Affecting Restricted Subsidiaries.............................38
SECTION 4.14. Designation of Unrestricted Subsidiaries..................................................39
SECTION 4.15. Limitation on Liens.......................................................................40
SECTION 4.16. Limitation on Asset Sales.................................................................40
SECTION 4.17. Limitation on Transactions with Affiliates................................................41
SECTION 4.18. Limitation on Issuances of Guarantees by Restricted Subsidiaries..........................42
SECTION 4.19. Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries............................................................................43
SECTION 4.20. Additional Amounts........................................................................43
SECTION 4.21. Deposit of Funds with Escrow Agent........................................................43
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Sale of Assets, etc..............................................................44
SECTION 5.02. Successor Corporation Substituted.........................................................44
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.........................................................................45
SECTION 6.02. Acceleration..............................................................................46
SECTION 6.03. Other Remedies............................................................................47
SECTION 6.04. Waiver of Past Default....................................................................47
SECTION 6.05. Control by Majority.......................................................................48
SECTION 6.06. Limitation on Suits.......................................................................48
SECTION 6.07. Rights of Holders To Receive Payment......................................................48
SECTION 6.08. Collection Suit by Trustee................................................................48
SECTION 6.09. Trustee May File Proofs of Claim..........................................................49
SECTION 6.10. Priorities................................................................................49
SECTION 6.11. Undertaking for Costs.....................................................................49
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.........................................................................50
SECTION 7.02. Rights of Trustee.........................................................................51
SECTION 7.03. Individual Rights of Trustee..............................................................52
SECTION 7.04. Trustee's Disclaimer......................................................................52
</TABLE>
-ii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 7.05. Notice of Defaults........................................................................52
SECTION 7.06. Reports by Trustee to Holders.............................................................52
SECTION 7.07. Compensation and Indemnity................................................................52
SECTION 7.08. Replacement of Trustee....................................................................53
SECTION 7.09. Successor Trustee by Merger, etc..........................................................54
SECTION 7.10. Eligibility; Disqualification.............................................................54
SECTION 7.11. Preferential Collection of Claims Against Company.........................................54
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations......................................................55
SECTION 8.02. Application of Trust Money................................................................56
SECTION 8.03. Repayment to Company......................................................................56
SECTION 8.04. Reinstatement.............................................................................56
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders................................................................57
SECTION 9.02. With Consent of Holders...................................................................57
SECTION 9.03. Compliance with Trust Indenture Act.......................................................58
SECTION 9.04. Revocation and Effect of Consents.........................................................59
SECTION 9.05. Notation on or Exchange of Securities.....................................................59
SECTION 9.06. Trustee To Sign Amendments, etc...........................................................59
ARTICLE TEN MISCELLANEOUS
SECTION 10.01. Trust Indenture Act Controls..............................................................60
SECTION 10.02. Notices...................................................................................60
SECTION 10.03. Communications by Holders with Other Holders..............................................62
SECTION 10.04. Certificate and Opinion as to Conditions Precedent........................................62
SECTION 10.05. Statements Required in Certificate or Opinion.............................................62
SECTION 10.06. Rules by Trustee, Paying Agent, Registrar.................................................63
SECTION 10.07. Governing Law.............................................................................63
SECTION 10.08. No Recourse Against Others................................................................63
SECTION 10.09. Successors................................................................................63
SECTION 10.10. Counterpart Originals.....................................................................63
SECTION 10.11. Severability..............................................................................63
SECTION 10.12. No Adverse Interpretation of Other Agreements.............................................64
SECTION 10.13. Legal Holidays............................................................................64
SECTION 10.14. Agent for Service; Submission to Jurisdiction; Waiver of Immunities.......................64
SECTION 10.15. Judgment Currency.........................................................................64
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
ARTICLE ELEVEN
COLLATERAL AND SECURITY
Page
----
<S> <C> <C>
SECTION 11.01. Escrow Agreement..........................................................................65
SECTION 11.02. Recording and Opinions....................................................................65
SECTION 11.03. Release of Collateral.....................................................................66
SECTION 11.04. Authorization of Actions to Be Taken by the Trustee Under the
Escrow Agreement........................................................................66
SECTION 11.05. Authorization of Receipt of Funds by the Trustee Under the Escrow
Agreement...............................................................................67
SECTION 11.06. Termination of Security Interest..........................................................67
ARTICLE TWELVE
COVENANT OF GLOBAL TELESYSTEMS GROUP, INC.
SECTION 12.01. GTS Contribution..........................................................................67
SIGNATURES..................................................................................................S-1
EXHIBIT A Form of Series A Security.................................................................A-1
EXHIBIT B Form of Series B Security.................................................................B-1
EXHIBIT C Form of Legend for Global Securities......................................................C-1
EXHIBIT D Form of Transfer Certificate..............................................................D-1
EXHIBIT E Form of Transfer Certificate for Institutional Accredited Investors.......................E-1
EXHIBIT F Form of Transfer Certificate for Regulation S Transfers...................................F-1
</TABLE>
-iv-
<PAGE> 7
INDENTURE dated as of August 19, 1997, among HERMES EUROPE
RAILTEL B.V., a Netherlands limited company (the "Company"), GLOBAL TELESYSTEMS
GROUP, INC., (with respect only to Article Twelve) and THE BANK OF NEW YORK, a
New York banking corporation, as Trustee.
Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the
Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person (a)
assumed in connection with an Acquisition from such Person or (b) existing at
the time such Person becomes a Restricted Subsidiary or is merged or
consolidated with or into the Company or any Restricted Subsidiary; provided,
however, that such Indebtedness was not Incurred in connection with, or in
contemplation of, such Acquisition, such Person becoming a Restricted Subsidiary
or such merger or consolidation.
"Acquired Person" means, with respect to any specified Person,
any other Person which merges with or into or becomes a Subsidiary of such
specified Person.
"Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated, merged with or into the Company
or any Restricted Subsidiary or (ii) any acquisition by the Company or any
Restricted Subsidiary of the assets of any Person which constitute substantially
all of an operating unit or line of business of such Person or which is
otherwise outside of the ordinary course of business.
"Additional Interest" has the meaning provided in Section 4(a)
of the Registration Rights Agreement.
"Affiliate" of any specified person means any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person,
whether through the ownership of voting securities, by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Sale" means any direct or indirect sale, conveyance,
transfer, lease (that has the effect of a disposition) or other disposition
(including, without limitation, any merger, consolidation or sale-leaseback
transaction) to any Person other than the Company or a Restricted Subsidiary, in
one transaction or a series of
<PAGE> 8
-2-
related transactions, of (i) any Equity Interest of any Restricted Subsidiary;
(ii) any material license, franchise or other authorization of the Company or
any Restricted Subsidiary; (iii) any assets of the Company or any Restricted
Subsidiary which constitute substantially all of an operating unit or line of
business of the Company or any Restricted Subsidiary; or (iv) any other property
or asset of the Company or any Restricted Subsidiary outside of the ordinary
course of business (including the receipt of proceeds paid on account of the
loss of or damage to any property or asset and awards of compensation for any
asset taken by condemnation, eminent domain or similar proceedings). For the
purposes of this definition, the term "Asset Sale" shall not include (a) any
transaction consummated in compliance with Section 5.01 and the creation of any
Lien not prohibited by Section 4.15; provided, however, that any transaction
consummated in compliance with Section 5.01 involving a sale, conveyance,
assignment, transfer, lease or other disposal of less than all of the properties
or assets of the Company and the Restricted Subsidiaries shall be deemed to be
an Asset Sale with respect to the properties or assets of the Company and
Restricted Subsidiaries that are not so sold, conveyed, assigned, transferred,
leased or otherwise disposed of in such transaction; (b) sales of property or
equipment that has become worn out, obsolete or damaged or otherwise unsuitable
for use in connection with the business of the Company or any Restricted
Subsidiary, as the case may be; and (c) any transaction consummated in
compliance with Section 4.11. In addition, solely for purposes of Section 4.16,
any sale, conveyance, transfer, lease or other disposition of any property or
asset, whether in one transaction or a series of related transactions, involving
assets with a Fair Market Value not in excess of $1.0 million in any fiscal year
shall be deemed not to be an Asset Sale.
"Bankruptcy Law" see Section 6.01.
"Basket" see Section 4.11.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person (or comparable governing body), or any
authorized committee of that Board (it being understood that the Board of
Directors of the Company shall be its Board of Supervisory Directors).
"Board Resolution" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person.
"Business Day" means a day (other than a Saturday or Sunday)
on which the Depository and banks in New York are open for business.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be so required to be capitalized on the
balance sheet in accordance with GAAP.
"Cash Equivalents" means: (a) U.S. dollars; (b) securities
issued or directly and fully guaranteed or insured by the U.S. government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition; provided, however, that securities deposited in
the Escrow Account may have longer maturities; (c) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500 million; provided, however, that securities
deposited in the Escrow Account may have longer maturities; (d) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (b) and (c) entered into with any financial
institution meeting the qualifications specified in clause (c) above; and (e)
commercial paper rated P-1, A-1 or the equivalent thereof by Moody's Investors
<PAGE> 9
-3-
Service, Inc. or Standard & Poor's Ratings Group, respectively, and in each case
maturing within six months after the date of acquisition.
"Change of Control" shall mean the occurrence of any of the
following events (whether or not approved by the Board of Directors of the
Company): (a) any Person or group, excluding Permitted Holders, is or becomes
the beneficial owner, directly or indirectly, of Voting Equity Interests
representing 35% or more of the total voting power of the Voting Equity
Interests of the Company at a time when the Permitted Holders together (x) own
Voting Equity Interests representing a lesser percentage of the total voting
power of the Voting Equity Interests of the Company, than such Person or group
(for purposes of determining the percentage of the Voting Equity Interests of
such Person or group, the holdings of the Permitted Holders who are part of such
Person or group shall not be counted in the Voting Equity Interests of such
Person or group) or (y) do not hold the power to elect a majority of the members
of the Board of Directors of the Company; (b) any Person or group is or becomes
the beneficial owner directly or indirectly, of Voting Equity Interests
representing 50% or more of the total voting power of the Voting Equity
Interests of GTS or has the power, directly or indirectly, to elect a majority
of the members of the Board of Directors of GTS; (c) the Company consolidates
with, or merges with or into, another Person or the Company or one or more
Restricted Subsidiaries sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of the assets of the Company and the
Restricted Subsidiaries, taken as a whole, to any Person (other than a Wholly
Owned Restricted Subsidiary), or any Person consolidates with, or merges with or
into, the Company, in any such event other than pursuant to a transaction in
which the Person or Persons that "beneficially owned," directly or indirectly,
Voting Equity Interests representing a majority of the total voting power of the
Voting Equity Interests of the Company immediately prior to such transaction,
"beneficially own," directly or indirectly, Voting Equity Interests representing
a majority of the total voting power of the Voting Equity Interests of the
surviving or transferee Person; (d) GTS consolidates with, or merges with or
into, another Person or GTS or one or more of its Subsidiaries sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of the
assets of GTS and its Subsidiaries, taken as a whole, to any Person (other than
a wholly owned Subsidiary of GTS), or any Person consolidates with, or merges
with or into, GTS, in any such event other than pursuant to a transaction in
which the Person or Persons that "beneficially owned," directly or indirectly,
Voting Equity Interests representing a majority of the total voting power of the
Voting Equity Interests of GTS immediately prior to such transaction,
"beneficially own," directly or indirectly Voting Equity Interests representing
a majority of the total voting power of the Voting Equity Interests of the
surviving or transferee Person; (e) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by the
Board of Directors of the Company or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason (other than by action of the Permitted Holders)
to constitute a majority of the Board of Directors of the Company, then in
office; (f) during any consecutive two year period, individuals who at the
beginning of such period constituted the Board of Directors of GTS (together
with any new directors whose election by the Board of Directors of GTS or whose
nomination for election by the stockholders of GTS was approved by a vote of a
majority of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of GTS then in office; or (g) there shall occur the
liquidation or dissolution of the Company or GTS. For purposes of this
definition, (I) "group" has the meaning under Section 13(d) and 14(d) of the
Exchange Act or any successor provision to either of the foregoing, including
any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act, and
(II) "beneficial ownership" has the meaning set forth in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the
<PAGE> 10
-4-
right to acquire, whether such right is exercisable immediately or only after
the passage of time, upon the happening of an event or otherwise.
"Change of Control Date" see Section 4.10.
"Collateral" has the meaning set forth in Section 6 of the
Escrow Agreement.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by two Officers or by an Officer and
an Assistant Treasurer or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Income Tax Expense" means, with respect to any
period, the provision for federal, state, local and foreign income taxes payable
by the Company and the Restricted Subsidiaries for such period as determined on
a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and (e) all capitalized interest and all accrued interest, (ii) the
interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and the Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with GAAP
and (iii) dividends and distributions in respect of Disqualified Equity
Interests actually paid in cash by the Company or any Restricted Subsidiary
(other than to the Company or another Restricted Subsidiary) during such period
as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period,
the net income of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, adjusted, to the
extent included in calculating such net income, by excluding, without
duplication, (a) other than for purposes of calculating the Basket, all
extraordinary gains or losses for such period, (b) other than for purposes of
calculating the Basket, all gains or losses from the sales or other dispositions
of assets out of the ordinary course of business (net of taxes, fees and
expenses relating to the transaction giving rise thereto) for such period; (c)
that portion of such net income derived from or in respect of investments in
Persons other than Restricted Subsidiaries, except to the extent actually
received in cash by the Company or any Restricted Subsidiary (subject, in the
case of any Restricted Subsidiary, to the provisions of clause (f) of this
definition); (d) the portion of such net income (or loss) allocable to minority
interests in any Person (other than a Restricted Subsidiary) for such period,
except to the extent the Company's allocable portion of such Person's net income
for such period is actually received in cash by the Company or any Restricted
Subsidiary (subject, in the case of any Restricted Subsidiary, to the provisions
of clause (f) of this definition); (e) the net income (or loss) of any other
Person combined with the Company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination;
and (f) the net income of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
<PAGE> 11
-5-
of that income is not at the time (regardless of any waiver) permitted, directly
or indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Restricted Subsidiary or its Equity Interest holders.
"Consolidated Operating Cash Flow" means, with respect to any
period, Consolidated Net Income for such period increased (without duplication),
to the extent deducted in calculating such Consolidated Net Income, by (a)
Consolidated Income Tax Expense for such period; (b) Consolidated Interest
Expense for such period; and (c) depreciation, amortization and any other
non-cash items for such period (other than any non-cash item which requires the
accrual of, or a reserve for, cash charges for any future period) of the Company
and the Restricted Subsidiaries, including, without limitation, amortization of
capitalized debt issuance costs for such period, all of the foregoing determined
on a consolidated basis in accordance with GAAP minus non-cash items to the
extent they increase Consolidated Net Income (including the partial or entire
reversal of reserves taken in prior periods) for such period.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 10.02 or such other address as the
Trustee may give notice to the Company.
"CT Corporation System" see Section 10.14.
"Cumulative Operating Cash Flow" means, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of determination for
which consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Currency Agreement" shall mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement, which may
include the use of derivatives, designed to protect the Company or any
Restricted Subsidiary against fluctuations in currency values.
"Custodian" see Section 6.01.
"Debt to Annualized Operating Cash Flow Ratio" means the ratio
of (a) the Total Consolidated Indebtedness as of the date of calculation (the
"Determination Date") to (b) two times the Consolidated Operating Cash Flow for
the latest two fiscal quarters for which financial information is available
immediately preceding such Determination Date (the "Measurement Period"). For
purposes of calculating Consolidated Operating Cash Flow for the Measurement
Period immediately prior to the relevant Determination Date, (I) any Person that
is a Restricted Subsidiary on the Determination Date (or would become a
Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated Operating Cash
Flow) will be deemed to have been a Restricted Subsidiary at all times during
such Measurement Period, (II) any Person that is not a Restricted Subsidiary on
such Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be deemed not to
have been a Restricted Subsidiary at any time during such Measurement Period,
and (III) if the Company or any Restricted Subsidiary shall have in any manner
(x) acquired (through an Acquisition or the commencement of activities
constituting such operating business) or (y) disposed of (by way of an Asset
Sale or the termination or discontinuance of activities constituting such
operating business) any operating business during such Measurement Period or
after the end of such period and on or prior to such Determination Date, such
calculation will be made on a pro
<PAGE> 12
-6-
forma basis in accordance with GAAP as if, in the case of an Acquisition or the
commencement of activities constituting such operating business, all such
transactions had been consummated on the first day of such Measurement Period
and, in the case of an Asset Sale or termination or discontinuance of activities
constituting such operating business, all such transactions had been consummated
prior to the first day of such Measurement Period (it being understood that in
calculating Consolidated Operating Cash Flow the exclusions set forth in clauses
(a) through (f) of the definition of Consolidated Net Income shall apply to an
Acquired Person as if it were a Restricted Subsidiary).
"Default" means any event that is, or with the passage of time
or the giving of notice or both would be, an Event of Default.
"Depository" means, with respect to the Securities issued in
the form of one or more Global Securities, The Depository Trust Company or
another Person designated as Depository by the Company, which must be a clearing
agency registered under the Exchange Act.
"Designation" see Section 4.14.
"Designation Amount" see Section 4.14.
"Determination Date" has the meaning set forth in the
definition of "Debt to Annualized Operating Cash Flow Ratio" above.
"Disinterested Director" means a member of the Board of
Directors of the Company who does not have any material direct or indirect
financial interest in or with respect to the transaction being considered.
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.
"Disqualified Equity Interest" means any Equity Interest
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable,
at the option of the holder thereof, in whole or in part, on or prior to the
Maturity Date; provided, however, that any Equity Interests that would not
constitute Disqualified Equity Interests but for provisions thereof giving
holders thereof the right to require the Company to repurchase or redeem such
Equity Interests upon the occurrence of a change in control occurring prior to
the Maturity Date shall not constitute Disqualified Equity Interests if the
change in control provisions applicable to such Equity Interests are no more
favorable to the holders of such Equity Interests than the provisions under
Section 4.10 and such Equity Interests specifically provide that the Company
will not repurchase or redeem any such Equity Interests pursuant to such
provisions prior to the Company's repurchase of Securities as are required to be
repurchased pursuant to the provisions under Section 4.10.
"Dollar Equivalent" shall mean, with respect to a monetary
amount in a currency other than U.S. Dollars, at any time for the determination
thereof, the amount of U.S. Dollars obtained by converting such other currency
involved in such computation into U.S. dollars at the rate for the purchase of
U.S. dollars with the applicable currency as set forth in the Key Currency Cross
Rates table of The Wall Street Journal (or a successor table) on the date that
is two Business Days prior to such determination.
<PAGE> 13
-7-
"Equity Interest" in any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) corporate stock or other
equity participations, including partnership interests, whether general or
limited, in such Person, including any Preferred Equity Interests.
"Escrow Account" has the meaning set forth in Section 2 of the
Escrow Agreement.
"Escrow Agent" means The Bank of New York, as escrow agent
under the Escrow Agreement, until a successor replaces it in accordance with the
provisions of the Escrow Agreement and thereafter means such successor.
"Escrow Agreement" means the Escrow Agreement dated as of
August 19, 1997 among the Company, the Escrow Agent and the Trustee.
"Event of Default" see Section 6.01.
"Escrow Funds" see Section 11.03.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Expiration Date" has the meaning set forth in the definition
of "Offer to Purchase" below.
"Fair Market Value" means, with respect to any asset, the
price (after taking into account any liabilities relating to such assets) which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of which is under
any compulsion to complete the transaction; provided, however, that the Fair
Market Value of any such asset or assets shall be determined conclusively by the
Board of Directors of the Company acting in good faith, which determination
shall be evidenced by a resolution of such Board delivered to the Trustee.
"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States which are applicable at the
date of determination and which are consistently applied for all applicable
periods.
"Global Security" means a security evidencing all or a portion
of the Securities issued to the Depository or its nominee in accordance with
Section 2.01 and bearing the legend set forth in Exhibit C hereto.
"GTS" means Global TeleSystems Group, Inc., a Delaware
corporation, and its successors.
"GTS Contribution" means one or more investments, on and after
the Issue Date, in the Company (other than by a Subsidiary of the Company) of
not less than ECU 46.0 million (the equivalent of $51.1 million on July 7,
1997), in the aggregate, by capital contribution to the Company, purchase from
the Company of common Equity Interests of the Company and conversion of
Indebtedness owing to GTS-Hermes, Inc. by the Company into common Equity
Interests of the Company.
"guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (ii) an agreement, direct or indirect, contingent
or otherwise, the
<PAGE> 14
-8-
practical effect of which is to assure in any way the payment or performance (or
payment of damages in the event of non-performance) of all or any part of such
obligation, including, without limiting the foregoing, the payment of amounts
drawn down by letters of credit. A guarantee shall include, without limitation,
any agreement to maintain or preserve any other person's financial condition or
to cause any other Person to achieve certain levels of operating results.
"Holder," "holder of Securities," "Securityholders" or other
similar terms mean the registered holder of any Security.
"Incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (including by conversion,
exchange or otherwise), assume, guarantee or otherwise become liable in respect
of such Indebtedness or other obligation or the recording, as required pursuant
to GAAP or otherwise, of any such Indebtedness or other obligation on the
balance sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall
have meanings correlative to the foregoing). Indebtedness of a Person existing
at the time such Person becomes a Restricted Subsidiary or is merged or
consolidated with or into the Company or any Restricted Subsidiary shall be
deemed to be Incurred at such time.
"Indebtedness" means (without duplication), with respect to
any Person, whether recourse is to all or a portion of the assets of such Person
and whether or not contingent, (a) every obligation of such Person for money
borrowed; (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in good faith); (e) every Capital
Lease Obligation of such Person; (f) every net obligation under interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements of such Person; (g) every obligation of the type referred to in
clauses (a) through (f) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise; and (h) any and all Refinancings of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a) through (g) above. Indebtedness (i) shall never be calculated taking
into account any cash and cash equivalents held by such Person; (ii) shall not
include obligations of any Person (x) arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within two Business
Days of their incurrence unless covered by an overdraft line, (y) resulting from
the endorsement of negotiable instruments for collection in the ordinary course
of business and consistent with past business practices and (z) under stand-by
letters of credit to the extent collateralized by cash or Cash Equivalents;
(iii) which provides that an amount less than the principal amount thereof shall
be due upon any declaration of acceleration thereof shall be deemed to be
Incurred or outstanding in an amount equal to the accreted value thereof at the
date of determination determined in accordance with GAAP; and (iv) shall include
the liquidation preference and any mandatory redemption payment obligations in
respect of any Disqualified Equity Interests of the Company or any Preferred
Equity Interests of any Restricted Subsidiary.
"Indenture" means this Indenture as amended or supplemented
from time to time.
<PAGE> 15
-9-
"Independent Financial Advisor" means a recognized,
accounting, appraisal, investment banking firm or consultant with experience in
a Telecommunications Business (i) which does not, and whose directors, officers
and employees or Affiliates do not, have a material direct or indirect financial
interest in the Company and (ii) which, in the judgment of the Board of
Directors of the Company, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette
Securities Corporation, UBS Securities LLC and Lehman Brothers Inc.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.
"interest" means, with respect to the Securities, the sum of
any cash interest and any Additional Interest on the Securities.
"Interest Payment Date" means each semiannual interest payment
date on February 15 and August 15 of each year, commencing February 15, 1998.
"Interest Rate Protection Obligations" means, with respect to
any Person, the Obligations of such Person under (i) interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements,
and (ii) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Interest Record Date" for the interest payable on any
Interest Payment Date (except a date for payment of defaulted interest) means
the February 1 or August 1 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.
"Investment" means, with respect to any Person, any direct or
indirect loan, advance, guarantee or other extension of credit or capital
contribution to (by means of transfers of cash or other property or assets to
others or payments for property or services for the account or use of others, or
otherwise), or purchase or acquisition of capital stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any other
Person. The amount of any Investment shall be the original cost of such
Investment, plus the cost of all additions thereto, and minus the amount of any
portion of such Investment repaid to such Person in cash as a repayment of
principal or a return of capital, as the case may be, but without any other
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment. In determining the amount of any
investment involving a transfer of any property or asset other than cash, such
property shall be valued at its Fair Market Value at the time of such transfer.
"Investments" shall exclude extensions of trade credit in the ordinary course of
business in accordance with normal trade practices.
"Issue Date" means the original issue date of the Securities.
"Judgment Currency" see Section 10.15.
"Latest Balance Sheet" means, of any Person, the latest
consolidated balance sheet of such Person reported on by a recognized firm of
independent accountants without qualification as to scope; provided, however,
that such balance sheet is as of a date within the past 135 days.
<PAGE> 16
-10-
"Lien" means any lien, mortgage, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof, and any agreement to give any security interest).
"Maturity Date" means the date, which is set forth on the face
of the Securities, on which the Securities will mature.
"Measurement Period" has the meaning set forth in the
definition of "Debt to Annualized Operating Cash Flow Ratio" above.
"Monetization Sale" see Section 4.16.
"Net Cash Proceeds" means the aggregate proceeds in the form
of cash or Cash Equivalents received by the Company or any Restricted Subsidiary
in respect of any Asset Sale, including all cash or Cash Equivalents received
upon any sale, liquidation or other exchange of proceeds of Asset Sales received
in a form other than cash or Cash Equivalents, net of (a) the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Subsidiaries, the portion of such cash payments
attributable to Persons holding a minority interest in such Subsidiary.
"Non-U.S. Person" means a person who is not a U.S. Person, as
defined in Regulation S.
"Obligations" means any principal, interest (including,
without limitation, post-petition interest), penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer
to Purchase" below.
"Offer to Purchase" means a written offer (the "Offer") sent
by or on behalf of the Company by first-class mail, postage prepaid, to each
holder at his address appearing in the register for the Securities on the date
of the Offer offering to purchase up to the principal amount of Securities
specified in such Offer at the purchase price specified in such Offer (as
determined pursuant to the Indenture). Unless otherwise required by applicable
law, the Offer shall specify an expiration date (the "Expiration Date") of the
Offer to Purchase, which shall be not less than 20 Business Days nor more than
90 days after the date of such Offer, and a settlement date (the "Purchase
Date") for purchase of Securities to occur no later than five Business Days
after the Expiration Date. The Company shall notify the Trustee at least 15
Business Days (or such shorter period as is acceptable to the Trustee) prior to
the mailing of the Offer of the Company's obligation to make an Offer to
Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. The Offer
shall contain all the information required by applicable law to be included
therein. The Offer shall contain all instructions and materials necessary to
enable such Holders to tender Securities pursuant to the Offer to Purchase. The
Offer shall also state:
<PAGE> 17
-11-
(1) the Section of this Indenture pursuant to which the Offer
to Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding
Securities offered to be purchased by the Company pursuant to the Offer
to Purchase (including, if less than 100%, the manner by which such
amount has been determined pursuant to the Section of this Indenture
requiring the Offer to Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each
$1,000 aggregate principal amount of Securities accepted for payment
(as specified pursuant to the Indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the
Securities registered in the name of such holder and that any portion
of a Security tendered must be tendered in an integral multiple of
$1,000 principal amount at maturity;
(6) the place or places where Securities are to be surrendered
for tender pursuant to the Offer to Purchase;
(7) that interest on any Security not tendered or tendered but
not purchased by the Company pursuant to the Offer to Purchase will
continue to accrue;
(8) that on the Purchase Date the Purchase Price will become
due and payable upon each Security being accepted for payment pursuant
to the Offer to Purchase and that interest thereon shall cease to
accrue on and after the Purchase Date;
(9) that each holder electing to tender all or any portion of
a Security pursuant to the Offer to Purchase will be required to
surrender such Security at the place or places specified in the Offer
prior to the close of business on the Expiration Date (such Security
being, if the Company or the Trustee so requires, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the holder thereof or his
attorney duly authorized in writing);
(10) that holders will be entitled to withdraw all or any
portion of Securities tendered if the Company (or its Paying Agent)
receives, not later than the close of business on the fifth Business
Day next preceding the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the
principal amount of the Security the holder tendered, the certificate
number of the Security the holder tendered and a statement that such
holder is withdrawing all or a portion of his tender;
(11) that (a) if Securities in an aggregate principal amount
less than or equal to the Purchase Amount are duly tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase
all such Securities and (b) if Securities in an aggregate principal
amount in excess of the Purchase Amount are tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase
Securities having an aggregate principal amount equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Securities in denominations of $1,000
principal amount at maturity or integral multiples thereof shall be
purchased); and
<PAGE> 18
-12-
(12) that in the case of any holder whose Security is
purchased only in part, the Company shall execute and the Trustee shall
authenticate and deliver to the holder of such Security without service
charge, a new Security or Securities, of any authorized denomination as
requested by such holder, in an aggregate principal amount equal to and
in exchange for the unpurchased portion of the Security so tendered.
An Offer to Purchase shall be governed by and effected in
accordance with the provisions above pertaining to any Offer.
"Officer" means the Chairman, any Vice Chairman, the
President, any Vice President, the Chief Financial Officer, the Treasurer, or
the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of
the Company complying with Sections 10.04 and 10.05.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company.
"Other Debt" see Section 4.16.
"Participant" see Section 2.15.
"Permitted Holders" means GTS or any of its Affiliates.
"Permitted Investments" means (a) Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (c) loans and advances to employees made in the ordinary course of
business not to exceed $3,000,000 in the aggregate at any one time outstanding;
(d) Interest Rate Protection Obligations and Currency Agreements permitted under
Section 4.12; (e) bonds, notes, debentures or other securities received as a
result of Asset Sales permitted under Section 4.16; (f) transactions with
officers, directors and employees of the Company or any Restricted Subsidiary
entered into in the ordinary course of business (including compensation or
employee benefit arrangements with any such director or employee) and consistent
with past business practices; (g) Investments made in the ordinary course of
business and on ordinary business terms as partial payment for constructing a
network relating principally to a Telecommunications Business; (h) Investments
in any Restricted Subsidiary; (i) intercompany Indebtedness to the extent
permitted under Section 4.12(b)(v); (i) Investments by the Company or any
Restricted Subsidiary in another Person, if as a result of such Investment (x)
such other Person becomes a Restricted Subsidiary or (y) such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Restricted Subsidiary; and
(j) Investments in evidences of Indebtedness, securities or other property
received from another Person by the Company or any Restricted Subsidiary in
connection with any bankruptcy proceeding or by reason of a composition or
readjustment of debt or a reorganization of such Person or as a result of
foreclosure, perfection or enforcement of any Lien in exchange for evidences of
Indebtedness, securities or other property of such Person held by the Company or
any Restricted Subsidiary, or for other liabilities or obligations of such other
Person to the Company or any Restricted Subsidiary that were created in
accordance with the terms of this Indenture.
"Permitted Liens" means (a) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Company
or any Restricted Subsidiary; provided, however, that such
<PAGE> 19
-13-
Liens were in existence prior to the contemplation of such merger or
consolidation and do not secure any property or assets of the Company or any
Restricted Subsidiary other than the property or assets subject to the Liens
prior to such merger or consolidation; (b) Liens existing on the Issue Date; (c)
Liens securing Indebtedness consisting of Capitalized Lease Obligations,
mortgage financings, industrial revenue bonds or other monetary obligations, in
each case incurred solely for the purpose of financing all or any part of the
purchase price or cost of construction or installation of assets used in the
business of the Company or any Restricted Subsidiary, or repairs, additions or
improvements to such assets; provided, however, that (I) such Liens secure
Indebtedness in an amount not in excess of the original purchase price or the
original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with the
Incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or any Restricted Subsidiary (and, in the case of repair,
addition or improvements to any such assets, such Lien extends only to the
assets (and improvements thereto or thereon) repaired, added to or improved),
(III) the Incurrence of such Indebtedness is permitted by Section 4.12 and (IV)
such Liens attach within 90 days of such purchase, construction, installation,
repair, addition or improvement; (d) Liens to secure any Refinancings, in whole
or in part, of any Indebtedness secured by Liens referred to in the clauses
above so long as such Lien does not extend to any other property (other than
improvements thereto); (e) Liens securing letters of credit entered into in the
ordinary course of business and consistent with past business practice; (f)
Liens on and pledges of the capital stock of any Unrestricted Subsidiary
securing any Indebtedness of such Unrestricted Subsidiary; (g) Liens on any
property or assets of a Restricted Subsidiary granted in favor of and held by
the Company or any Restricted Subsidiary; (h) Liens on any property or assets of
the Company or any Restricted Subsidiary securing on a pari passu basis all of
the Securities; (i) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of the Company or any Restricted Subsidiary and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings; (j) Liens for taxes, assessments, government charges or
claims that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (k) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory obligations, surety and appeal
bonds, government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts for the
payment of money); (l) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with the
business of the Company or any Restricted Subsidiary incurred in the ordinary
course of business; (m) Liens arising by reason of judgment, decree or order of
any court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired; (n) Liens
securing Qualified Subsidiary Indebtedness to the extent permitted to be
Incurred under Section 4.12; (o) Liens securing Indebtedness under Interest Rate
Protection Obligations or Indebtedness under Currency Agreements to the extent
permitted to be Incurred under Section 4.12; and (p) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security.
"Permitted Refinancing" means, with respect to any
Indebtedness, Indebtedness to the extent representing a Refinancing of such
Indebtedness; provided, however, that (1) the Refinancing Indebtedness shall not
exceed the sum of the amount of the Indebtedness being Refinanced, plus the
amount of accrued interest or dividends thereon, the amount of any reasonably
determined prepayment premium necessary to accomplish such Refinancing and
reasonable fees and expenses incurred in connection therewith; (2) the
Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of the Indebtedness being
Refinanced and shall not permit redemption or other re-
<PAGE> 20
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tirement (including pursuant to any required offer to purchase to be made by the
Company or any Restricted Subsidiary) of such Indebtedness at the option of the
holder thereof prior to the final stated maturity of the Indebtedness being
Refinanced, other than a redemption or other retirement at the option of the
holder of such Indebtedness (including pursuant to a required offer to purchase
made by the Company or a Restricted Subsidiary) upon a change of control of the
Company pursuant to provisions substantially similar to those under Section
4.10; (3) Indebtedness that ranks pari passu with the Securities may be
Refinanced only with Indebtedness that is made pari passu with or subordinate in
right of payment to the Securities, and Indebtedness that is subordinated in
right of payment to the Securities may be Refinanced only with Indebtedness that
is subordinate in right of payment to the Securities on terms no less favorable
to the Holders than those contained in the Indebtedness being Refinanced; and
(4) the Refinancing Indebtedness shall be Incurred by the obligor on the
Indebtedness being Refinanced or by the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, limited
liability partnership, limited partnership, trust, unincorporated organization
or government or any agency or political subdivision thereof.
"Physical Securities" has the meaning set forth in Section
2.01.
"Preferred Equity Interest" in any Person, means an Equity
Interest of any class or classes (however designated) which is preferred as to
the payment of dividends or distributions, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over Equity Interests of any other class in such Person.
"principal" of a debt security means the principal of the
security, plus, when appropriate, the premium, if any, on the security.
"Private Placement Legend" means the legend initially set
forth on the Series A Securities in the form set forth on Exhibit A hereto.
"Public Equity Offering" means an underwritten public offering
of common Equity Interests of the Company pursuant to an effective registration
statement filed under the Securities Act (excluding registration statements
filed on Form S-8).
"Purchase Amount" has the meaning set forth in the definition
of "Offer to Purchase" above.
"Purchase Date" has the meaning set forth in the definition of
"Offer to Purchase" above.
"Purchase Price" has the meaning set forth in the definition
of "Offer to Purchase" above.
"QIB Global Security" see Section 2.01.
"Qualified Equity Interest" means any Equity Interest of the
Company other than any Disqualified Equity Interest.
"Qualified Institutional Buyer" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
<PAGE> 21
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"Qualified Subsidiary Indebtedness" means (i) Indebtedness of
Restricted Subsidiaries under one or more senior credit agreements, senior loan
agreements or similar senior facilities, secured or unsecured, entered into from
time to time, including any related notes, guarantees collateral documents,
instruments and agreements executed in connection therewith or (ii) Indebtedness
of Restricted Subsidiaries in an aggregate principal amount not to exceed $25.0
million in the aggregate at any time outstanding.
"Rating Agencies" shall mean (i) S&P and (ii) Moody's and
(iii) if S&P or Moody's or both shall not make a rating of the Securities
publicly available, a nationally recognized securities rating agency or
agencies, as the case may be, selected by the Company, which shall be
substituted for S&P or Moody's or both, as the case may be.
"Redemption Date," when used with respect to any Security to
be redeemed, means the date fixed for such redemption pursuant to this
Indenture.
"Redemption Price," when used with respect to any Security to
be redeemed, means the price fixed for such redemption pursuant to this
Indenture as set forth in the form of Security annexed hereto as Exhibit A or
Exhibit B hereto.
"Refinance" means refinance, renew, extend, replace, defease
or refund; and "Refinancing" and "Refinanced" have correlative meanings.
"Registered Exchange Offer" means the offer to exchange the
Series B Securities for all of the outstanding Series A Securities in accordance
with the Registration Rights Agreement.
"Registrar" see Section 2.03.
"Registration" means the Registered Exchange Offer by the
Company or other registration of the Series A Securities under the Securities
Act pursuant to and in accordance with the terms of the Registration Rights
Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of August 19, 1997 between the Company and the Initial
Purchasers.
"Registration Statement" means the registration statement(s)
as defined and described in the Registration Rights Agreement.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Security" see Section 2.01.
"Replacement Assets" means (x) properties and assets (other
than cash or any Equity Interests or other security) that will be used in a
Telecommunications Business of the Company and the Restricted Subsidiaries or
(y) Equity Interests of any Person engaged primarily in a Telecommunications
Business, which Person will become on the date of acquisition thereof a
Restricted Subsidiary as a result of the Company's acquiring such Equity
Interests.
"Required Filing Date" see Section 4.09.
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"Restricted Payments" see Section 4.11.
"Restricted Security" has the meaning set forth in Rule
144(a)(3) under the Securities Act or any successor to such rule; provided,
however, that the Trustee shall be entitled to request and conclusively rely
upon an Opinion of Counsel with respect to whether any Security is a Restricted
Security.
"Restricted Subsidiary" means any Subsidiary of the Company
that has not been designated by the Board of Directors of the Company, by a
resolution of the Board of Directors of the Company delivered to the Trustee, as
an Unrestricted Subsidiary pursuant to Section 4.14. Any such designation may be
revoked by a resolution of the Board of Directors of the Company delivered to
the Trustee, subject to the provisions of such covenant.
"Revocation" see Section 4.14.
"Rule 144A" means Rule 144A under the Securities Act or any
successor thereto.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Series A Securities and the Series B
Securities treated as a single class of securities, as amended or supplemented
from time to time in accordance with the terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Securities Amount" see Section 4.16.
"Securities Portion of Unutilized Net Cash Proceeds" see
Section 4.16.
"Series A Securities" means the 11-1/2% Senior Notes due 2007
of the Company issued pursuant to this Indenture and sold pursuant to the
Purchase Agreement.
"Series B Securities" means the 11-1/2% Senior Notes due 2007,
Series B, of the Company to be issued pursuant to this Indenture in exchange for
the Series A Securities pursuant to the Registered Exchange Offer and the
Registration Rights Agreement.
"Share Capital" shall mean, at any time of determination, the
stated capital of the Equity Interests (other than Disqualified Stock) and
additional paid-in capital of the Company at such time, all as determined in
accordance with GAAP.
"Significant Restricted Subsidiary" means, at any date of
determination, (a) any Restricted Subsidiary that, together with its
Subsidiaries that constitute Restricted Subsidiaries (i) for the most recent
fiscal year of the Company accounted for more than 10.0% of the consolidated
revenues of the Company and the Restricted Subsidiaries or (ii) as of the end of
such fiscal year, owned more than 10.0% of the consolidated assets of the
Company and the Restricted Subsidiaries, all as set forth on the consolidated
financial statements of the Company and the Restricted Subsidiaries for such
year prepared in conformity with GAAP, and (b) any Restricted Subsidiary which,
when aggregated with all other Restricted Subsidiaries that are not otherwise
Sig-
<PAGE> 23
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nificant Restricted Subsidiaries and as to which any event described in Section
6.01(8) or (9) has occurred and is continuing, would constitute a Significant
Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity", when used with respect to any Security or
any installment of interest thereon, means the date specified in such Security
as the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Strategic Equity Investments" means the issuance and sale of
Qualified Equity Interests to a Person that has an equity market capitalization,
a net asset value or annual revenues of at least $1.5 billion and owns and
operates business primarily in a Telecommunication Business.
"Subordinated Indebtedness" means any Indebtedness of the
Company which is expressly subordinated in right of payment to the Securities.
"Subsidiary" means, with respect to any Person, (a) any
corporation of which the outstanding Voting Equity Interests having at least a
majority of the votes entitled to be cast in the election of directors shall at
the time be owned, directly or indirectly, by such Person, or (b) any other
Person of which at least a majority of Voting Equity Interests are at the time,
directly or indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved
in or that makes any Disposition, the Person formed by or surviving such
Disposition or the Person to which such Disposition is made.
"Tax" shall mean any tax, duty, levy, impost, assessment or
other governmental charge (including penalties, interest and any other
liabilities related thereto).
"Taxing Authority" shall mean any government or political
subdivision or territory or possession of any government or any authority or
agency therein or thereof having power to tax.
"Telecommunications Acquisition" means an Acquisition of
properties or assets to be used in a Telecommunications Business or of the
Equity Interests of any Person that becomes a Restricted Subsidiary; provided,
however, that such Person's properties and assets shall consist principally of
properties or assets that will be used in a Telecommunications Business.
"Telecommunications Business" means any business owning,
constructing, financing and operating a telephone and/or communications system
located entirely in countries located in Western and Central Europe, or any
business reasonably related thereto, including, without limitation, any business
conducted by the Company or any Restricted Subsidiary on the Issue Date.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Section 77aaa-77bbbb), as amended, as in effect on the date of this Indenture
until such time as this Indenture is qualified under the TIA, and thereafter as
in effect on the date on which this Indenture is qualified under the TIA, except
in each case as provided in Section 9.03.
"Total Consolidated Indebtedness" means, as at any date of
determination, an amount equal to the aggregate amount of all Indebtedness of
the Company and the Restricted Subsidiaries, on a consolidated basis,
outstanding as of such date of determination, after giving effect to any
Incurrence of Indebtedness and the application of the proceeds therefrom giving
rise to such determination.
<PAGE> 24
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"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
department (or any successor group of the Trustee) including any vice president,
assistant vice president, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his knowledge of and familiarity
with the particular subject.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to Section 4.14. Any such designation may be revoked
by a resolution of the Board of Directors of the Company delivered to the
Trustee, subject to the provisions of Section 4.14.
"Unutilized Net Cash Proceeds" see Section 4.16(a).
"U.S. Government Obligations" means direct non-callable
obligations of, or obligations guaranteed by, the United States of America for
the payment of which guarantee or obligations the full faith and credit of the
United States is pledged.
"U.S. Person" means a "U.S. person" as defined in Rule 902
under the Securities Act or any successor to such Rule.
"Voting Equity Interests" means Equity Interests in a
corporation or other Person with voting power under ordinary circumstances
entitling the holders thereof to elect the Board of Directors or other governing
body of such corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary all of the outstanding Voting Equity Interests (other than directors'
qualifying shares) of which are owned, directly or indirectly, by the Company.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
<PAGE> 25
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"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company or any
other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles in effect from time to time, and any other reference in this
Indenture to "generally accepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Series A Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of Exhibit A hereto,
which is hereby incorporated in and expressly made a part of this Indenture. The
Series B Securities and the Trustee's certificate of authentication thereof
shall be substantially in the form of Exhibit B hereto, which is hereby
incorporated in and expressly made a part of this Indenture. The Securities may
have notations, legends or endorsements required by law, stock exchange rule or
usage. The Company and the Trustee shall approve the form of the Securities and
any notation, legend or endorse-
<PAGE> 26
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ment on them. Each Security shall be dated the date of its issuance and shall
show the date of its authentication.
Securities initially offered and sold by the Initial
Purchasers shall, unless the applicable Holder requests Securities in the form
of certificated Securities in registered form ("Physical Securities"), which
shall be in substantially the form set forth in Exhibit A hereto, be issued
initially in the form of one or more permanent Global Securities in registered
form, substantially in the form set forth in Exhibit A hereto, deposited with
the Trustee, as custodian for the Depository, and shall bear the legend set
forth in Exhibit C hereto. One or more separate Global Securities shall be
issued to represent Securities held by (i) Qualified Institutional Buyers (a
"QIB Global Security") and (ii) Persons acquiring Securities in offshore
transactions in reliance on Regulation S (a "Regulation S Global Security"). The
Company shall cause the QIB Global Securities and Regulation S Global Securities
to have separate CUSIP numbers.
Upon consummation of the Registration, Series B Securities may
be issued in the form of one or more permanent Global Securities in registered
form, substantially in the form set forth in Exhibit B hereto, deposited with
the Trustee, as custodian for the Depository, and shall bear the legend set
forth on Exhibit C hereto.
The aggregate principal amount of any Global Security may from
time to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depository, as hereinafter provided.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer shall sign and one Officer or an Assistant Secretary (each
of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to, the Securities for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Security was an Officer
at the time of such execution but no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate (i) Series A Securities for
original issue in the aggregate principal amount not to exceed $265,000,000 and
(ii) Series B Securities from time to time only in exchange for a like principal
amount of Series A Securities in accordance with the Registration Rights
Agreement, in each case upon a written order of the Company in the form of an
Officers' Certificate. The Officers' Certificate shall specify the amount of
Securities to be authenticated, the series of Securities and the date on which
the Securities are to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $265,000,000, except as
provided in Section 2.07. Upon receipt of a written order of the Company in the
form of an Officers' Certificate, the Trustee shall authenticate Securities in
substitution for Securities originally issued to reflect any name change of the
Company.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenti-
<PAGE> 27
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cate Securities whenever the Trustee may do so. Each reference in this Indenture
to authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
and Affiliates of the Company.
The Securities shall be issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough
of Manhattan, The City of New York, and, so long as the Securities are listed on
the Luxembourg Stock Exchange and the rules of such stock exchange require, in
Luxembourg where (a) Securities may be presented or surrendered for registration
of transfer or for exchange ("Registrar"), (b) Securities may be presented or
surrendered for payment ("Paying Agent") and (c) notices and demands in respect
of the Securities and this Indenture may be served. The Registrar shall keep a
register or registers of the Securities and of their transfer and exchange. The
Company, upon notice to the Trustee, may appoint one or more co-Registrars and
one or more additional Paying Agents. The term "Paying Agent" includes any
additional Paying Agent. Except as provided herein, the Company, or any
Subsidiary may act as Paying Agent, Registrar or co-Registrar.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the
provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of the
name and address of any such Agent. If the Company fails to maintain a Registrar
or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar and
Paying Agent until such time as the Trustee has resigned or a successor has been
appointed.
SECTION 2.04. Paying Agent to Hold Assets in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that each Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, or interest on, the Securities, and shall notify the
Trustee of any Default by the Company in making any such payment. The Company at
any time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent (if other than the Company), the Paying Agent shall have no further
liability for such assets. If the Company, any Subsidiary or any of their
respective Affiliates acts as Paying Agent, it shall, on or before each due date
of the principal of or interest on the Securities, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
<PAGE> 28
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SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Holders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee before each Interest Record Date and at such other times
as the Trustee may request in writing a list as of such date and in such form as
the Trustee may reasonably require of the names and addresses of Holders, which
list may be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when
Securities are presented to the Registrar or a co-Registrar with a request to
register the transfer of such Securities or to exchange such Securities for an
equal principal amount of Securities of other authorized denominations of the
same series, the Registrar or co-Registrar shall register the transfer or make
the exchange as requested if its requirements for such transaction are met;
provided, however, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's or co-Registrar's
written request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other governmental charge
payable upon exchanges or transfers pursuant to Section 2.02, 2.10, 3.06, 4.10,
4.16 or 9.05). The Registrar or co-Registrar shall not be required to register
the transfer or exchange of any Security (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Securities and ending at the close of business on the day of such mailing and
(ii) selected for redemption in whole or in part pursuant to Article Three
hereof, except the unredeemed portion of any Security being redeemed in part.
Prior to the registration of any transfer by a Holder as
provided herein, the Company, the Trustee, and any Agent of the Company shall
treat the person in whose name the Security is registered as the owner thereof
for all purposes whether or not the Security shall be overdue, and neither the
Company, the Trustee, nor any such Agent shall be affected by notice to the
contrary. Any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interests in such Global Security
may be effected only through a book-entry system maintained by the Depository
(or its agent), and that ownership of a beneficial interest in a Global Security
shall be required to be reflected in a book entry.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if
the Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements for replacement of Securities
are met. Such Holder must provide an indemnity bond or other indemnity,
sufficient in the judgment of both the Company and the Trustee, to protect the
Company, the Trustee and any Agent from any loss which any of them may suffer if
a Security is replaced and evidence to their satisfaction of the apparent loss,
destruction or theft of such Security. The Company may charge such Holder for
its reasonable out-of-pocket expenses in replacing a Security, including
reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
<PAGE> 29
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SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that
have been authenticated by the Trustee except those cancelled by it, those
delivered to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than
a mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date, Purchase Date or the Maturity Date
the Paying Agent holds money sufficient to pay all of the principal and interest
due on the Securities payable on that date, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company or any of its Affiliates shall be disregarded,
except that, for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Securities
that a Trust Officer of the Trustee actually knows are so owned shall be
disregarded.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate upon receipt of a written order of the Company
pursuant to Section 2.02 definitive Securities in exchange for temporary
Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer, exchange or payment.
The Trustee, or at the direction of the Trustee, the Registrar or the Paying
Agent, and no one else, shall cancel all Securities surrendered for transfer,
exchange, payment or cancellation and deliver to the Company such cancelled
Securities for disposal. Subject to Section 2.07, the Company may not issue new
Securities to replace Securities that it has paid or delivered to the Trustee
for cancellation. If the Company shall acquire any of the Securities, such
acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11. The
Trustee shall cancel all Securities surrendered for transfer, exchange, payment
or cancellation and shall dispose of them in accordance with its normal
procedure.
<PAGE> 30
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SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of principal or interest
on the Securities, it shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the rate per annum borne by the Securities, to the
extent lawful.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities will use one or more
"CUSIP" numbers and the Trustee shall use the appropriate CUSIP number in
notices of redemption or exchange as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice or on the
Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities. The Company shall promptly notify the Trustee
of any changes in CUSIP numbers.
SECTION 2.14. Deposit of Moneys.
Prior to 10:00 a.m. New York City time on each Interest
Payment Date, Redemption Date, Purchase Date and the Maturity Date, the Company
shall deposit with the Paying Agent in immediately available funds money
sufficient to make cash payments, if any, due on such Interest Payment Date,
Redemption Date, Purchase Date or Maturity Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date, Redemption Date, Purchase Date or Maturity Date, as the
case may be.
SECTION 2.15. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit C hereto.
Members of, or participants in, the Depository
("Participants") shall have no rights under this Indenture with respect to any
Global Security held on their behalf by the Depository, or the Trustee as its
custodian, or under such Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and Participants, the operation of
customary practices governing the exercise of the rights of a beneficial owner
of any Security.
(b) Transfers of Global Securities shall be limited to
transfers in whole, but not in part, to the Depository, its successors or their
respective nominees. Interests of beneficial owners in the Global Securities may
be transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.16. In
addition, Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in Global Securities if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Security and a successor Depository is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a request from the
Depository to issue Physical Securities.
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(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and make available for delivery, to
each beneficial owner identified by the Depository in exchange for its
beneficial interest in the Global Securities, an equal aggregate principal
amount of Physical Securities of authorized denominations.
(d) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) of this Section 2.15 shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend.
(e) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is entitled to
take under this Indenture or the Securities.
SECTION 2.16. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Securities. When
Physical Securities are presented to the Registrar or co-Registrar with a
request:
(i) to register the transfer of the Physical Securities; or
(ii) to exchange such Physical Securities for an equal
principal amount of Physical Securities of other authorized
denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; provided, however, that the Physical
Securities presented or surrendered for registration of transfer or exchange:
(I) shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Registrar or
co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(II) in the case of Physical Securities of Series A Securities,
such Physical Securities shall be accompanied, in the sole discretion
of the Company, by the following additional information and documents,
as applicable:
(A) if such Physical Security is being delivered to the
Registrar or co-Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification from such Holder to that
effect (substantially in the form of Exhibit D
hereto); or
(B) if such Physical Security is being transferred to a
Qualified Institutional Buyer in accordance with Rule
144A, a certification to that effect (substantially
in the form of Exhibit D hereto); or
(C) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a
certification to that effect (substantially in the
form of Exhibit D hereto) and a transferee
certificate for Institutional Accredited Investors
substantially
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in the form of Exhibit E hereto and an Opinion of
Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the
Securities Act; or
(D) if such Physical Security is being transferred in
reliance on Regulation S, delivery of a certification
to that effect (substantially in the form of Exhibit
D hereto) and a transferor certificate for Regulation
S transfers substantially in the form of Exhibit F
hereto and an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(E) if such Physical Security is being transferred in
reliance on Rule 144 under the Securities Act,
delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and
an Opinion of Counsel reasonably satisfactory to the
Company to the effect that such transfer is in
compliance with the Securities Act; or
(F) if such Physical Security is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
to that effect (substantially in the form of Exhibit
D hereto) and an Opinion of Counsel reasonably
acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act.
(b) Restrictions on Transfer of a Physical Security for a
Beneficial Interest in a Global Security. A Physical Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Registrar
or co-Registrar of a Physical Security, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Registrar or
co-Registrar, together with:
(A) in the case of Series A Securities, certification,
substantially in the form of Exhibit D hereto, that
such Physical Security is being transferred (I) to a
Qualified Institutional Buyer, (II) to an
Institutional Accredited Investor or (III) in an
offshore transaction in reliance on Regulation S and,
with respect to (II) or (III), an Opinion of Counsel
reasonably acceptable to the Company to the effect
that such transfer is in compliance with the
Securities Act; and
(B) written instructions directing the Registrar or
co-Registrar to make, or to direct the Depository to
make, an endorsement on the applicable Global
Security to reflect an increase in the aggregate
amount of the Securities represented by the Global
Security,
then the Registrar or co-Registrar shall cancel such Physical Security and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
co-Registrar, the principal amount of Securities represented by the applicable
Global Security to be increased accordingly. If no Global Security representing
Securities held by Qualified Institutional Buyers, Institutional Accredited
Investors or Persons acquiring Securities in offshore transactions in reliance
on Regulation S, as the case may be, is then outstanding, the Company shall
issue and the Trustee shall, upon written instructions from the Company in
accordance with Section 2.02, authenticate such a Global Security in the
appropriate principal amount.
<PAGE> 33
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(c) Transfer and Exchange of Global Securities. The transfer
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor. Upon receipt by the Registrar or Co-Registrar of written instructions,
or such other instruction as is customary for the Depository, from the
Depository or its nominee, requesting the registration of transfer of an
interest in a QIB Global Security, an Accredited Investor Global Security or
Regulation S Global Security, as the case may be, to another type of Global
Security, together with the applicable Global Securities (or, if the applicable
type of Global Security required to represent the interest as requested to be
transferred is not then outstanding, only the Global Security representing the
interest being transferred), the Registrar or Co-Registrar shall cancel such
Global Securities (or Global Security) and the Company shall issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate new Global Securities of the types so cancelled (or
the type so cancelled and applicable type required to represent the interest as
requested to be transferred) reflecting the applicable increase and decrease of
the principal amount of Securities represented by such types of Global
Securities, giving effect to such transfer. If the applicable type of Global
Security required to represent the interest as requested to be transferred is
not outstanding at the time of such request, the Company shall issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate a new Global Security of such type in principal
amount equal to the principal amount of the interest requested to be
transferred.
(d) Transfer of a Beneficial Interest in a Global Security
for a Physical Security.
(i) Any Person having a beneficial interest in a Global
Security may upon request exchange such beneficial interest for a
Physical Security. Upon receipt by the Registrar or co-Registrar of
written instructions, or such other form of instructions as is
customary for the Depository, from the Depository or its nominee on
behalf of any Person having a beneficial interest in a Global Security
and upon receipt by the Trustee of a written order or such other form
of instructions as is customary for the Depository or the Person
designated by the Depository as having such a beneficial interest
containing registration instructions and, in the case of any such
transfer or exchange of a beneficial interest in Series A Securities,
the following additional information and documents:
(A) if such beneficial interest is being transferred to
the Person designated by the Depository as being the
beneficial owner, a certification from such Person to
that effect (substantially in the form of Exhibit D
hereto); or
(B) if such beneficial interest is being transferred to a
Qualified Institutional Buyer in accordance with Rule
l44A, a certification to that effect (substantially
in the form of Exhibit D hereto); or
(C) if such beneficial interest is being transferred to
an Institutional Accredited Investor, delivery of a
certification to that effect (substantially in the
form of Exhibit D hereto) and a transferee
certificate for Institutional Accredited Investors
substantially in the form of Exhibit E hereto and an
Opinion of Counsel reasonably satisfactory to the
Company to the effect that such transfer is in
compliance with the Securities Act; or
(D) if such beneficial interest is being transferred in
reliance on Regulation S, delivery of a certification
to that effect (substantially in the form of Exhibit
D hereto) and a transferor certificate for Regulation
S transfers substantially in the form of Exhibit F
<PAGE> 34
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hereto and an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(E) if such beneficial interest is being transferred in
reliance on Rule 144 under the Securities Act,
delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and
an Opinion of Counsel reasonably satisfactory to the
Company to the effect that such transfer is in
compliance with the Securities Act; or
(F) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
to that effect (substantially in the form of Exhibit
D hereto) and an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act,
then the Registrar or co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository
and the Registrar or co-Registrar, the aggregate principal amount of
the applicable Global Security to be reduced and, following such
reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate in
accordance with Section 2.02, the Trustee will authenticate and make
available for delivery to the transferee a Physical Security in the
appropriate principal amount.
(ii) Securities issued in exchange for a beneficial interest in
a Global Security pursuant to this Section 2.16(d) shall be registered
in such names and in such authorized denominations as the Depository,
pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Registrar or co-Registrar in writing. The
Registrar or co-Registrar shall deliver such Physical Securities to the
Persons in whose names such Physical Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global
Securities. Notwithstanding any other provisions of this Indenture, a Global
Security may not be transferred as a whole except by the Depository to a nominee
of the Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar or co-Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the transfer, exchange or replacement of Securities
bearing the Private Placement Legend, the Registrar or co-Registrar shall
deliver only Securities that bear the Private Placement Legend unless, and the
Trustee is hereby authorized to deliver Securities without the Private Placement
Legend if, (i) there is delivered to the Trustee an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act or (ii)
such Security has been sold pursuant to an effective registration statement
under the Securities Act (including pursuant to a Registration).
(g) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
<PAGE> 35
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The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of any
interest in any Security (including any transfers between or among Participants
or beneficial owners of interest in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.15 or this Section
2.16. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Securities pursuant to
paragraph 5 of the Securities at the applicable redemption price set forth
thereon, it shall notify the Trustee in writing of the Redemption Date and the
principal amount of Securities to be redeemed. The Company shall give such
notice to the Trustee at least 45 days before the Redemption Date (unless a
shorter notice shall be agreed to by the Trustee in writing), together with an
Officers' Certificate stating that such redemption will comply with the
conditions contained herein.
SECTION 3.02. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed pursuant
to paragraph 5(a) or (b) of the Securities, the Trustee shall select the
Securities to be redeemed in compliance with the requirements of the national
securities exchange, if any, on which the Securities are listed or, if the
Securities are not then listed on a national securities exchange, on a pro rata
basis, by lot or in such other manner as the Trustee shall deem fair and
appropriate. The Trustee shall make the selection from the Securities then
outstanding, subject to redemption and not previously called for redemption.
The Trustee may select for redemption pursuant to paragraph
5(a) or (b) of the Securities portions of the principal amount of Securities
that have denominations equal to or larger than $1,000 principal amount.
Securities and portions of them the Trustee so selects shall be in amounts of
$1,000 principal amount or integral multiples thereof. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first-class mail to each
Holder whose Securities are to be redeemed at such Holder's registered address;
provided, however, that notice of a redemption pursuant to paragraph 5(b) of the
<PAGE> 36
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Securities shall be mailed to each Holder whose Securities are to be redeemed no
later than 60 days following the consummation of the last Public Equity Offering
or Strategic Equity Investment resulting in gross cash proceeds to the Company,
when aggregated with all prior Public Equity Offerings and Strategic Equity
Investments, of at least $75.0 million.
Each notice of redemption shall identify the Securities to be
redeemed (including the CUSIP number thereon) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) the name and address of the Paying Agent to which the
Securities are to be surrendered for redemption;
(4) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(5) that, unless the Company defaults in making the
redemption payment, interest on Securities called for redemption
ceases to accrue on and after the Redemption Date and the only
remaining right of the Holders is to receive payment of the redemption
price upon surrender to the Paying Agent; and
(6) if any Security is being redeemed in part, the
portion of the principal amount of such Security to be redeemed and
that, after the Redemption Date, upon surrender of such Security, a new
Security or Securities in principal amount equal to the unredeemed
portion thereof will be issued.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price. Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price, plus accrued interest thereon, if any, to the Redemption Date,
but interest installments whose maturity is on or prior to such Redemption Date
shall be payable to the Holders of record at the close of business on the
relevant Interest Record Date.
SECTION 3.05. Deposit of Redemption Price.
Prior to 10:00 a.m. New York City time on the Redemption Date,
the Company shall deposit with the Paying Agent (or if the Company is its own
Paying Agent, shall, on or before the Redemption Date, segregate and hold in
trust) money sufficient to pay the redemption price of and accrued interest, if
any, on all Securities to be redeemed on that date other than Securities or
portions thereof called for redemption on that date which have been delivered by
the Company to the Trustee for cancellation.
If any Security surrendered for redemption in the manner
provided in the Securities shall not be so paid on the Redemption Date due to
the failure of the Company to deposit with the Paying Agent money
<PAGE> 37
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sufficient to pay the redemption price thereof, the principal and accrued and
unpaid interest, if any, thereon shall, until paid or duly provided for, bear
interest as provided in Sections 2.12 and 4.01 with respect to any payment
default.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the
Trustee shall authenticate for the Holder a new Security equal in principal
amount to the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the
Securities in the manner provided in the Securities and the Registration Rights
Agreement. An installment of principal or interest shall be considered paid on
the date due if the Trustee or Paying Agent (other than the Company, a
Subsidiary or an Affiliate of the Company) holds on that date money designated
for and sufficient to pay the installment in full and is not prohibited from
paying such money to the Holders of the Securities pursuant to the terms of this
Indenture.
The Company shall pay cash interest on overdue principal at
the same rate per annum borne by the Securities. The Company shall pay cash
interest on overdue installments of interest at the same rate per annum borne by
the Securities, to the extent lawful, as provided in Section 2.12.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The
City of New York, and, so long as the Securities are listed on the Luxembourg
Stock Exchange and the rules of such stock exchange require, in Luxembourg the
office or agency required under Section 2.03. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the address of the Trustee set forth in Section 10.02 hereof. The
Company hereby initially designates (i) the Trustee at its address set forth in
Section 10.02 hereof as its office or agency in The Borough of Manhattan, The
City of New York, for such purposes and (ii) Banque Internationale a Luxembourg
S.A., at 69, route d'Esch, L-1470 Luxembourg, as its office or agency in
Luxembourg for such purposes.
SECTION 4.03. Corporate Existence.
Subject to Article Five, the Company shall do or shall cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence and the corporate, partnership or other existence of
each Restricted Subsidiary in accordance with the respective organizational
documents of each such Restricted Subsidiary and the rights (charter and
statutory) and material franchises of the Company and the Restricted
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right or franchise, or the corporate existence of any
Restricted Subsidiary, if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and the Restricted Subsidiaries, taken as a whole, and
that the loss thereof is not, and will not be, adverse in any material respect
to the Holders; provided, further, however, that a determination of the Board of
Directors of the
<PAGE> 38
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Company shall not be required in the event of a merger of one or more Wholly
Owned Restricted Subsidiaries of the Company with or into another Wholly Owned
Restricted Subsidiary of the Company or another Person, if the surviving Person
is a Wholly Owned Restricted Subsidiary of the Company organized under the laws
of the United States or a State thereof or of the District of Columbia.
SECTION 4.04. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
Restricted Subsidiary or upon the income, profits or property of the Company or
any Restricted Subsidiary and (2) all lawful claims for labor, materials and
supplies which, in each case, if unpaid, might by law become a material
liability, or Lien upon the property, of the Company or any Restricted
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate provision has been made.
SECTION 4.05. Notice of Defaults.
(a) In the event that any Indebtedness of the Company or any
of its Subsidiaries is declared due and payable before its maturity because of
the occurrence of any default (or any event which, with notice or lapse of time,
or both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or
proposes to take with respect thereto.
(b) Upon becoming aware of any Default, the Company shall
promptly deliver an Officers' Certificate to the Trustee specifying the Default.
SECTION 4.06. Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties owned by
or leased to it or any Restricted Subsidiary and used or useful in the conduct
of its business or the business of any Restricted Subsidiary to be maintained
and kept in normal condition, repair and working order and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 4.06 shall prevent the Company or any
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Directors or of the board of
directors of the Restricted Subsidiary concerned, or of an officer (or other
agent employed by the Company or of any Restricted Subsidiary) of the Company or
such Restricted Subsidiary having managerial responsibility for any such
property, desirable in the conduct of the business of the Company or any
Restricted Subsidiary, and if such discontinuance or disposal is not adverse in
any material respect to the Holders.
(b) The Company shall maintain, and shall cause the Restricted
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions,
<PAGE> 39
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self-insured amounts and co-insurance provisions, as are customarily carried by
similar businesses of similar size, including property and casualty loss, and
workers' compensation insurance.
SECTION 4.07. Compliance Certificate.
The Company shall deliver to the Trustee within 120 days after
the close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a Default
has occurred and whether or not the signers know of any Default by the Company
that occurred during such fiscal year. If they do know of such a Default, the
certificate shall describe all such Defaults, their status and the action the
Company is taking or proposes to take with respect thereto. The first
certificate to be delivered by the Company pursuant to this Section 4.07 shall
be for the fiscal year ending December 31, 1997.
SECTION 4.08. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury law or other law, which would prohibit or forgive the Company from
paying all or any portion of the principal of and/or interest, if any, on the
Securities as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) the Company hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 4.09. Provision of Financial Information.
Whether or not the Company is subject to Section 13(a) or
15(d) of the Exchange Act, or any successor provision thereto, the Company shall
file with the SEC (if permitted by SEC practice and applicable law and
regulations) the annual reports, quarterly reports and other documents which the
Company would have been required to file with the SEC pursuant to such Section
13(a) or 15(d) or any successor provision thereto if the Company were so
required, such documents to be filed with the SEC on or prior to the respective
dates (the "Required Filing Dates") by which the Company would have been
required so to file such documents if the Company were so required; provided,
however, that until the Company is subject to Section 13(a) or Section 15(d) of
the Exchange Act or any successor provisions thereto, the Required Filing Dates
for such quarterly reports shall be 75 days following the end of the applicable
fiscal quarter. The Company shall also in any event (a) within 15 days of each
Required Filing Date (whether or not permitted or required to be filed with the
SEC but subject to the proviso in the previous sentence) (i) transmit (or cause
to be transmitted) by mail to all Holders, as their names and addresses appear
in the Note register, without cost to such Holders, and (ii) file with the
Trustee, copies of the annual reports, quarterly reports and other documents
which the Company is required to file with the SEC pursuant to the preceding
sentence, or, if such filing is not so permitted, information and data of a
similar nature, and (b) if, notwithstanding the preceding sentence, filing such
documents by the Company with the SEC is not permitted by SEC practice or
applicable law or regulations, promptly upon written request supply copies of
such documents to any Holder. In addition, for so long as any Securities remain
outstanding, the Company will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial holder of Securities, if not obtainable from the SEC, information of
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the type that would be filed with the SEC pursuant to the foregoing provisions,
upon the request of any such holder.
SECTION 4.10. Change of Control.
(a) Following the occurrence of a Change of Control (the date
of such occurrence being the "Change of Control Date"), the Company shall notify
the Trustee and Holders of the Securities of such occurrence in the manner
prescribed by this Indenture and shall, within 30 days after the Change of
Control Date, make an Offer to Purchase all Securities then outstanding at a
purchase price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the Purchase Date. The
Company will cause a copy of such notice to be published in a daily newspaper
with general circulation in Luxembourg (which is expected to be the Luxembourg
Wort). The Company's obligations may be satisfied if a third party makes the
Offer to Purchase in the manner, at the times and otherwise in compliance with
the requirements of this Indenture applicable to an Offer to Purchase made by
the Company and purchases all Securities validly tendered and not withdrawn
under such Offer to Purchase. Each Holder shall be entitled to tender all or any
portion of the Securities owned by such Holder pursuant to the Offer to
Purchase, subject to the requirement that any portion of a Security tendered
must be tendered in an integral multiple of $1,000 principal amount.
(b) On or prior to the Purchase Date specified in the Offer to
Purchase, the Company shall (i) accept for payment all Securities or portions
thereof validly tendered pursuant to the Offer, (ii) deposit with the Paying
Agent or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 2.04) money sufficient to pay the Purchase Price
of all Securities or portions thereof so accepted and (iii) deliver or cause to
be delivered to the Trustee for cancellation all Securities so accepted together
with an Officers' Certificate stating the Securities or portions thereof
accepted for payment by the Company. The Paying Agent (or the Company, if so
acting) shall promptly mail or deliver to Holders of Securities so accepted,
payment in an amount equal to the Purchase Price for such Securities, and the
Trustee shall promptly authenticate and mail or deliver to each Holder of
Securities a new Security or Securities equal in principal amount to any
unpurchased portion of the Security surrendered as requested by the Holder. Any
Security not accepted for payment shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the results
of the Offer on or as soon as practicable after the Purchase Date.
(c) If the Company makes an Offer to Purchase, the Company
will comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and
any other applicable Federal or state securities laws and regulations and any
applicable requirements of any securities exchange on which the Securities are
listed, and any violation of the provisions of this Indenture relating to such
Offer to Purchase occurring as a result of such compliance shall not be deemed a
Default.
SECTION 4.11. Limitation on Restricted Payments.
The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on
any Equity Interests of the Company or any Restricted Subsidiary or
make any payment or distribution to the direct or indirect holders of
Equity Interests of the Company or any Restricted Subsidiary (other
than any dividends, distributions and payments made to the Company or
any Restricted Subsidiary and dividends or distri-
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butions payable to any Person solely in Qualified Equity Interests or
in options, warrants or other rights to purchase Qualified Equity
Interests);
(ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any Restricted Subsidiary (other
than any such Equity Interests owned by the Company or any Restricted
Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make
any principal payment on, prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated
Indebtedness (other than any Subordinated Indebtedness held by any
Restricted Subsidiary); or
(iv) make any Investment (other than Permitted Investments)
(any of the foregoing, a "Restricted Payment"), unless
(a) no Default shall have occurred and be continuing at the
time of or after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted
Payment, the Company would be able to Incur $1.00 of additional
Indebtedness under Section 4.12(a); and
(c) immediately after giving effect to such Restricted
Payment, the aggregate amount of all Restricted Payments (including the
Fair Market Value of any non-cash Restricted Payment) declared or made
on or after the Issue Date (excluding any Restricted Payment described
in clauses (ii), (iii) or (iv) of the next paragraph) does not exceed
an amount equal to the sum of the following (the "Basket"):
(1) (x) the Cumulative Operating Cash Flow determined
at the time of such Restricted Payment less (y) 150% of
cumulative Consolidated Interest Expense determined for the
period (treated as one accounting period) commencing on the
Issue Date and ending on the last day of the most recent
fiscal quarter immediately preceding the date of such
Restricted Payment for which consolidated financial
information of the Company is required to be available, plus
(2) the aggregate net cash proceeds received by the
Company either (x) as capital contributions to the Company
after the Issue Date or (y) from the issue and sale (other
than to a Subsidiary) of Qualified Equity Interests after the
Issue Date (other than any issuance and sale of Qualified
Equity Interests financed, directly or indirectly, using funds
(I) borrowed from the Company or any Subsidiary until and to
the extent such borrowing is repaid or (II) contributed,
extended, guaranteed or advanced by the Company or any
Subsidiary (including, without limitation, in respect of any
employee stock ownership or benefit plan)), plus
(3) the aggregate amount by which Indebtedness (other
than any Subordinated Indebtedness) of the Company or any
Restricted Subsidiary is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date into
Qualified Equity Interests (less the amount of any cash, or
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the fair value of property, distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange), plus
(4) in the case of the disposition or repayment of any
Investment that was treated as a Restricted Payment made after
the Issue Date, an amount (to the extent not included in the
computation of Cumulative Operating Cash Flow) equal to the
lesser of: (x) the return of capital with respect to such
Investment and (y) the amount of such Investment that was
treated as a Restricted Payment, in either case, less the cost
of the disposition of such Investment and net of taxes, plus
(5) so long as the Designation thereof was treated as
a Restricted Payment made after the Issue Date, with respect
to any Unrestricted Subsidiary that has been redesignated as a
Restricted Subsidiary after the Issue Date in accordance with
Section 4.14, the Company's proportionate interest in an
amount equal to the excess of (x) the total assets of such
Subsidiary, valued on an aggregate basis at the lesser of book
value and Fair Market Value, over (y) the total liabilities of
such Subsidiary, determined in accordance with GAAP (and
provided that such amount shall not in any case exceed the
Designation Amount with respect to such Restricted Subsidiary
upon its Designation), minus
(6) with respect to each Subsidiary of the Company
which has been designated as an Unrestricted Subsidiary after
the Issue Date in accordance with Section 4.14, the greater of
(x) $0 and (y) the Designation Amount thereof (measured as of
the Date of Designation).
Notwithstanding the foregoing, the GTS Contribution shall not
be taken into account in calculating the Basket.
The foregoing provisions will not prevent (i) the payment of
any dividend or distribution on, or redemption of, Equity Interests within 60
days after the date of declaration of such dividend or distribution or the
giving of formal notice of such redemption, if at the date of such declaration
or giving of formal notice such payment or redemption would comply with the
provisions of the Indenture; (ii) the purchase, redemption, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the net cash proceeds of the substantially concurrent (A) common equity capital
contribution to the Company from any Person (other than a Subsidiary) or (B)
issue and sale (other than to a Subsidiary) of, Qualified Equity Interests;
(iii) any Investment to the extent that the consideration therefor consists of
the net proceeds of the substantially concurrent issue and sale (other than to a
Subsidiary) of Qualified Equity Interests; (iv) the purchase, redemption,
retirement, defeasance or other acquisition of Subordinated Indebtedness made in
exchange for, or out of the net cash proceeds of, a substantially concurrent
issue and sale (other than to a Subsidiary) of, (x) Qualified Equity Interests
or (y) other Subordinated Indebtedness having no stated maturity for the payment
of principal thereof prior to the Maturity Date; or (v) any Investment in any
Person principally engaged in a Telecommunications Business; provided, however,
that Investments pursuant to this clause (v) shall not exceed $25.0 million in
the aggregate at any time outstanding; provided, further, however, that in the
case of each of clauses (ii), (iii), (iv) and (v), no Default shall have
occurred and be continuing or would arise therefrom.
SECTION 4.12. Limitation on Incurrence of Indebtedness.
(a) The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness;
provided, however, that the Company may Incur Indebtedness if,
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at the time of such Incurrence, the Debt to Annualized Operating Cash Flow Ratio
would be less than or equal to 6.0 to 1.0.
(b) The foregoing limitations of paragraph (a) of this
covenant will not apply to any of the following, each of which shall be given
independent effect:
(i) the Securities, and Permitted Refinancings thereof;
(ii) Indebtedness of the Company or any Restricted Subsidiary
to the extent outstanding on the date of the Indenture, and Permitted
Refinancings thereof;
(iii) Indebtedness of the Company or Qualified Subsidiary
Indebtedness, in each case, to the extent that the proceeds of or
credit support provided by such Indebtedness is used to finance the
cost (including the cost of design, development, construction,
installation or integration) of network assets, equipment or inventory
acquired by the Company or a Restricted Subsidiary after the Issue
Date, and Permitted Refinancings thereof;
(iv) (1) Indebtedness of the Company or Qualified Subsidiary
Indebtedness, in each case, to the extent that the proceeds of or
credit support provided by such Indebtedness is used to finance a
Telecommunications Acquisition, or working capital for, or to finance
the construction of, the business or network acquired and (2) Acquired
Indebtedness, and, in each case, Permitted Refinancings thereof, but in
each case only to the extent that (x) the aggregate amount of
Indebtedness outstanding of the Company and the Restricted Subsidiaries
after giving effect to the Incurrence of such Indebtedness and the
application of the proceeds therefrom does not exceed the product of
2.0 and the Share Capital of the Company at the date of Incurrence of
such Indebtedness or (y) the aggregate amount of such Indebtedness or
Acquired Indebtedness, together with all Indebtedness of the Person, if
any, that is to become a Restricted Subsidiary or be merged or
consolidated with or into the Company or any Restricted Subsidiary in
the contemplated transaction outstanding at the time of such
transaction (whether or not Incurred in connection with, or in
contemplation of, such transaction), does not exceed the net sum of the
plant, property and equipment set forth on the Latest Balance Sheet of
such Person;
(v) (1) Indebtedness of any Restricted Subsidiary owed to and
held by the Company or any Restricted Subsidiary and (2) Indebtedness
of the Company owed to and held by any Restricted Subsidiary which is
unsecured and subordinated in right of payment to the payment and
performance of the Company's obligations under the Securities;
provided, however, that an Incurrence of Indebtedness that is not
permitted by this clause (v) shall be deemed to have occurred upon (x)
any sale or other disposition of any Indebtedness of the Company or any
Restricted Subsidiary referred to in this clause (v) to any Person
other than the Company or any Restricted Subsidiary or (y) any
Restricted Subsidiary that holds Indebtedness of the Company or another
Restricted Subsidiary ceasing to be a Restricted Subsidiary;
(vi) Interest Rate Protection Obligations of the Company or
any Restricted Subsidiary relating to Indebtedness of the Company or
such Restricted Subsidiary, as the case may be (which Indebtedness (x)
bears interest at fluctuating interest rates and (y) is otherwise
permitted to be Incurred under this covenant); provided, however, that
the notional principal amount of such Interest Rate Protection
Obligations does not exceed the principal amount of the Indebtedness to
which such Interest Rate Protection Obligations relate;
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(vii) Indebtedness of the Company or any Restricted Subsidiary
under Currency Agreements to the extent relating to (x) Indebtedness of
the Company or such Restricted Subsidiary, as the case may be, and/or
(y) obligations to purchase assets, properties or services incurred in
the ordinary course of business of the Company or such Restricted
Subsidiary, as the case may be; provided, however, that such Currency
Agreements do not increase the Indebtedness or other obligations of the
Company and the Restricted Subsidiaries outstanding other than as a
result of fluctuations in foreign currency exchange rates or by reason
of fees, indemnities or compensation payable thereunder;
(viii) Indebtedness of the Company and/or any Restricted
Subsidiary in respect of performance bonds of the Company or any
Restricted Subsidiary or surety bonds provided by the Company or any
Restricted Subsidiary incurred in the ordinary course of business and
on ordinary business terms in connection with the construction or
operation of a Telecommunications Business; and
(ix) in addition to the items referred to in clauses (i) through
(viii) above, Indebtedness of the Company or Qualified Subsidiary
Indebtedness in an aggregate amount not to exceed $15.0 million at any
time outstanding.
(c) For purposes of determining any particular amount of
Indebtedness under this covenant, guarantees, Liens or obligations with respect
to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included; provided,
however, that the foregoing shall not in any way be deemed to limit the
provisions of Section 4.18.
(d) For purposes of determining compliance with this covenant,
in the event that an item of Indebtedness may be Incurred through the first
paragraph of this covenant or by meeting the criteria of one or more of the
types of Indebtedness described in the second paragraph of this covenant (or the
definitions of the terms used therein), the Company, in its sole discretion may,
at the time of such Incurrence, (i) classify such item of Indebtedness under and
comply with either of such paragraphs (or any of such definitions), as
applicable, (ii) classify and divide such item of Indebtedness into more than
one of such paragraphs (or definitions), as applicable, and (iii) elect to
comply with such paragraphs (or definitions), as applicable, in any order.
SECTION 4.13. Limitations on Restrictions Affecting Restricted Subsidiaries.
The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (x) pay dividends or make any other
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or measured
by, its profits, or pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (y) make loans or advances to, or guarantee any
Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (z) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary.
The foregoing shall not prohibit (a) any encumbrance or
restriction existing under or by reason of any agreement in effect on the Issue
Date, as any such agreement is in effect on such date or as thereafter amended
or supplemented but only if such encumbrance or restriction is no more
restrictive than in the agreement being amended; (b) customary provisions
contained in an agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of a Restricted
Subsidiary; provided, however, that (x) such encumbrance or restriction is
applicable only to such Restricted Subsidiary or assets and (y) such sale or
disposition is made in accordance with Section 4.16; (c) any encumbrance or re-
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striction existing under or by reason of applicable law; (d) customary
provisions restricting subletting or assignment of any lease governing any
leasehold interest of any Restricted Subsidiary; (e) covenants in purchase money
obligations for property acquired in the ordinary course of business restricting
transfer of such property; (f) covenants in security agreements securing
Indebtedness of a Restricted Subsidiary (to the extent that such Liens were
otherwise incurred in accordance with Section 4.15) that restrict the transfer
of property subject to such agreements; (g) any agreement or other instrument of
a Person acquired by the Company or any Restricted Subsidiary in existence at
the time of such acquisition, which encumbrance or restriction (x) is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the properties or assets of the Person so acquired, and (y) is
not incurred in connection with or in contemplation of such acquisition; or (h)
contained in any agreement entered into after the Issue Date, so long as such
encumbrance or restriction is not materially more disadvantageous to the Holders
than the encumbrances and restrictions in existence at the Issue Date.
SECTION 4.14. Designation of Unrestricted Subsidiaries.
(a) The Company may designate any Subsidiary of the Company as
an "Unrestricted Subsidiary" under this Indenture (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the
time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such
Designation, the Company could Incur $1.00 of additional Indebtedness
under Section 4.12(a); and
(iii) the Company would be permitted to make an Investment
(other than a Permitted Investment) at the time of Designation
(assuming the effectiveness of such Designation) pursuant to the first
paragraph of Section 4.11 in an amount (the "Designation Amount") equal
to the Fair Market Value of the Company's proportionate interest in the
net worth of such Subsidiary on such date calculated in accordance with
GAAP.
All Subsidiaries of Unrestricted Subsidiaries shall be
Unrestricted Subsidiaries.
The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, at any time (x) provide credit
support for, subject any of its properties or assets (other than the Equity
Interests of any Unrestricted Subsidiary) to the satisfaction of, or guarantee,
any Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted Subsidiary.
(b) The Company may revoke any Designation of a Subsidiary as
an Unrestricted Subsidiary (a "Revocation") only if:
(i) no Default shall have occurred and be continuing at the
time of and after giving effect to such Revocation;
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(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of the
Indenture; and
(iii) any transaction (or series of related transactions) between
such Subsidiary and any of its Affiliates that occurred while such
Subsidiary was an Unrestricted Subsidiary would be permitted by Section
4.17 as if such transaction (or series of related transactions) had
occurred at the time of such Revocation (after giving effect to any
modification to such transaction (or series of related transactions)
effective at such time).
All Designations and Revocations must be evidenced by
resolutions of the Board of Directors of the Company, delivered to the Trustee
certifying compliance with the foregoing provisions.
SECTION 4.15. Limitation on Liens.
The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, Incur any Lien (other than any
Permitted Lien) of any kind against or upon any of their respective properties
or assets now owned or hereafter acquired, or any proceeds, income or profits
therefrom, unless contemporaneously therewith or prior thereto, (i) in the case
of any Lien securing an obligation that ranks pari passu with the Securities,
effective provision is made to secure the Securities equally and ratably with or
prior to such obligation with a Lien on the same collateral and (ii) in the case
of any Lien securing an obligation that is subordinated in right of payment to
the Securities, effective provision is made to secure the Securities with a Lien
on the same collateral that is prior to the Lien securing such subordinated
obligation, in each case, for so long as such obligation is secured by such
Lien.
SECTION 4.16. Limitation on Asset Sales.
The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, make any Asset Sale, unless
(x) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of and (y) at least 75% of such
consideration consists of (i) cash or Cash Equivalents, (ii) Replacement Assets,
(iii) publicly traded Equity Interests of a Person who is engaged primarily in a
Telecommunications Business; provided, however, that the Company or such
Restricted Subsidiary shall sell (a "Monetization Sale"), for cash or Cash
Equivalents, such Equity Interests to a third Person (other than to the Company
or a Subsidiary thereof) at a price not less than the Fair Market Value thereof
within 365 days of the consummation of such Asset Sale, or (iv) any combination
of the foregoing clauses (i) through (iii). The amount of any (x) Indebtedness
(other than any Subordinated Indebtedness) of the Company or any Restricted
Subsidiary that is actually assumed by the transferee in such Asset Sale and
from which the Company and the Restricted Subsidiaries are fully released shall
be deemed to be cash for purposes of determining the percentage of cash
consideration received by the Company or such Restricted Subsidiary and (y)
notes or other similar obligations received by the Company or any Restricted
Subsidiary from such transferee that are immediately converted, sold or
exchanged (or are converted, sold or exchanged within 365 days of the related
Asset Sale) by the Company or any Restricted Subsidiary into cash shall be
deemed to be cash, in an amount equal to the net cash proceeds realized upon
such conversion, sale or exchange for purposes of determining the percentage of
cash consideration received by the Company or such Restricted Subsidiary. Any
Net Cash Proceeds from any Asset Sale or any Monetization Sale that are not
invested in Replacement Assets or used to repay and permanently reduce the
commitments under Indebtedness of any Restricted Subsidiary within 365 days of
the
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consummation of such Asset Sale or Monetization Sale shall constitute "Excess
Proceeds" subject to disposition as provided below.
Within 40 days after the aggregate amount of Excess Proceeds
equals or exceeds $10.0 million, the Company shall make an Offer to Purchase,
from all Holders, that aggregate principal amount of Securities as can be
purchased with the Note Portion of Excess Proceeds at a price in cash equal to
100% of the principal amount thereof, plus accrued and unpaid interest, if any,
to any purchase date. To the extent that the aggregate amount of principal and
accrued interest of Securities validly tendered and not withdrawn pursuant to an
Offer to Purchase is less than the Excess Proceeds, the Company may use such
surplus for general corporate purposes. If the aggregate amount of principal and
accrued interest of Securities validly tendered and not withdrawn by Holders
thereof exceeds the amount of Securities that can be purchased with the Note
Portion of Excess Proceeds, Securities to be purchased will be selected pro rata
based on the aggregate principal amount of Securities tendered by each Holder.
Upon completion of an Offer to Purchase, the amount of Excess Proceeds with
respect to the applicable Asset Sale or Monetization Sale shall be reset to
zero.
In the event that any other Indebtedness of the Company that
ranks pari passu with the Securities (the "Other Debt") requires an offer to
purchase to be made to repurchase such Other Debt upon the consummation of an
Asset Sale, the Company may apply the Excess Proceeds otherwise required to be
applied to an Offer to Purchase to offer to purchase such Other Debt and to an
Offer to Purchase so long as the amount of such Excess Proceeds applied to
purchase the Securities is not less than the Note Portion of Excess Proceeds.
With respect to any Excess Proceeds, the Company shall make the Offer to
Purchase in respect thereof at the same time as the analogous offer to purchase
is made pursuant to any Other Debt and the Purchase Date in respect thereof
shall be the same as the purchase date in respect thereof pursuant to any Other
Debt.
For purposes of this covenant, "Note Portion of Excess
Proceeds" means (1) if no Other Debt is being offered to be purchased, the
amount of the Excess Proceeds and (2) if Other Debt is being offered to be
purchased, the amount of the Excess Proceeds equal to the product of (x) the
Excess Proceeds and (y) a fraction the numerator of which is the aggregate
amount of all Securities tendered pursuant to the Offer to Purchase related to
such Excess Proceeds (the "Note Amount") and the denominator of which is the sum
of the Note Amount and the aggregate amount as of the relevant purchase date of
all Other Debt tendered and purchased pursuant to a concurrent offer to purchase
such Other Debt made at the time of such Offer to Purchase.
In the event that the Company makes an Offer to Purchase the
Securities, the Company shall comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act, and any violation of the provisions of the
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed a Default or an Event of Default.
SECTION 4.17. Limitation on Transactions with Affiliates.
The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, conduct any business or enter
into any transaction or series of related transactions with or for the benefit
of any Affiliate, any holder of 5% or more of any class of Equity Interests or
any officer, director or employee of the Company or any Restricted Subsidiary
(each, an "Affiliate Transaction"), unless such Affiliate Transaction is on
terms that are no less favorable to the Company or such Restricted Subsidiary,
as the case may be, than could reasonably be obtained at such time in a
comparable transaction with an unaffiliated third party. For any such
transaction that involves value in excess of $5.0 million, the Company shall
deliver to the
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Trustee an Officers' Certificate stating that a majority of the Disinterested
Directors has determined that the transaction satisfies the above criteria and
shall evidence such a determination by a Board Resolution delivered to the
Trustee. For any such transaction that involves value in excess of $12.5
million, the Company shall also obtain a written opinion from an Independent
Financial Advisor to the effect that such transaction is fair, from a financial
point of view, to the Company or such Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in
this covenant shall not apply to (i) transactions between or among the Company
and one or more Restricted Subsidiaries or between or among Restricted
Subsidiaries; (ii) customary directors' fees, indemnification and similar
arrangements, employee salaries, bonuses or employment agreements, compensation
or employee benefit arrangements and incentive arrangements with any officer,
director or employee of the Company or any Restricted Subsidiary entered into in
the ordinary course of business (including customary benefits thereunder); (iii)
transactions pursuant to agreements in effect on the Issue Date, as such
agreements are in effect on the Issue Date or as thereafter amended or
supplemented in a manner not adverse to the Holders; (iv) loans and advances to
officers, directors and employees of the Company or any Restricted Subsidiary
for travel, entertainment, moving and other relocation expenses, in each case
made in the ordinary course of business and consistent with past business
practices; (v) any transactions between the Company or any Restricted
Subsidiary, on the one hand, and any Affiliate of the Company engaged primarily
in a Telecommunications Business, on the other hand, (x) in the ordinary course
of business and consistent with commercially reasonable practices or (y)
approved by a majority of the Disinterested Directors; (vi) any payment pursuant
to any tax sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; provided that such payment is not greater
than that which the Company would be required to pay as a stand-alone taxpayer;
(vii) the pledge of Equity Interests of Unrestricted Subsidiaries to support the
Indebtedness thereof; and (viii) payment of dividends in respect of Equity
Interests of the Company or any Restricted Subsidiary permitted under Section
4.11.
SECTION 4.18. Limitation on Issuances of Guarantees by Restricted Subsidiaries.
The Company shall not cause or permit any Restricted
Subsidiary, directly or indirectly, to guarantee any Indebtedness of the Company
("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
pursuant to which such Restricted Subsidiary guarantees (a "Subsidiary
Guarantee") all of the Company's obligations under the Securities and the
Indenture and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee. If the Guaranteed Indebtedness is (A)
pari passu with the Securities, then the guarantee of such Guaranteed
Indebtedness shall be pari passu with, or subordinated to, the Subsidiary
Guarantee or (B) subordinated to the Securities, then the guarantee of such
Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to the
Securities.
Any Subsidiary Guarantee by a Restricted Subsidiary shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Equity Interests of the Company or any
Restricted Subsidiary in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is made in accordance
with this Indenture) or (ii) the release or discharge of the guarantee which
resulted in the creation of such Subsidiary Guarantee, except a discharge or
release by or as a result of payment under such guarantee.
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SECTION 4.19. Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries.
The Company shall not sell, and shall not cause or permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any Equity
Interests of a Restricted Subsidiary, except (i) to the Company or a Wholly
Owned Restricted Subsidiary; (ii) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary; or (iii) in the case of issuance of Equity Interests by a
non-Wholly Owned Restricted Subsidiary if, after giving effect to such issuance,
the Company maintains its direct or indirect percentage of beneficial and
economic ownership of such non-Wholly Owned Restricted Subsidiary.
SECTION 4.20. Additional Amounts.
(a) All payments made by the Company under or with respect to
the Securities will be made free and clear of and without withholding or
deduction for or on account of any present of future Taxes imposed or levied by
or on behalf of any Taxing Authority within the Netherlands, or within any other
jurisdiction in which the Company is organized or engaged in business for tax
purposes, unless the Company is required to withhold or deduct Taxes by law or
by the interpretation or administration thereof. If the Company is required to
withhold or deduct any amount for or on account of Taxes imposed by a Taxing
Authority within the Netherlands, or within any other jurisdiction in which the
Company is organized or engaged in business for tax purposes, from any payment
made under or with respect to the Securities, the Company will pay such
additional amounts ("Additional Amounts") as may be necessary so that the net
amount received by each holder of Securities (including Additional Amounts)
after such withholding or deduction will equal the amount the holder would have
received if such Taxes had not been withheld or deducted; provided, however,
that no Additional Amounts will be payable with respect to any Tax that would
not have been imposed, payable or due (i) but for the existence of any present
or former connection between the holder (or the beneficial owner of, or person
ultimately entitled to obtain an interest in, such Securities) and the
Netherlands or other jurisdiction in which the Company is organized or engaged
in business for tax purposes other than the mere holding of the Securities; (ii)
but for the failure to satisfy any certification, identification or other
reporting requirements whether imposed by statute, treaty, regulation or
administrative practice, provided that the Company has delivered a request to
the holder to comply with such requirements at least 30 days prior to the date
by which such compliance is required; (iii) if the presentation of Securities
(where presentation is required) for payment has occurred within 30 days after
the date such payment was due and payable or was duly provided for, whichever is
later; or (iv) if the beneficial owner of, or person ultimately entitled to
obtain an interest in, such Securities had been the holder of the Securities and
would not be entitled to the payment of Additional Amounts (excluding the impact
of the book-entry procedures described in Section 2.15). In addition, Additional
Amounts will not be payable with respect to any Tax which is payable otherwise
than by withholding from payments of, or in respect of principal of, or any
interest on, the Securities.
SECTION 4.21. Deposit of Funds with Escrow Agent.
(a) On the Issue Date, the Company shall deposit with the
Escrow Agent funds that together with the proceeds from the investment thereof
will be sufficient to pay the first four scheduled interest payments on the
Securities (excluding any Additional Amounts or Additional Interest). All
Collateral shall be held in the Escrow Account until permitted to be disbursed
pursuant to the Escrow Agreement and then shall be disbursed strictly in
accordance with the terms thereof.
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(b) Pending release of the Escrow Funds as provided in the
Escrow Agreement, the Escrow Funds will be invested in Cash Equivalents as
specifically directed in writing by the Company. Any interest or other profit
resulting from such investment will be deposited in the Escrow Account.
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Sale of Assets, etc.
The Company shall not consolidate with or merge with or into
(whether or not the Company is the Surviving Person) any other Person and the
Company shall not, and shall not cause or permit any Restricted Subsidiary to,
sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of the property and assets of the Company and the Restricted
Subsidiaries, taken as a whole, to any Person or Persons (other than any
Restricted Subsidiary), in each case, in a single transaction or series of
related transactions, unless: (i) either (x) the Company shall be the Surviving
Person or (y) the Surviving Person (if other than the Company) shall be a
corporation organized and validly existing under the laws of The Netherlands,
the United States of America or any State thereof or the District of Columbia,
and shall, in any such case, expressly assume by a supplemental indenture, the
due and punctual payment of the principal of and interest on the Securities and
the performance and observance of every covenant of this Indenture, the Escrow
Agreement and the Registration Rights Agreement to be performed or observed on
the part of the Company; (ii) immediately after giving effect to such
transaction, no Default shall have occurred and be continuing; and (iii)
immediately after giving effect to such transaction, the Surviving Person (as
the Company) could Incur at least $1.00 of additional Indebtedness under Section
4.12(a).
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all the properties and assets of one or
more Restricted Subsidiaries the Equity Interests of which constitutes all or
substantially all the properties and assets of the Company shall be deemed to be
the transfer of all or substantially all the properties and assets of the
Company.
SECTION 5.02. Successor Corporation Substituted.
In the event of any transaction (other than a lease) described
in and complying with the conditions listed in the first paragraph of this
covenant in which the Company is not the Surviving Person and the Surviving
Person is to assume all the Obligations of the Company under the Securities,
this Indenture, the Escrow Agreement and the Registration Rights Agreement
pursuant to a supplemental indenture, such Surviving Person shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
and the Company shall be discharged from its Obligations under the Securities,
this Indenture, the Escrow Agreement and the Registration Rights Agreement.
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ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default" for
purposes of this Indenture:
(1) failure to pay principal of any Security when due;
(2) failure to pay any interest on any Security when due,
continued for 30 days or more;
(3) failure to pay on the Purchase Date the Purchase Price for
any Security validly tendered pursuant to an Offer to Purchase;
(4) failure to perform or comply with any of the provisions of
Section 5.01;
(5) failure to perform any other covenant, warranty or
agreement of the Company under this Indenture or the Escrow Agreement
or in the Securities, and the Default continues for the period and
after the notice specified in the last paragraph of this Section 6.01;
(6) there shall be, with respect to any issue or issues of
Indebtedness of the Company or any Restricted Subsidiary having an
outstanding principal amount of $10.0 million or more in aggregate for
such issues of all such Persons, whether such Indebtedness now exists
or shall hereafter be created, (x) an event of default that has caused
the holders thereof (or their representative) (I) to declare such
Indebtedness to be due and payable prior to its scheduled maturity and
such Indebtedness has not been discharged in full or such acceleration
has not been rescinded or annulled within 45 days following such
acceleration and/or (II) to commence judicial proceeding to foreclose
upon, or to exercise remedies under applicable law or applicable
security documents to take ownership of, the property or assets
securing such Indebtedness and/or (y) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such
defaulted payment shall not have been made, waived or extended within
45 days of such payment default;
(7) there shall have been any final judgment or judgments
against the Company or any Restricted Subsidiary in an amount of $10.0
million or more which remain undischarged or unstayed for a period of
60 consecutive days;
(8) the Company or any Significant Restricted Subsidiary
pursuant to or within the meaning of any Bankruptcy Law:
(A) admits in writing its inability to pay its debts
generally as they become due,
(B) commences a voluntary case or proceeding,
(C) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
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(D) consents or acquiesces in the institution of a
bankruptcy or insolvency proceeding against it,
(E) consents to the appointment of a Custodian of it
or for all or substantially all of its property, or
(F) makes a general assignment for the benefit of its
creditors, or any of them takes any action to authorize or
effect any of the foregoing;
(9) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Restricted Subsidiary in an involuntary case or
proceeding,
(B) appoints a Custodian of the Company or any
Significant Restricted Subsidiary or for all or substantially
all of its property, or
(C) orders the liquidation of the Company or any
Significant Restricted Subsidiary, and in each case the order
or decree remains unstayed and in effect for 60 days;
provided, however, that if the entry of such order or decree
is appealed and dismissed on appeal, then the Event of Default
hereunder by reason of the entry of such order or decree shall
be deemed to have been cured; or
(10) the Company challenges the Lien on the Collateral under
the Escrow Agreement prior to such time as the Collateral is to be
released to the Company, or the Collateral becomes subject to any Lien
other than the Lien under the Escrow Agreement.
The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal, state or foreign law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
A Default under clause (5) is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the outstanding Securities notify the Company and the
Trustee, of the Default in writing and the Company does not cure the Default
within 30 days after receipt of the notice. The notice must specify the Default,
demand that it be remedied and state that the notice is a "Notice of Default."
Such notice shall be given by the Trustee if so requested by the Holders of at
least 25% in principal amount of the Securities then outstanding. When a Default
is cured, it ceases.
SECTION 6.02. Acceleration.
If an Event of Default with respect to the Securities (other
than an Event of Default specified in clause (8) or (9) of Section 6.01 with
respect to the Company) occurs and is continuing, the Trustee or the Holders of
at least 25% in aggregate principal amount of the outstanding Securities by
notice in writing to the Company may declare the unpaid principal of and accrued
interest to the date of acceleration on all outstanding Securities to be due and
payable immediately and, upon any such declaration, such principal amount and
accrued interest, notwithstanding anything contained in this Indenture or the
Securities to the contrary, shall become immediately due and payable.
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If an Event of Default specified in clause (8) or (9) of
Section 6.01 with respect to the Company occurs, all unpaid principal of and
accrued interest on all outstanding Securities shall ipso facto become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
After a declaration of acceleration, but before a judgment or
decree of the money due in respect of the Securities has been obtained, the
Holders of not less than a majority in aggregate principal amount of the
Securities then outstanding by written notice to the Trustee may rescind an
acceleration and its consequences if all existing Events of Default (other than
the nonpayment of principal of and interest on the Securities which has become
due solely by virtue of such acceleration) have been cured or waived and if the
rescission would not conflict with any judgment or decree. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities, this Indenture or the Escrow
Agreement.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy maturing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Upon a declaration of acceleration of the Securities in
accordance with Section 6.02, the Trustee shall foreclose on all Collateral and
take all other actions permitted of a secured party under the UCC or otherwise.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 9.02, prior to the
declaration of acceleration of the Securities, the Holders of not less than a
majority in aggregate principal amount of the outstanding Securities by written
notice to the Trustee may waive an existing Default and its consequences, except
a Default in the payment of principal of or interest on any Security as
specified in Section 6.01(1) or (2) or a Default in respect of any term or
provision of this Indenture that may not be amended or modified without the
consent of each Holder affected as provided in Section 9.02. The Company shall
deliver to the Trustee an Officers' Certificate stating that the requisite
percentage of Holders have consented to such waiver and attaching copies of such
consents. In case of any such waiver, the Company, the Trustee and the Holders
shall be restored to their former positions and rights hereunder and under the
Securities, respectively. This paragraph of this Section 6.04 shall be in lieu
of Section 316(a)(1)(B) of the TIA and such Section 316(a)(1)(B) of the TIA is
hereby expressly excluded from this Indenture and the Securities, as permitted
by the TIA.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred
for every purpose of this Indenture and the Securities, but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
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SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in
principal amount of the outstanding Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law, this Indenture or the Escrow
Agreement, that the Trustee determines may be unduly prejudicial to the rights
of another Securityholder, or that may involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction. In the
event the Trustee takes any action or follows any direction pursuant to this
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against any loss or expense caused by taking such action
or following such direction. This Section 6.05 shall be in lieu of Section
316(a)(1)(A) of the TIA, and such Section 316(a)(1)(A) of the TIA is hereby
expressly excluded from this Indenture and the Securities, as permitted by the
TIA.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to
this Indenture or the Securities
unless:
(i) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount
of the outstanding Securities make a written request to the Trustee to
pursue a remedy;
(iii) such Holder or Holders offer and, if requested, provide
to the Trustee indemnity reasonably satisfactory to the Trustee against
any loss, liability or expense;
(iv) the Trustee does not comply with the request within 60
days after receipt of the request; and
(v) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities (excluding Affiliates of
the Company) do not give the Trustee a direction which, in the opinion
of the Trustee, is inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over such
other Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal of or interest on a
Security, on or after the respective due dates therefor, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust
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against the Company or any other obligor on the Securities for the whole amount
of principal and accrued interest remaining unpaid, together with interest
overdue on principal and to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per annum
borne by the Securities and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Securities), its creditors or its property and shall
be entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this
Article Six or the Escrow Agreement, it shall pay out the money or property in
the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Securityholders pursuant to
this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section 6.11 shall not apply to a suit by the Trustee,
a suit by a Holder or group of Holders of more than 10% in aggregate principal
amount of the outstanding Securities, or to any suit instituted by any Holder
for the
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enforcement or the payment of the principal or interest on any Securities on or
after the respective due dates therefor.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance
of such duties as are specifically set forth herein; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions conforming to the requirements of this Indenture or the Escrow
Agreement; however, in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall examine such certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture or the Escrow Agreement.
(c) The Trustee shall not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture or the Escrow Agreement
shall require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or to take
or omit to take any action under this Indenture or take any action at the
request or direction of Holders if it shall have reasonable grounds for
believing that repayment of such funds is not assured to it or it does not
receive from such Holders an indemnity or security satisfactory to it in its
sole discretion against such risk, liability, loss, fee or expense which might
be incurred by it in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
7.01.
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(f) The Trustee shall not be liable for interest on any money
received by it. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate and/or an Opinion of Counsel, which shall
conform to the provisions of Section 10.05. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or negligence of any
agent or attorney (other than an agent who is an employee of the Trustee)
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with counsel of its selection and
the advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any action
taken, omitted or suffered by it hereunder in good faith and in accordance with
the advice or opinion of such counsel.
(f) Any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution.
(g) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture or the Escrow Agreement
at the request or direction of any of the Securityholders pursuant to this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction.
(h) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or by agent
or attorney.
(i) The Trustee shall not be deemed to have notice of any
Event of Default unless a Trust Officer of the Trustee has actual knowledge
thereof or unless the Trustee shall have received written notice thereof at the
Corporate Trust Office of the Trustee, and such notice references the Securities
and this Indenture.
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SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company or
its Affiliates with the same rights it would have if it were not Trustee,
subject to Section 7.10 hereof. Any Agent may do the same with like rights.
However, the Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Escrow
Agreement or the Securities, it shall not be accountable for the Company's use
of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or any document issued in connection
with the sale of Securities or any statement in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default occurs and is continuing and the Trustee actually
knows of such Default, the Trustee shall mail to each Securityholder notice of
the Default within 30 days after the occurrence thereof. Except in the case of a
Default in payment of principal of or interest on any Security or a Default in
complying with any of the provisions of the Escrow Agreement, the Trustee may
withhold the notice if and so long as a committee of its Trust Officers in good
faith determines that withholding the notice is in the interest of
Securityholders. This Section 7.05 shall be in lieu of the proviso to Section
315(b) of the TIA and such proviso to Section 315(b) of the TIA is hereby
expressly excluded from this Indenture and the Securities, as permitted by the
TIA.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA Section 313(a), within 60 days after each
September 1 beginning with September 1, 1998, the Trustee shall mail to each
Securityholder a report dated as of such September 1 that complies with TIA
Section 313(a). The Trustee also shall comply with TIA Section 313(b), (c) and
(d).
A copy of each such report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange, if any, on
which the Securities are listed.
The Company shall promptly notify the Trustee in writing if
the Securities become listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for its services. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances (including fees, disbursements and expenses of its agents and
counsel) incurred or made by it in addition to the compensation for its services
except any such disbursements, expenses and advances as may be attributable to
the Trustee's negligence or bad faith. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trus-
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tee's agents, accountants, experts and counsel and any taxes or other expenses
incurred by a trust created pursuant to Section 8.01 hereof.
The Company shall indemnify the Trustee, its agents and
officers, for, and hold it harmless against any and all loss, damage, claims,
liability or expense, including taxes (other than franchise taxes imposed on the
Trustee and taxes based upon, measured by or determined by the income of the
Trustee), arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent that
such loss, damage, claim, liability or expense is due to its own negligence or
bad faith. The Trustee shall notify the Company promptly of any claim asserted
against the Trustee for which it may seek indemnity. However, the failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense (and may employ its own counsel) at the Company's
expense; provided, however, that the Company's reimbursement obligation with
respect to counsel employed by the Trustee will be limited to the reasonable
fees and expenses of such counsel.
The Company need not pay for any settlement made without its
written consent, which consent shall not be unreasonably withheld. The Company
need not reimburse any expense or indemnify against any loss or liability
incurred by the Trustee as a result of the violation of this Indenture by the
Trustee.
To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a Lien prior to the Securities against all money or
property held or collected by the Trustee, in its capacity as Trustee, except
money or property held in trust to pay principal of or interest on particular
Securities or the Purchase Price or redemption price of any Securities to be
purchased or pursuant to an Offer to Purchase or redeemed.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(8) or (9) occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Eight and any rejection or termination under any Bankruptcy Law, and the
termination of this Indenture.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company
in writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company in
writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent under
any Bankruptcy Law;
(3) a custodian or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Securityholder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the outstanding
Securities may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be
eligible to act as Trustee under TIA Sections 310(a)(1) and 310(a)(2). The
Trustee shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition. If the Trustee
has or shall acquire any "conflicting interest" within the meaning of TIA
Section 310(b), the Trustee and the Company shall comply with the provisions of
TIA Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 7.10, the Trustee
shall resign immediately in the manner and with the effect hereinbefore
specified in this Article Seven.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
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ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations.
The Company may terminate its substantive obligations in
respect of the Securities by delivering all outstanding Securities to the
Trustee for cancellation and paying all sums payable by it on account of
principal of and interest on all Securities or otherwise. In addition to the
foregoing, the Company may terminate its obligation under Sections 4.04, 4.06,
4.08, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19 and 4.20 (and
no Default with respect to such Sections under Section 6.01(5) shall thereafter
apply), by (i) depositing with the Trustee, under the terms of an irrevocable
trust agreement, money or U. S. Government Obligations sufficient (without
reinvestment) to pay all remaining indebtedness on the Securities at maturity or
an earlier redemption, (ii) delivering to the Trustee either an Opinion of
Counsel or a ruling directed to the Trustee from the Internal Revenue Service to
the effect that the Holders of the Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and termination
of obligations, (iii) delivering to the Trustee an Opinion of Counsel to the
effect that the Company's exercise of its option under this paragraph will not
result in any of the Company, the Trustee or the trust created by the Company's
deposit of funds pursuant to this provision becoming or being deemed to be an
"investment company" under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and (iv) delivering to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating compliance with all
conditions precedent provided for herein. In addition, the Company may, provided
that no Default has occurred and is continuing or would arise therefrom (or,
with respect to a Default specified in Section 6.01(8) or (9), occurs at any
time on or prior to the 91st calendar day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until after
such 91st day)), terminate all of its substantive obligations in respect of the
Securities (including its obligations to pay the principal of and interest on
the Securities) by (i) depositing with the Trustee, under the terms of an
irrevocable trust agreement, money or U.S. Government Obligations sufficient
(without reinvestment) to pay all remaining indebtedness on the Securities at
maturity or upon earlier redemption, (ii) delivering to the Trustee either a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and termination of
obligations or an Opinion of Counsel addressed to the Trustee based upon such a
ruling or based on a change in the applicable Federal tax law since the date of
this Indenture to such effect, (iii) delivering to the Trustee an Opinion of
Counsel to the effect that the Company's exercise of its option under this
paragraph will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds pursuant to this provision becoming or
being deemed to be an "investment company" under the Investment Company Act and
(iv) delivering to the Trustee an Officers' Certificate and an Opinion of
Counsel each stating compliance with all conditions precedent provided for
herein.
Notwithstanding the foregoing paragraph, the Company's
obligations under Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.12, 2.13
and 4.01 (but not with respect to termination of substantive obligations
pursuant to the third sentence of the foregoing paragraph), 4.02, 7.07, 7.08,
8.03 and 8.04 shall survive until the Securities are no longer outstanding.
Thereafter the Company's obligations in Sections 7.07, 8.03 and 8.04 shall
survive.
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After such delivery or irrevocable deposit and delivery of an
Officers' Certificate and Opinion of Counsel, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Securities and this Indenture except for those surviving obligations specified
above.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U. S. Government
Obligations deposited pursuant to this Section 8.01 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Securities.
SECTION 8.02. Application of Trust Money.
The Trustee shall hold in trust money or U. S. Government
Obligations deposited with it pursuant to Section 8.01, and shall apply the
deposited money and the money from United States Government Obligations in
accordance with this Indenture solely to the payment of principal of and
interest on the Securities.
SECTION 8.03. Repayment to Company.
Subject to Sections 7.07 and 8.01, the Trustee shall promptly
pay to the Company upon written request any excess money held by it at any time.
The Trustee shall pay to the Company upon written request any money held by it
for the payment of principal or interest that remains unclaimed for two years;
provided, however, that the Trustee before being required to make any payment
may at the expense of the Company cause to be published once in a newspaper of
general circulation in The City of New York and in a newspaper of general
circulation in Luxembourg or mail to each Holder entitled to such money notice
that such money remains unclaimed and that, after a date specified therein which
shall be at least 30 days from the date of such publication or mailing, any
unclaimed balance of such money then remaining shall be repaid to the Company.
After payment to the Company, Securityholders entitled to money must look to the
Company for payment as general creditors unless an applicable abandoned property
law designates another person and all liability of the Trustee or Paying Agent
with respect to such money shall thereupon cease.
SECTION 8.04. Reinstatement.
If the Trustee is unable to apply any money or U.S. Government
Obligations in accordance with Section 8.01 by reason of any legal proceeding or
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.01 until such
time as the Trustee is permitted to apply all such money or U.S. Government
Obligations in accordance with Section 8.01; provided, however, that if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee.
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company, when authorized by a resolution of its Board of
Directors, and the Trustee may amend or supplement this Indenture or the
Securities without notice to or consent of any Securityholder:
(i) to cure any ambiguity, defect or inconsistency; provided,
however, that such amendment or supplement does not materially
adversely affect the rights of any Holder;
(ii) to effect the assumption by a successor Person of all
obligations of the Company under the Securities, this Indenture, the
Registration Rights Agreement and the Escrow Agreement in connection
with any transaction complying with Article Five of this Indenture;
(iii) to provide for uncertificated Securities in addition to
or in place of certificated Securities;
(iv) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
(v) to make any change that would provide any additional
benefit or rights to the Holders;
(vi) to make any other change that does not materially
adversely affect the rights of any Holder under this Indenture;
(vii) to add to the covenants of the Company for the benefit
of the Holders, or to surrender any right or power herein conferred
upon the Company; or
(viii) to secure the Securities pursuant to the requirements
of Section 4.20 or otherwise;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 9.01.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, the Company, when authorized by a
resolution of its Board of Directors, and the Trustee may amend or supplement
this Indenture or the Securities with the written consent of the Holders of a
majority in principal amount of the outstanding Securities. Subject to Section
6.07, the Holders of a majority in principal amount of the outstanding
Securities may waive compliance by the Company with any provision of this
Indenture or the Securities. However, without the consent of the Holder of each
Security affected, an amendment, supplement or waiver, including a waiver
pursuant to Section 6.04, may not:
(1) change the maturity of the principal of any such Security;
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(2) alter the optional redemption or repurchase provisions of
any such Security or this Indenture in a manner adverse to the Holders
of such Security;
(3) reduce the principal amount of any such Security;
(4) reduce the rate of or extend the time for payment of
interest on any such Security;
(5) change the place or currency of payment of the principal
of or interest on any such Security;
(6) modify any provisions of Section 6.04 (other than to add
sections of this Indenture or the Securities subject thereto) or 6.07
or this Section 9.02 (other than to add sections of this Indenture or
the Securities which may not be amended, supplemented or waived without
the consent of each Securityholder affected);
(7) reduce the percentage of the principal amount of
outstanding Securities necessary for amendment to or waiver of
compliance with any provision of this Indenture or the Securities or
for waiver of any Default in respect thereof;
(8) waive a default in the payment of the principal of or
interest on or redemption payment with respect to any such Security
(except a rescission of acceleration of the Securities by the Holders
as provided in Section 6.02 and a waiver of the payment default that
resulted from such acceleration);
(9) modify the ranking or priority of such Security;
(10) modify the provisions of any covenant (or the related
definitions in this Indenture) requiring the Company to make any Offer
to Purchase in a manner materially adverse to the Holders; or
(11) modify the provisions of the Escrow Agreement or this
Indenture relating to the Collateral from the Lien under the Escrow
Agreement or permit any other obligation to be secured by the
Collateral.
It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
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SECTION 9.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent Holder
of that Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders of Securities entitled to
consent to any amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Securities after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder, unless it makes a change described in any of
clauses (1) through (11) of Section 9.02. In that case the amendment, supplement
or waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
SECTION 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. Trustee to Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Nine is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms (subject to customary exceptions). The
Trustee may, but shall not be obligated to, execute any such amendment,
supplement or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
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ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that
are required to be a part of this Indenture, and shall, to the extent
applicable, be governed by such provisions. If any provision of this Indenture
modifies any TIA provision that may be so modified, such TIA provision shall be
deemed to apply to this Indenture as so modified. If any provision of this
Indenture excludes any TIA provision that may be so excluded, such TIA provision
shall be excluded from this Indenture.
The provisions of TIA Sections 310 through 317 that
impose duties on any Person (including the provisions automatically deemed
included unless expressly excluded by this Indenture) are a part of and govern
this Indenture, whether or not physically contained herein.
SECTION 10.02. Notices.
Any notice or communication shall be sufficiently given if in
writing and delivered in person, by facsimile and confirmed by overnight
courier, or mailed by first-class mail addressed as follows:
if to the Company:
Hermes Europe Railtel B.V.
Terhulpsesteenweg 6A
1560 Hoeilaart
Belgium
Attention: Chief Executive Officer
Facsimile: 32-2-658-5100
Telephone: 32-2-658-5200
with a copy to:
Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102
Attention: Chief Executive Officer
Facsimile: (703) 847-0663
Telephone: (703) 918-4500
and
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Shearman & Sterling
599 Lexington Avenue
New York, New York 10022-6069
Attention: John D. Morrison, Jr.
Facsimile: (212) 848-4000
Telephone: (212) 848-7179
if to GTS:
Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102
Attention: Chief Executive Officer
Facsimile: (703) 847-0663
Telephone: (703) 918-4500
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022-6069
Attention: David J. Beveridge
Facsimile: (212) 848-4000
Telephone: (212) 848-7179
if to the Trustee:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Facsimile: (212) 815-5915
Telephone: (212) 815-4701
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if to the Luxembourg Paying and Transfer Agent:
Banque Internationale a Luxembourg
69, route d'Esch
L-1470 Luxembourg
Facsimile: (352) 4590-4227
Telephone: (352) 4590-3550
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed, first-class, postage
prepaid, to a Holder including any notice delivered in connection with TIA
Section 310(b), TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b),
shall be mailed to him at his address as set forth on the Security Register and
shall be sufficiently given to him if so mailed within the time prescribed. To
the extent required by the TIA, any notice or communication shall also be mailed
to any Person described in TIA Section 313(c).
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 10.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b)
with other Securityholders with respect to their rights under this Indenture or
the Securities. The Company, the Trustee, the Registrar and any other person
shall have the protection of TIA Section 312(c).
SECTION 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee
to take or refrain from taking any action under this Indenture, the Company
shall furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance satisfactory
to the Trustee stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to
the Trustee stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
SECTION 10.05. Statements Required in Certificate or Opinion.
Each certificate (other than the certificates provided
pursuant to Section 4.07) or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
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(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of such person,
such condition or covenant has been complied with; provided, however,
that with respect to matters of fact an Opinion of Counsel may rely on
an Officers' Certificate or certificates of public officials.
SECTION 10.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a
meeting of Securityholders. The Paying Agent or Registrar may make reasonable
rules for its functions.
SECTION 10.07. Governing Law.
The laws of the State of New York shall govern this Indenture
and the Securities without regard to principles of conflicts of law.
SECTION 10.08. No Recourse Against Others.
A director, officer, employee, incorporator or stockholder of
the Company or any of its Affiliates, as such, shall not have any liability for
any obligations of the Company or any of its Affiliates under the Securities or
this Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Security waives and
releases all such liability.
SECTION 10.09. Successors.
All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 10.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 10.11. Severability.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
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SECTION 10.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
SECTION 10.13. Legal Holidays.
If a payment date is a not a Business Day at a place of
payment, payment may be made at that place on the next succeeding Business Day,
and no interest shall accrue for the intervening period.
SECTION 10.14. Agent for Service; Submission to Jurisdiction; Waiver of
Immunities.
By the execution and delivery of this Indenture, the Company
(i) acknowledges that it has, by separate written instruments, designated and
appointed CT Corporation System, 1633 Broadway, New York, NY 10019 ("CT
Corporation System") (and any successor entity), as its authorized agent upon
which process may be served in any suit or proceeding arising out of or relating
to this Indenture that may be instituted in any federal or state court in the
Borough of Manhattan, City of New York, State of New York or brought under
federal or state securities laws, and represent and warrant that CT Corporation
System has accepted such designation, (ii) submit to the jurisdiction of any
such court in any such suit or proceeding and (iii) agree that service of
process upon CT Corporation System and written notice of said service to the
Company, in accordance with Section 10.02 shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
The Company further agrees to take any and all action, including the execution
and filing of any and all such documents and instruments, as may be necessary to
continue such designation and appointment of CT Corporation System in full force
and effect for as long as any of the Securities remain outstanding (subject to
the limitation set forth in clause (i)); provided, however, that the Company
may, and to the extent CT Corporation System ceases to be able to be served on
the basis contemplated herein shall, by written notice to the Trustee, designate
such additional or alternative agent for service of process under this Section
10.14 that (i) maintains an office located in the Borough of Manhattan, City of
New York, State of New York, and (ii) is either (x) United States counsel for
the Company or (y) a corporate service company which acts as agent for service
of process for other persons in the ordinary course of its business. Such
written notice shall identify the name of such agent for service of process and
the address of the office of such agent for service of process in the Borough of
Manhattan, City of New York, State of New York.
To the extent that the Company has or hereafter may acquire
any immunity from jurisdiction of any court of (i) any jurisdiction in which the
Company owns or leases property or assets, (ii) the United States or the State
of New York or (iii) the Netherlands or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property and assets or
this Agreement or any of the Notes or actions to enforce judgments in respect of
any thereof, the Company hereby irrevocably waives such immunity in respect of
its obligations under the above-referenced documents, to the extent permitted by
law.
SECTION 10.15. Judgment Currency.
The Company hereby agrees to indemnify the Trustee, its
directors, its officers and each person, if any, who controls the Trustee within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act against
any loss incurred by such person as a result of any judgment or order being
given or made against the Company for any U.S. dollar amount due under this
Agreement and such judgment or order being
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expressed and paid in a currency (the "Judgment Currency") other than United
States dollars and as a result of any variation as between (i) the rate of
exchange at which the United States dollar amount is converted into the Judgment
Currency for the purpose of such judgment or order and (ii) the spot rate of
exchange in The City of New York at which such party on the date of payment of
such judgment or order is able to purchase United States dollars with the amount
of the Judgment Currency actually received by such party. The foregoing
indemnity shall continue in full force and effect notwithstanding any such
judgment or order as aforesaid. The term "spot rate of exchange" shall include
any premiums and costs of exchange payable in connection with the purchase of,
or conversion into, United States dollars.
ARTICLE ELEVEN
COLLATERAL AND SECURITY
SECTION 11.01. Escrow Agreement.
The due and punctual payment of the first four scheduled
interest payments on the Securities when and as the same shall be due and
payable on an Interest Payment Date or by acceleration shall be secured as
provided in the Escrow Agreement which the Company and the Trustee have entered
into simultaneously with the execution of this Indenture. Upon the acceleration
of the maturity of the Securities, the Trustee shall foreclose upon the
Collateral. Each Holder of Securities, by its acceptance thereof, consents and
agrees to the terms of the Escrow Agreement (including, without limitation, the
provisions providing for foreclosure and disbursement of Collateral) as the same
may be in effect or may be amended from time to time in accordance with its
terms and the terms hereof and authorizes and directs the Escrow Agent and the
Trustee to enter into the Escrow Agreement and to perform its obligations and
exercise its rights thereunder in accordance therewith. The Company shall
deliver to the Trustee copies of the Escrow Agreement, and shall do or cause to
be done all such acts and things as may be necessary or proper, or as may be
required by the provisions of the Escrow Agreement, to assure and confirm to the
Trustee the security interest in the Collateral contemplated by the Escrow
Agreement or any part thereof, as from time to time constituted, so as to render
the same available for the security and benefit of this Indenture with respect
to, and of, the Securities, according to the intent and purposes expressed in
the Escrow Agreement. The Company shall take any and all actions reasonably
required to cause the Escrow Agreement to create and maintain (to the extent
possible under applicable law), as security for the obligations of the Company
hereunder, a first priority and exclusive security interest in and on all the
Collateral, in favor of the Trustee for the benefit of the Holders of
Securities, superior to and prior to the rights of all third Persons and subject
to no other Liens. The Trustee shall have no responsibility for perfecting or
maintaining the perfection of the Trustee's security interest in the Collateral
or for filing any instrument, document or notice in any public office at any
time or times.
SECTION 11.02. Recording and Opinions.
(a) The Company shall furnish to the Trustee simultaneously
with the execution and delivery of this Indenture an Opinion of Counsel either
(i) stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, financing
statements or other instruments necessary to make effective the security
interest intended to be created by the Escrow Agreement and reciting the details
of such action, or (ii) stating that in the opinion of such counsel no such
action is necessary to make such security interest effective.
<PAGE> 72
-66-
(b) The Company shall furnish to the Trustee on each
anniversary of the Issue Date (upon receipt of written notice from Escrow Agent)
until the date upon which the balance of Escrow Funds shall have been reduced to
zero, an Opinion of Counsel, dated as of such date, either (i) stating that (A)
in the opinion of such counsel, action has been taken with respect to the
recording, registering, filing, re-recording, re-registering and refiling of all
supplemental indentures, financing statements, continuation statements or other
instruments of further assurance as is necessary to maintain the Lien of the
Escrow Agreement and reciting the details of such action or referring to prior
Opinions of Counsel in which such details are given and (B) based on relevant
laws as in effect on the date of such Opinion of Counsel, all financing
statements and continuation statements have been executed and filed that are
necessary as of such date and during the succeeding 12 months fully to preserve
and protect, to the extent such protection and preservation are possible by
filing, the rights of the Holders of Securities and the Trustee hereunder and
under the Escrow Agreement with respect to the security interests in the
Collateral or (ii) stating that, in the opinion of such counsel, no such action
is necessary to maintain such Lien and assignment.
SECTION 11.03. Release of Collateral.
(a) Subject to subsections (b), (c) and (d) of this Section
11.03, the Collateral may be released from the security interest created by the
Escrow Agreement only in accordance with the provisions of the Escrow Agreement.
(b) Except to the extent that any security interest on
proceeds of Collateral is automatically released by operation of Section 9-306
of the Uniform Commercial Code or other similar law, no Collateral shall be
released from the security interest created by the Escrow Agreement pursuant to
the provisions of the Escrow Agreement, other than to the Holders pursuant to
the terms thereof.
(c) At any time when an Event of Default shall have occurred
and be continuing and the maturity of the Securities shall have been accelerated
(whether by declaration or otherwise), no Collateral shall be released pursuant
to the provisions of the Escrow Agreement, and no release of Collateral in
contravention of this Section 11.03(c) shall be effective as against the Holders
of Securities, except for the disbursement of all Escrow Funds (as defined in
the Escrow Agreement) and other Collateral to the Trustee pursuant to Section
6(c) of the Escrow Agreement.
(d) The release of any Collateral from the security interests
created by this Indenture and the Escrow Agreement shall not be deemed to impair
the security under this Indenture in contravention of the provisions hereof if
and to the extent the Collateral is released pursuant to the terms hereof or
pursuant to the terms of the Escrow Agreement. To the extent applicable, the
Company shall cause TIA Section 314(d) relating to the release of property or
securities from the security interest of the Escrow Agreement to be complied
with. Any certificate or opinion required by TIA Section 314(d) may be made by
an Officer of the Company except in cases where TIA Section 314(d) requires that
such certificate or opinion be made by an independent Person, which Person shall
be an independent engineer, appraiser or other expert selected or approved by
the Trustee in the exercise of reasonable care.
SECTION 11.04. Authorization of Actions to Be Taken by the Trustee Under the
Escrow Agreement.
Subject to the provisions of Section 7.01 and Section 7.02,
the Trustee may, without the consent of the Holders of Securities, on behalf of
the Holders of Securities, take all actions it deems necessary or appropriate in
order to (a) enforce any of the terms of the Escrow Agreement and (b) collect
and receive any
<PAGE> 73
-67-
and all amounts payable in respect of the obligations of the Company hereunder.
The Trustee shall have power to institute and maintain such suits and
proceedings as it may deem expedient to prevent any impairment of the Collateral
by any acts that may be unlawful or in violation of the Escrow Agreement or this
Indenture, and such suits and proceedings as the Trustee may deem expedient to
preserve or protect its interests and the interests of the Holders of Securities
in the Collateral (including power to institute and maintain suits or
proceedings to restrain the enforcement of or compliance with any legislative or
other governmental enactment, rule or order that may be unconstitutional or
otherwise invalid if the enforcement of, or compliance with, such enactment,
rule or order would impair the security interest hereunder or be prejudicial to
the interests of the Holders of Securities or of the Trustee).
SECTION 11.05. Authorization of Receipt of Funds by the Trustee Under the Escrow
Agreement.
The Trustee is authorized to receive any funds for the benefit
of the Holders of Securities disbursed under the Escrow Agreement, and to make
further distributions of such funds to the Holders of Securities according to
the provisions of this Indenture.
SECTION 11.06. Termination of Security Interest.
Upon the earliest to occur of (i) the date upon which the
balance of Escrow Funds and other Collateral shall have been reduced to zero,
(ii) the payment of the first four scheduled interest payments on the
Securities, (iii) legal defeasance pursuant to Section 8.01 and (iv) covenant
defeasance pursuant to Section 8.01, the Trustee shall, at the written request
of the Company, release the security interest in the Collateral pursuant to this
Indenture and the Escrow Agreement upon the Company's compliance with the
provisions of the TIA pertaining to release of collateral.
ARTICLE TWELVE
COVENANT OF GLOBAL TELESYSTEMS GROUP, INC.
SECTION 12.01. GTS Contribution.
GTS shall consummate, or shall cause to be consummated, the
GTS Contribution on or prior to September 30, 1997. This obligation of GTS will
constitute "Senior Indebtedness" under that certain indenture noted as of July
14, 1997 between GTS and The Bank of New York relating to GTS' Senior
Subordinated Convertible Bonds due 2000, and will be incurred pursuant to clause
(c) of the second paragraph of the "Limitation of Indebtedness" covenant. If GTS
fails to comply with the foregoing covenant, the Holders and the Company shall
each be entitled to commence proceedings against GTS and to seek to compel
performance and any other remedies available under law.
GTS agrees that this covenant is part of the consideration for
purchase of the Securities.
[Signature Pages Follow]
<PAGE> 74
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
HERMES EUROPE RAILTEL B.V.
By: /s/ PETER MAGNUS
-----------------------
Name: Peter Magnus
Title: Attorney-in-fact
GLOBAL TELESYSTEMS GROUP, INC.
(the undersigned agrees to be bound by
this Indenture with respect only to
Article Twelve hereof)
By: /s/ WILLIAM H. SEIPPEL
-------------------------------
Name: William H. Seippel
Title: Executive Vice President
of Finance and Chief
Financial Officer
THE BANK OF NEW YORK,
as Trustee
By: /s/ MING SHIANG
------------------------------
Name: Ming Shiang
Title: Assistant Vice-President
<PAGE> 75
EXHIBIT A
[FORM OF SERIES A SECURITY]
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"),
(B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "IAI") (2)
AGREES THAT IT WILL NOT, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT,
PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES LESS THAN $265,000, AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGIS-
A-1
<PAGE> 76
TER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.
A-2
<PAGE> 77
HERMES EUROPE RAILTEL B.V.
11-1/2% Senior Note due 2007
CUSIP No.:
No. $
HERMES EUROPE RAILTEL B.V., a Netherlands limited company (the
"Company", which term includes any successor corporation), for value received
promises to pay to or registered assigns, the principal sum of Dollars, on
August 15, 2007.
Interest Payment Dates: February 15 and August 15, commencing
February 15, 1998.
Interest Record Dates: February 1 and August 1
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
A-3
<PAGE> 78
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officer.
HERMES EUROPE RAILTEL B.V.
By:_______________________________
Name:
Title:
Attest:__________________________
Name:
Title:
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 11-1/2% Senior Notes due 2007, described in
the within-mentioned Indenture.
Dated: , 1997
THE BANK OF NEW YORK,
as Trustee
By:______________________________
Authorized Signatory
A-4
<PAGE> 79
(REVERSE OF SECURITY)
HERMES EUROPE RAILTEL B.V.
11-1/2% Senior Note due 2007
1. Interest.
HERMES EUROPE RAILTEL B.V., a Netherlands limited company (the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. Cash interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from August 19, 1997. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing February 15, 1998. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time
to time on demand at the rate borne by the Securities and on overdue
installments of interest (without regard to any applicable grace periods) at the
rate borne by the Securities to the extent lawful.
2. Method of Payment.
The Company shall pay interest on the Securities (except
defaulted interest) to the persons who are the registered Holders at the close
of business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are cancelled on registration of transfer or
registration of exchange after such Interest Record Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company shall
pay principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal and interest by wire transfer
of Federal funds (provided that the Paying Agent shall have received wire
instructions on or prior to the relevant Interest Record Date), or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
Initially, The Bank of New York (the "Trustee") will act as
Paying Agent and Registrar in the Borough of Manhattan, The City of New York,
and Banque Internationale a Luxembourg S.A. will act as Paying Agent and
Registrar in Luxembourg. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as
of August 19, 1997 (the "Indenture"), among the Company, Global TeleSystems
Group, Inc. and the Trustee. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture
A-5
<PAGE> 80
Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on
the date of the Indenture until such time as the Indenture is qualified under
the TIA, and thereafter as in effect on the date on which the Indenture is
qualified under the TIA. Notwithstanding anything to the contrary herein, the
Securities are subject to all such terms, and holders of Securities are referred
to the Indenture and the TIA for a statement of them. This is one of the Series
A Securities referred to in the Indenture. The Series A Securities and the
Series B Securities referred to in the Indenture are general obligations of the
Company limited in aggregate principal amount to $265,000,000.
5. Optional Redemption.
(a) The Securities will be redeemable at the option of the Company, in
whole or in part, at any time or from time to time, on or after August 15, 2002
at the redemption prices (expressed as a percentage of principal amount) set
forth below, plus accrued and unpaid interest thereon, if any, to the redemption
date if redeemed during the twelve-month period commencing on of the years set
forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ---------
<S> <C>
2002 105.750%
2003 103.833%
2004 101.917%
2005 and thereafter 100.000%
</TABLE>
(b) Redemption Upon Public Equity Offering or Strategic Equity
Investment.
At any time, or from time to time, prior to August 15, 2000,
the Company may redeem Securities at a redemption price equal to 111.5% of the
principal amount of the Securities so redeemed, plus accrued and unpaid interest
thereon, if any, to the redemption date, with the net cash proceeds of one or
more Public Equity Offerings or Strategic Equity Investments resulting in
aggregate gross cash proceeds to the Company of at least $75 million; provided,
however, that at least two-thirds of the principal amount of Securities
originally issued would remain outstanding immediately after giving effect to
any such redemption (excluding any Securities owned by the Company or any of its
Affiliates) (it being understood that the foregoing shall not apply to proceeds
received in connection with the GTS Contribution). Notice of any such redemption
must be given within 60 days after the date of the last Public Equity Offering
or Strategic Equity Investment resulting in gross cash proceeds to the Company,
when aggregated with all prior Public Equity Offerings and Strategic Equity
Investments, of at least $75.0 million.
(c) Redemption for Changes in Withholding Taxes.
The Company may, at any time, at its option, redeem all (but
not less than all) of the Securities then outstanding at 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption, if the Company has become or would become obligated to pay, on the
next date on which any amount would be payable with respect to the Securities,
any Additional Amounts as a result of change in law (including any regulations
promulgated thereunder) or in the interpretation or administration thereof, if
such change is announced and becomes effective on or after the Issue Date.
A-6
<PAGE> 81
6. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Securities to be redeemed at its registered address; provided,
however, that notice of redemption pursuant to paragraph 5(b) of this Security
will be mailed to each Holder of Securities to be redeemed no later than 60 days
following the consummation of the last Public Equity Offering resulting in gross
cash proceeds to the Company, when aggregated with all prior Public Equity
Offerings, of at least $75.0 million. The Trustee may select for redemption
portions of the principal amount of Securities that have denominations equal to
or larger than $1,000 principal amount. Securities and portions of them the
Trustee so selects shall be in amounts of $1,000 principal amount or integral
multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture.
7. Change of Control Offer.
Upon the occurrence of a Change of Control, the Company will
be required to offer to purchase all outstanding Securities at a purchase price
in cash equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the Purchase Date.
8. Limitation on Disposition of Assets.
Upon the occurrence of certain Asset Sales, the Company is,
subject to certain conditions, obligated to make an offer to purchase Securities
at a purchase price in cash equal to 100% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date.
9. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
10. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
A-7
<PAGE> 82
11. Unclaimed Funds.
If funds for the payment of principal or interest remain
unclaimed for two years, the Trustee and the Paying Agent will repay the funds
to the Company at its written request. After that, all liability of the Trustee
and such Paying Agent with respect to such funds shall cease.
12. Legal Defeasance and Covenant Defeasance.
The Company may be discharged from its obligations under the
Indenture and the Securities except for certain provisions thereof, and may be
discharged from obligations to comply with certain covenants contained in the
Indenture and the Securities, in each case upon satisfaction of certain
conditions specified in the Indenture.
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture and the
Securities may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or compliance with any provision may
be waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture and the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities, effect the assumption by a successor person of all obligations of
the Company under Securities, the Indenture, the Registration Rights Agreement
and the Escrow Agreement in connection with any transaction complying with
Article Five of the Indenture or comply with any requirements of the SEC in
connection with the qualification of the Indenture under the TIA, or make any
other change that does not materially adversely affect the rights of any Holder
of a Security.
14. Restrictive Covenants.
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments to become applicable to
Restricted Subsidiaries, to consolidate, merge or sell all or substantially all
of its assets, to engage in transactions with affiliates or certain other
related persons. The limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the Trustee
on compliance with such limitations.
15. Defaults and Remedies.
If an Event of Default (other than certain events of
bankruptcy, insolvency or reorganization affecting the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Securities then outstanding by notice in writing to the Company may
declare all the Securities to be due and payable immediately in the manner and
with the effect provided in the Indenture. If certain events of bankruptcy,
insolvency or reorganization affecting the Company occur under the Indenture,
the Securities will ipso facto become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder of Securities.
Holders of Securities may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Securities unless it has received indemnity reasonably satisfactory to
it. The Indenture permits, subject to certain limitations therein provided,
Holders of a majority in aggregate principal amount of the Securities then
outstanding
A-8
<PAGE> 83
to direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Securities notice of certain continuing Defaults if it
determines that withholding notice is in their interest.
16. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company, its Subsidiaries or their respective Affiliates as if it
were not the Trustee.
17. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator,
as such, of the Company or any of its Affiliates shall have any liability for
any obligation of the Company or any of its Affiliates under the Securities or
the Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
18. Authentication.
This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.
19. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Securities as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
21. Governing Law.
The laws of the State of New York shall govern the Indenture
and this Security without regard to principles of conflicts of laws.
A-9
<PAGE> 84
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed: ______________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor program
reasonably acceptable to the Trustee)
<PAGE> 85
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.10 or Section 4.16 of the Indenture, check the
appropriate box:
Section 4.10 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.10 or Section 4.16 of the
Indenture, state the amount: $_____________
Dated:___________________ Your Signature:____________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor program
reasonably acceptable to the Trustee)
<PAGE> 86
EXHIBIT B
(FORM OF SERIES B SECURITY)
HERMES EUROPE RAILTEL B.V.
11-1/2% Senior Note due 2007, Series B
CUSIP No.:
No. $
HERMES EUROPE RAILTEL B.V., a Netherlands limited company (the
"Company", which term includes any successor corporation), for value received
promises to pay to or registered assigns, the principal sum of Dollars, on
August 15, 2007.
Interest Payment Dates: February 15 and August 15, commencing
February 15, 1998.
Interest Record Dates: February 1 and August 1
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
B-1
<PAGE> 87
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officer.
HERMES EUROPE RAILTEL B.V.
By:___________________________________
Name:
Title:
Attest:____________________________
Name:
Title:
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 11-1/2% Senior Notes due 2007, Series B,
described in the within-mentioned Indenture.
Dated: , 1997
THE BANK OF NEW YORK,
as Trustee
By:___________________________________
Authorized Signatory
B-2
<PAGE> 88
(REVERSE OF SECURITY)
HERMES EUROPE RAILTEL B.V.
11-1/2% Senior Note due 2007, Series B
1. Interest.
HERMES EUROPE RAILTEL B.V., a Netherlands limited company (the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. Cash interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from August 19, 1997. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing February 15, 1998. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time
to time on demand at the rate borne by the Securities and on overdue
installments of interest (without regard to any applicable grace periods) at the
rate borne by the Securities to the extent lawful.
2. Method of Payment.
The Company shall pay interest on the Securities (except
defaulted interest) to the persons who are the registered Holders at the close
of business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are cancelled on registration of transfer or
registration of exchange after such Interest Record Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company shall
pay principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal and interest by wire transfer
of Federal funds (provided that the Paying Agent shall have received wire
instructions on or prior to the relevant Interest Record Date), or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
Initially, The Bank of New York (the "Trustee") will act as
Paying Agent and Registrar in the Borough of Manhattan, The City of New York,
and Banque Internationale a Luxembourg S.A. will act as Paying Agent and
Registrar in Luxembourg. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as
of August 19, 1997 (the "Indenture"), among the Company, Global TeleSystems
Group, Inc. and the Trustee. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture
B-3
<PAGE> 89
Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on
the date of the Indenture until such time as the Indenture is qualified under
the TIA, and thereafter as in effect on the date on which the Indenture is
qualified under the TIA. Notwithstanding anything to the contrary herein, the
Securities are subject to all such terms, and holders of Securities are referred
to the Indenture and the TIA for a statement of them. This is one of the Series
A Securities referred to in the Indenture. The Series A Securities and the
Series B Securities referred to in the Indenture are general obligations of the
Company limited in aggregate principal amount to $265,000,000.
5. Optional Redemption.
(a) The Securities will be redeemable at the option of the Company, in
whole or in part, at any time or from time to time, on or after August 15, 2002
at the redemption prices (expressed as a percentage of principal amount) set
forth below, plus accrued and unpaid interest thereon, if any, to the redemption
date if redeemed during the twelve-month period commencing on of the years set
forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ---------
<S> <C>
2002 105.750%
2003 103.833%
2004 101.917%
2005 and thereafter 100.000%
</TABLE>
(b) Redemption Upon Public Equity Offering or Strategic Equity
Investment.
At any time, or from time to time, prior to August 15, 2000,
the Company may redeem Securities at a redemption price equal to 111.5% of the
principal amount of the Securities so redeemed, plus accrued and unpaid interest
thereon, if any, to the redemption date, with the net cash proceeds of one or
more Public Equity Offerings or Strategic Equity Investments resulting in
aggregate gross cash proceeds to the Company of at least $75 million; provided,
however, that at least two-thirds of the principal amount of Securities
originally issued would remain outstanding immediately after giving effect to
any such redemption (excluding any Securities owned by the Company or any of its
Affiliates) (it being understood that the foregoing shall not apply to proceeds
received in connection with the GTS Contribution). Notice of any such redemption
must be given within 60 days after the date of the last Public Equity Offering
or Strategic Equity Investment resulting in gross cash proceeds to the Company,
when aggregated with all prior Public Equity Offerings and Strategic Equity
Investments, of at least $75.0 million.
(c) Redemption for Changes in Withholding Taxes.
The Company may, at any time, at its option, redeem all (but
not less than all) of the Securities then outstanding at 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption, if the Company has become or would become obligated to pay, on the
next date on which any amount would be payable with respect to the Securities,
any Additional Amounts as a result of change in law (including any regulations
promulgated thereunder) or in the interpretation or administration thereof, if
such change is announced and becomes effective on or after the Issue Date.
B-4
<PAGE> 90
6. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Securities to be redeemed at its registered address; provided,
however, that notice of redemption pursuant to paragraph 5(b) of this Security
will be mailed to each Holder of Securities to be redeemed no later than 60 days
following the consummation of the last Public Equity Offering resulting in gross
cash proceeds to the Company, when aggregated with all prior Public Equity
Offerings, of at least $75.0 million. The Trustee may select for redemption
portions of the principal amount of Securities that have denominations equal to
or larger than $1,000 principal amount. Securities and portions of them the
Trustee so selects shall be in amounts of $1,000 principal amount or integral
multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture.
7. Change of Control Offer.
Upon the occurrence of a Change of Control, the Company will
be required to offer to purchase all outstanding Securities at a purchase price
in cash equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the Purchase Date.
8. Limitation on Disposition of Assets.
Upon the occurrence of certain Asset Sales, the Company is,
subject to certain conditions, obligated to make an offer to purchase Securities
at a purchase price in cash equal to 100% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date.
9. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
10. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
B-5
<PAGE> 91
11. Unclaimed Funds.
If funds for the payment of principal or interest remain
unclaimed for two years, the Trustee and the Paying Agent will repay the funds
to the Company at its written request. After that, all liability of the Trustee
and such Paying Agent with respect to such funds shall cease.
12. Legal Defeasance and Covenant Defeasance.
The Company may be discharged from its obligations under the
Indenture and the Securities except for certain provisions thereof, and may be
discharged from obligations to comply with certain covenants contained in the
Indenture and the Securities, in each case upon satisfaction of certain
conditions specified in the Indenture.
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture and the
Securities may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or compliance with any provision may
be waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture and the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities, effect the assumption by a successor person of all obligations of
the Company under Securities, the Indenture, the Registration Rights Agreement
and the Escrow Agreement in connection with any transaction complying with
Article Five of the Indenture or comply with any requirements of the SEC in
connection with the qualification of the Indenture under the TIA, or make any
other change that does not materially adversely affect the rights of any Holder
of a Security.
14. Restrictive Covenants.
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments to become applicable to
Restricted Subsidiaries, to consolidate, merge or sell all or substantially all
of its assets, to engage in transactions with affiliates or certain other
related persons. The limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the Trustee
on compliance with such limitations.
15. Defaults and Remedies.
If an Event of Default (other than certain events of
bankruptcy, insolvency or reorganization affecting the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Securities then outstanding by notice in writing to the Company may
declare all the Securities to be due and payable immediately in the manner and
with the effect provided in the Indenture. If certain events of bankruptcy,
insolvency or reorganization affecting the Company occur under the Indenture,
the Securities will ipso facto become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder of Securities.
Holders of Securities may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Securities unless it has received indemnity reasonably satisfactory to
it. The Indenture permits, subject to certain limitations therein provided,
Holders of a majority in aggregate principal amount of the Securities then
outstanding
B-6
<PAGE> 92
to direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Securities notice of certain continuing Defaults if it
determines that withholding notice is in their interest.
16. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company, its Subsidiaries or their respective Affiliates as if it
were not the Trustee.
17. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator,
as such, of the Company or any of its Affiliates shall have any liability for
any obligation of the Company or any of its Affiliates under the Securities or
the Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
18. Authentication.
This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.
19. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Securities as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
21. Governing Law.
The laws of the State of New York shall govern the Indenture
and this Security without regard to principles of conflicts of laws.
B-7
<PAGE> 93
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:______________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor program
reasonably acceptable to the Trustee)
<PAGE> 94
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.10 or Section 4.16 of the Indenture, check the
appropriate box:
Section 4.10 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.10 or Section 4.16 of the
Indenture, state the amount: $_____________
Dated:___________________ Your Signature:___________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor program
reasonably acceptable to the Trustee)
<PAGE> 95
EXHIBIT C
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder
shall bear a legend (which would be in addition to any other legends required in
the case of a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN 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.
C-1
<PAGE> 96
EXHIBIT D
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 11-1/2% Senior Notes due 2007
(the "Securities"), of Hermes Europe Railtel B.V.
This Certificate relates to $_______ principal amount of
Securities held in the form of* ___ a beneficial interest in a Global Security
or* _______ Physical Securities by_____________________ (the "Transferor").
The Transferor:*
|_| has requested by written order that the Registrar deliver in
exchange for its beneficial interest in the Global Security held by the
Depositary a Physical Security or Physical Securities in definitive, registered
form of authorized denominations and an aggregate number equal to its beneficial
interest in such Global Security (or the portion thereof indicated above); or
|_| has requested that the Registrar by written order to exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Indenture relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 2.06 of such Indenture,
and that the transfer of the Securities does not require registration under the
Securities Act of 1933, as amended (the "Act"), because*:
|_| Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.06 of the Indenture).
|_| Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
|_| Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Act) which delivers a certificate to the Trustee in the form of
Exhibit E to the Indenture. An opinion of counsel to the effect that such
transfer does not require registration under the Securities Act accompanies this
certification.
|_| Such Security is being transferred in reliance on Regulation S
under the Act. An opinion of counsel to the effect that such transfer does not
require registration under the Securities Act accompanies this certification.
|_| Such Security is being transferred in reliance on Rule 144 under
the Act. An opinion of counsel to the effect that such transfer does not require
registration under the Securities Act accompanies this certification.
|_| Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 or Regulation S under the Act to a person other than an
institutional "accredited investor." An opinion of counsel to the effect that
such transfer does not require registration under the Securities Act accompanies
this certification.
_________________________________
[INSERT NAME OF TRANSFEROR]
D-1
<PAGE> 97
By:_____________________________
[Authorized Signatory]
Date: _____________
*Check applicable box.
D-2
<PAGE> 98
EXHIBIT E
Form of Certificate To Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
---------------, ----
Attention: Corporate Trust Administration
Re: Hermes Europe Railtel B.V. (the "Company")
Indenture (the "Indenture") relating to 11-1/2%
Senior Notes due 2007
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate
principal amount of 11-1/2% Senior Notes due 2007 (the "Notes") of Hermes Europe
Railtel B.V., a Netherlands limited company (the "Company"), we confirm that:
1. We understand that the Notes have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and
may not be sold except as permitted in the following sentence. We
understand and agree, on our own behalf and on behalf of any
accounts for which we are acting as hereinafter stated, (x) that
such Notes are being offered only in a transaction not involving
any public offering within the meaning of the Securities Act and
(y) that if we decide to resell, pledge or otherwise transfer such
Notes within two years after the date of the original issuance of
the Notes or if within three months after we cease to be an
affiliate (within the meaning of Rule 144 under the Securities Act)
of the Company, such Notes may be resold, pledged or transferred
only (i) to the Company, (ii) so long as the Notes are eligible for
resale pursuant to Rule 144A under the Securities Act ("Rule
144A"), to a person whom we reasonably believe is a "qualified
institution buyer" (as defined in Rule 144A) ("QIB") that purchases
for its own account or for the account of a QIB to whom notice is
given that the resale, pledge or transfer is being made in reliance
on Rule 144A (as indicated by the box checked by the transferor on
the Certificate of Transfer on the reverse of the certificate for
the Notes), (iii) in an offshore transaction in accordance with
Regulation S under the Securities Act (as indicated by the box
checked by the transferor on the Certificate of Transfer on the
reverse of the Note if the Note is not in book-entry form), and, if
such transfer is being effected by certain transferors prior to the
expiration of the "40 day restricted period" (within the meaning of
Rule 903(c)(2) of Regulation S under the Securities Act), a
certificate that my be obtained from the Trustee is delivered by
the transferee, (iv) to an institution that is an "accredited
investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act (as indicated by the box checked by the transferor
on the Certificate of Transfer on the reverse of the certificate
for the Notes) which has certified to the Company and the Trustee
for the Notes that it is such an accredited investor and is
acquiring the Notes for investment purposes and not for
distribution (provided that no Notes purchased from a foreign
purchaser or from any person other than a QIB or an institutional
accredited investor pursuant to this clause (iii) shall be
permitted to transfer any Notes so purchased to an institutional
accredited investor pursuant to this
E-1
<PAGE> 99
clause (iv) prior to the expiration of the "applicable restricted
period" (within the meaning of Regulation S under the Securities
Act)), (v) pursuant to an exemption from registration under the
Securities Act provided by Rule 144 (if applicable) under the
Securities Act, or (vi) pursuant to an effective registration
statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States,
and we will notify any purchaser of the Notes from us of the above
resale restriction, if then applicable. We further understand that
in connection with any transfer of the Notes by us that the Company
and the Trustee for the Notes may request, and if so requested we
will furnish, such certificates, legal opinions and other
information as they may reasonably require to confirm that any such
transfer complies with the foregoing restrictions.
2. We are able to fend for ourselves in the transactions
contemplated by this Offering Memorandum, we have such knowledge
and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment and can afford the
complete loss of such investment.
3. We understand that the minimum principal amount of Notes
that may be purchased by an investor is $250,000.
4. We understand that the Company, Donaldson, Lufkin &
Jenrette Securities Corporation, UBS Securities LLC and Lehman
Brothers Inc., as the initial purchasers of the Securities
("Initial Purchasers"), and others will rely upon the truth and
accuracy of the foregoing acknowledgments, representations and
agreements and we agree that if any of the acknowledgments,
representations and warranties deemed to have been made by us by
our purchase of Notes, for our own account or of one or more
accounts as to each of which we exercise sole investment
discretion, are no longer accurate, we shall promptly notify the
Company and the Initial Purchasers.
5. We are acquiring the Notes purchased by us for investment
purposes and not for distribution of our own account or for one or
more accounts as to each of which we exercise sole investment
discretion and we are or such account is an institutional
"accredited investor" (as defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D under the Securities Act).
E-2
<PAGE> 100
6. You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to
any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
________________________________________
(Name of Purchaser)
By: ___________________________________
Date: __________________________________
E-3
<PAGE> 101
EXHIBIT F
Form of Certificate To Be
Delivered in Connection
with Regulation S Transfers
---------------, ----
Attention: Corporate Trust Administration
Re: Hermes Europe Railtel B.V. (the "Company") 11-1/2%
Senior Notes due 2007 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $____________
aggregate principal amount of the Securities, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent
that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By: _________________________
F-1
<PAGE> 1
Exhibit 4.4
REGISTRATION RIGHTS AGREEMENT
BETWEEN
HERMES EUROPE RAILTEL B.V.
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,
UBS SECURITIES LLC
AND
LEHMAN BROTHERS INC.
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated
as of August 19, 1997, by and between HERMES EUROPE RAILTEL B.V., a company
incorporated under the laws of the Netherlands (the "Company"), and DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION, UBS SECURITIES LLC and LEHMAN BROTHERS
INC. (the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of August 14, 1997, between the Company and the Initial
Purchasers (the "Purchase Agreement") relating to the sale by the Company to the
Initial Purchasers of $265,000,000 aggregate principal amount of its 11-1/2%
Senior Notes due 2007 (the "Notes"). In order to induce the Initial Purchasers
to enter into the Purchase Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement for the equal benefit of the
Initial Purchasers and its direct and indirect transferees. The execution and
delivery of this Agreement is a condition to the Initial Purchasers' obligation
to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4(a).
Advice: See the last paragraph of Section 5.
Applicable Period: See Section 2(b).
Commission: The Securities and Exchange Commission.
Company: See the introductory paragraph to this Agreement.
Effectiveness Date: The 135th day after the Issue Date;
provided, however, that, with respect to the Initial Shelf Registration
Statement, (i) if the Filing Date in respect thereof is fewer than 60 days prior
to the 135th day after the Issue Date, then the Effectiveness Date in respect
thereof shall be the 60th day after such Filing Date and (ii) if the Filing Date
is after the filing of the Exchange Offer Registration Statement with the
Commission, then the Effectiveness Date in respect thereof shall be the 60th day
after such Filing Date.
Effectiveness Period: See Section 3(a).
Event Date: See Section 4(b).
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
Exchange Offer: See Section 2(a).
<PAGE> 3
-2-
Exchange Offer Registration Statement: See Section 2(a).
Exchange Securities: See Section 2(a).
Expiration Date: See Section 2(a).
Filing Date: The 90th day after the Issue Date; provided,
however, that, with respect to the Initial Shelf Registration Statement, (i) if
a Shelf Registration Event shall have occurred fewer than 30 days prior to the
30th day after the Issue Date, then the Filing Date in respect thereof shall be
the 30th day after such Shelf Registration Event and (ii) if a Shelf
Registration Event shall have occurred after the filing of the Exchange Offer
Registration Statement with the Commission, then the Filing Date in respect
thereof shall be the 30th day after such Shelf Registration Event.
Guarantors: See Section 10(d).
Holder: Any record holder of Registrable Securities.
Indemnified Person: See the third paragraph of Section 7.
Indemnifying Person: See the third paragraph of Section 7.
Indenture: The Indenture, dated as of August 19, 1997, among
the Company, Global TeleSystems Group, Inc. and The Bank of New York, as
trustee, pursuant to which the Notes are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.
Initial Purchasers: See the introductory paragraph to this
Agreement.
Initial Shelf Registration Statement: See Section 3(a).
Inspectors: See Section 5(o).
Issue Date: The date of original issuance of the Notes.
NASD: See Section 5(t).
Notes: See the second introductory paragraph to this
Agreement.
Participant: See the first paragraph of Section 7.
Participating Broker-Dealer: See Section 2(b).
Person: An individual, corporation, limited or general
partnership, limited liability company, joint venture, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
Private Exchange: See Section 2(b).
Private Exchange Securities: See Section 2(b).
<PAGE> 4
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Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
Purchase Agreement: See the second introductory paragraph to
this Agreement.
Records: See Section 5(o).
Registrable Securities: The Notes upon original issuance
thereof and at all times subsequent thereto, each Exchange Security as to which
Section 2(c)(v) hereof is applicable upon original issuance and at all times
subsequent thereto and, if issued, the Private Exchange Securities, until in the
case of any such Notes, Exchange Securities or Private Exchange Securities, as
the case may be, (i) a Registration Statement (other than, with respect to any
Exchange Security as to which Section 2(c)(v) hereof is applicable, the Exchange
Offer Registration Statement) covering such Notes, Exchange Securities or
Private Exchange Securities has been declared effective by the Commission and
such Notes, Exchange Securities or Private Exchange Securities, as the case may
be, have been disposed of in accordance with such effective Registration
Statement, (ii) such Notes, Exchange Securities or Private Exchange Securities,
as the case may be, are sold in compliance with Rule 144, (iii) such Note has
been exchanged for an Exchange Note pursuant to the Exchange Offer and Section
2(c)(v) is not applicable thereto, or (iv) such Notes, Exchange Securities or
Private Exchange Securities, as the case may be, cease to be outstanding.
Registration Statement: Any registration statement of the
Company, including, but not limited to, the Exchange Offer Registration
Statement, that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the Commission providing for offers and
sales of securities made in compliance therewith resulting in offers and sales
by subsequent holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the Commission.
Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
Shelf Notice: See Section 2(c).
<PAGE> 5
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Shelf Registration Statement: See Section 3(b).
Shelf Registration Event: See Section 2(c).
Subsequent Shelf Registration Statement: See Section 3(b).
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if applicable,
the trustee under any indenture governing the Exchange Securities and Private
Exchange Securities (if any).
Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. EXCHANGE OFFER
(a) The Company agrees to file with the Commission on or
before the Filing Date an offer to exchange (the "Exchange Offer") any and all
of the Registrable Securities for a like aggregate principal amount of senior
debt securities of the Company that are identical to the Notes (the "Exchange
Securities") (and that are entitled to the benefits of the Indenture or a trust
indenture that is substantially identical to the Indenture (other than such
changes as are necessary to comply with any requirements of the Commission to
effect or maintain the qualification of such trust indenture under the TIA) and
that has been qualified under the TIA), except that the Exchange Securities
shall have been registered pursuant to an effective Registration Statement under
the Securities Act and shall contain no restrictive legend thereon. The Exchange
Offer will be registered under the Securities Act on the appropriate form (the
"Exchange Offer Registration Statement") and will comply with all applicable
tender offer rules and regulations under the Exchange Act. The Company agrees to
use its reasonable best efforts (i) to cause the Exchange Offer Registration
Statement to become effective and to commence the Exchange Offer on or prior to
the Effectiveness Date, (ii) to keep the Exchange Offer open for 30 days (or
longer if required by applicable law) (the last day of such period, the
"Expiration Date") and (iii) to exchange Exchange Securities for all Notes
validly tendered and not withdrawn pursuant to the Exchange Offer on or prior to
the fifth day following the Expiration Date.
Each Holder who participates in the Exchange Offer will be
deemed to represent that any Exchange Securities received by it will be acquired
in the ordinary course of its business, that at the time of the consummation of
the Exchange Offer such Holder will have no arrangement with any person to
participate in the distribution of the Exchange Securities in violation of the
provisions of the Securities Act, and that such Holder is not an affiliate of
the Company within the meaning of the Securities Act.
Upon consummation of the Exchange Offer in accordance with
this Section 2, the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Registrable Securities that are Private
Exchange Securities, Exchange Securities to which Section 2(c)(v) is applicable
and Exchange Securities held by Participating Broker-Dealers, and the Company
shall have no further obligation to register Registrable Securities (other than
Private Exchange Securities and other than Exchange Securities as to which
Section 2(c)(v) hereof applies) pursuant to Section 3 of this Agreement. No
Securities other than the Exchange Securities shall be included in the Exchange
Offer Registration Statement.
(b) The Company shall include within the Prospectus contained
in the Exchange Offer Registration Statement a Section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which
<PAGE> 6
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shall contain a summary statement of the positions taken or policies made by the
Staff of the Commission (and publicly disseminated) with respect to the
potential "underwriter" status of any broker-dealer that is the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities
received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"). Such "Plan of Distribution" section shall also allow the use of
the prospectus by all persons subject to the prospectus delivery requirements of
the Securities Act, including all Participating Broker-Dealers, and include a
statement describing the means by which Participating Broker-Dealers may resell
the Exchange Securities.
The Company shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all persons subject to the prospectus delivery requirements of the
Securities Act for at least 180 days following the first bona fide offering of
securities under such Registration Statement (or such shorter time as such
persons must comply with such requirements in order to resell the Exchange
Securities) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Notes acquired by them and having, or which are reasonably
likely to be determined to have, the status of an unsold allotment in the
initial distribution, the Company upon the request of the Initial Purchasers
shall, simultaneously with the delivery of the Exchange Securities in the
Exchange Offer, issue and deliver to the Initial Purchasers, in exchange (the
"Private Exchange") for the Notes held by the Initial Purchasers, a like
principal amount of debt securities of the Company that are identical to the
Exchange Securities (the "Private Exchange Securities") (and which are issued
pursuant to the same indenture as the Exchange Securities) (except for the
placement of a restrictive legend on such Private Exchange Securities). The
Private Exchange Securities shall bear the same CUSIP number as the Exchange
Securities. Interest on the Exchange Securities and Private Exchange Securities
will accrue from the last interest payment date on which interest was paid on
the Notes surrendered in exchange therefor or, if no interest has been paid on
the Notes, from the Issue Date.
Any indenture under which the Exchange Securities or the
Private Exchange Securities will be issued shall provide that the holders of any
of the Exchange Securities and the Private Exchange Securities will vote and
consent together on all matters to which such holders are entitled to vote or
consent as one class and that none of the holders of the Exchange Securities and
the Private Exchange Securities will have the right to vote or consent as a
separate class on any matter.
(c) If, (i) because of any change in law or in currently
prevailing interpretations of the Staff of the Commission, the Company is not
permitted to effect the Exchange Offer, (ii) the Exchange Offer is not commenced
on or prior to the Effectiveness Date, (iii) the Exchange Offer is, for any
reason, not consummated on or prior to the 165th day after the Issue Date, (iv)
any Holder of Private Exchange Securities so requests, or (v) in the case of any
Holder that participates in the Exchange Offer, such Holder does not receive
Exchange Securities on the date of the exchange that may be sold without
restriction under state and federal securities laws (the occurrence of any such
event, a "Shelf Registration Event"), then, in the case of each of clauses (i)
to and including (v) of this sentence, the Company shall promptly deliver to the
Holders and the Trustee notice thereof (the "Shelf Notice") and shall thereafter
file an Initial Shelf Registration Statement pursuant to Section 3.
3. SHELF REGISTRATION
If a Shelf Registration Event has occurred (and whether or not
an Exchange Offer Registration Statement has been filed with the Commission or
has become effective, or the Exchange Offer has been consummated), then:
<PAGE> 7
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(a) Initial Shelf Registration Statement. The Company shall
promptly prepare and file with the Commission a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Securities (the "Initial Shelf Registration Statement"). The
Company shall file with the Commission the Initial Shelf Registration Statement
on or prior to the Filing Date. The Initial Shelf Registration Statement shall
be on Form S-1 or another appropriate form, if available, permitting
registration of such Registrable Securities for resale by such holders in the
manner designated by them (including, without limitation, in one or more
underwritten offerings). The Company shall not permit any securities other than
the Registrable Securities to be included in the Initial Shelf Registration
Statement or any Subsequent Shelf Registration Statement. The Company shall use
its reasonable best efforts to cause the Initial Shelf Registration Statement to
be declared effective under the Securities Act on or prior to the Effectiveness
Date, and to keep the Initial Shelf Registration Statement continuously
effective under the Securities Act until the date which is 24 months from the
Issue Date (or such shorter period under Rule 144 under the Securities Act then
in effect after which non-affiliates of the issuer are permitted to resell
securities without registration), or such shorter period ending when (i) all
Registrable Securities covered by the Initial Shelf Registration Statement have
been sold in the manner set forth and as contemplated in the Initial Shelf
Registration Statement or (ii) a Subsequent Shelf Registration Statement
covering all of the Registrable Securities has been declared effective under the
Securities Act (such period, the "Effectiveness Period").
(b) Subsequent Shelf Registration Statements. If the Initial
Shelf Registration Statement or any Subsequent Shelf Registration Statement
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the Company shall use its reasonable best efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof, and in any
event the Company shall within 45 days of such cessation of effectiveness amend
the Shelf Registration Statement in a manner reasonably expected to obtain the
withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all of
the Registrable Securities (a "Subsequent Shelf Registration Statement"). If a
Subsequent Shelf Registration Statement is filed, the Company shall use its
reasonable best efforts to cause the Subsequent Shelf Registration Statement to
be declared effective as soon as reasonably practicable after such filing and to
keep such Registration Statement continuously effective until the end of the
Effectiveness Period. As used herein the term "Shelf Registration Statement"
means the Initial Shelf Registration Statement and any Subsequent Shelf
Registration Statement.
(c) Supplements and Amendments. The Company shall promptly
supplement and amend the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration Statement, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal amount
of the Registrable Securities covered by such Registration Statement or by any
underwriter of such Registrable Securities.
(d) Hold-Back Agreements.
(i) Restrictions on Public Sale by Holders of Registrable
Securities. Each Holder of Registrable Securities whose Registrable
Securities are covered by a Shelf Registration Statement (which
Registrable Securities are not being sold in the underwritten offering
described below) agrees, if requested (pursuant to a timely written
notice) by the Company or by the managing underwriter or underwriters
in an underwritten offering of Registrable Securities, not to effect
any public sale or distribution of any securities within the class of
securities covered by such Shelf Registration Statement or any similar
class of securities of the Company, including a sale pursuant to Rule
144 or Rule 144A (except as part of such underwritten offering), during
the period beginning 10 days prior to, and ending 60 days after, the
Issue Date of each underwritten offering made pursuant to each Shelf
Registration Statement, to the
<PAGE> 8
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extent timely notified in writing by the Company or by the managing
underwriter or underwriters; provided, however, that each holder of
Registrable Securities shall be subject to the hold-back restrictions
of this Section 3(d)(i) only once during the term of this Agreement.
The foregoing provisions shall not apply to any Holder of
Registrable Securities if such Holder is prevented by applicable
statute or regulation from entering into any such agreement; provided,
however, that any such Holder shall undertake, in its request to
participate in any such underwritten offering, not to effect any public
sale or distribution of the class of securities covered by such Shelf
Registration Statement (except as part of such underwritten offering)
during such period unless it has provided 45 days' prior written notice
of such sale or distribution to the Company or the managing underwriter
or underwriters, as the case may be.
(ii) Restrictions on the Company and Others. The Company
agrees (A) not to effect any public or private sale or distribution
(including, without limitation, a sale pursuant to Regulation D under
the Securities Act) of any securities the same as or similar to those
covered by a Shelf Registration Statement or any securities convertible
into or exchangeable or exercisable for such securities, during the 10
days prior to, and during the 60-day period beginning on, the
commencement of an underwritten public distribution of Registrable
Securities, where the managing underwriter or underwriters so requests
pursuant to timely written notice; (B) to include in any agreements
entered into by the Company on or after the date of this Agreement
(other than any underwriting agreement relating to a public offering
registered under the Securities Act) pursuant to which the Company
issues or agrees to issue securities the same as or similar to the
Notes a provision substantially identical to Section 3(d)(i); and (C)
not to grant or agree to grant any "piggy-back registration" or other
similar rights to any holder of the Company's or any of its
subsidiaries' securities issued on or after the date of this Agreement
with respect to any Registration Statement.
4. ADDITIONAL INTEREST
(a) The Company and the Initial Purchasers agree that the
Holders of Notes will suffer damages if the Company fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay, as liquidated damages, additional interest on the
Notes ("Additional Interest") under the circumstances and to the extent set
forth below (each of which shall be given independent effect):
(i) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement has not been filed on or prior to the
Filing Date (unless, with respect to the Exchange Offer Registration
Statement, a Shelf Registration Event described in Section 2(c)(i)
shall have occurred prior to the Filing Date), Additional Interest
shall accrue on the Notes over and above the stated interest on the
principal of a rate equal to 50 basis points for the first 90 days
(or any part thereof) immediately following such date, such
Additional Interest rate increasing by an additional 50 basis points
for each subsequent 90-day period (or any part thereof);
(ii) if either the Exchange Offer Registration Statement or
the Initial Shelf Registration Statement is not declared effective by
the Commission on or prior to the Effectiveness Date (unless, with
respect to the Exchange Offer Registration Statement, a Shelf
Registration Event described in Section 2(c)(i) shall have occurred),
Additional Interest shall accrue on the Notes included or which
should have been included in such Registration Statement over and
above the stated interest on the principal at a rate equal to 50
basis points for the first 90 days (or any part thereof) immediately
fol-
<PAGE> 9
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lowing the day after such date, such Additional Interest rate
increasing by an additional 50 basis points for each subsequent 90-day
period (or any part thereof); and
(iii) if (A) the Company has not exchanged Exchange Securities
for all Notes validly tendered and not withdrawn in accordance with the
terms of the Exchange Offer on or prior to the fifth day after the
Expiration Date, or (B) the Exchange Offer Registration Statement
ceases to be effective at any time prior to the Expiration Date, or (C)
if applicable, any Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be effective
at any time during the Effectiveness Period, then Additional Interest
shall accrue on the Notes (over and above any interest otherwise
payable on principal of the Notes) at a rate equal to 50 basis points
for the first 90 days (or any part thereof) commencing on (x) the sixth
day after the Expiration Date, in the case of (A) above, or (y) the day
the Exchange Offer Registration Statement ceases to be effective in the
case of (B) above, or (z) the day such Shelf Registration Statement
ceases to be effective in the case of (C) above, such Additional
Interest rate increasing by an additional 50 basis points for each such
subsequent 90-day period (or any part thereof);
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 150 basis points; provided, further, that (1)
upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration Statement as required hereunder (in the case of clause (i) of this
Section 4(a)), (2) upon the effectiveness of the Exchange Offer Registration
Statement or the Shelf Registration Statement as required hereunder (in the case
of clause (ii) of this Section 4(a)) or (3) upon the exchange of Exchange
Securities for all Notes validly tendered and not withdrawn (in the case of
clause (iii)(A) of this Section 4(a)), or upon the effectiveness of the Exchange
Offer Registration Statement which had ceased to remain effective (in the case
of clause (iii)(B) of this Section 4(a)), or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(C) of this Section 4(a)), Additional Interest on the Notes as a
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue (but any accrued amount shall be payable).
(b) The Company shall notify the Trustee within one business
day after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). The Company shall
pay the Additional Interest due on the Registrable Securities by depositing with
the Trustee, in trust, for the benefit of the Holders thereof, on or before the
applicable semi-annual interest payment date, immediately available funds in
sums sufficient to pay the Additional Interest then due to Holders of
Registrable Securities. Each obligation to pay Additional Interest shall be
deemed to accrue immediately following the occurrence of the applicable Event
Date. Any accrued Additional Interest amount shall be due and payable on each
interest payment date immediately after the applicable Event Date to the record
Holder of Registrable Securities entitled to receive the interest payment to be
made on such date as set forth in the Indenture. The parties hereto agree that
the Additional Interest provided for in this Section 4 constitutes a reasonable
estimate of the damages that may be incurred by Holders of Registrable
Securities by reason of the failure of a Shelf Registration Statement or
Exchange Offer Registration Statement to be filed or declared effective, or a
Shelf Registration Statement to remain effective, as the case may be, in
accordance with this Section 4.
5. REGISTRATION PROCEDURES
In connection with the registration of any Registrable
Securities pursuant to Sections 2 or 3 hereof, the Company shall use its
reasonable best efforts to effect such registrations to permit the sale of such
Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall:
<PAGE> 10
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(a) prepare and file with the Commission on or before the
Filing Date, a Registration Statement or Registration Statements as prescribed
by Section 2 or 3, and to use its reasonable best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein; provided, however, that, if (1) such filing is pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company shall furnish to and afford the
Holders of the Registrable Securities and each such Participating Broker-Dealer,
as the case may be, covered by such Registration Statement, their counsel and
the managing underwriters, if any, a reasonable opportunity to review copies of
all such documents (including copies of any documents to be incorporated by
reference therein) proposed to be filed; the Company shall not file any
Registration Statement or Prospectus or any amendments or supplements thereto in
respect of which the Holders must be afforded a reasonable opportunity to review
prior to the filing of such document, if the Holders of a majority in aggregate
principal amount of the Registrable Securities covered by such Registration
Statement, or such Participating Broker-Dealer, as the case may be, their
counsel, or the managing underwriters, if any, shall not have been afforded such
opportunity or shall reasonably object, except for any amendment or supplement
or document that counsel to the Company shall advise the Company in writing is
required in order to comply with applicable law;
(b) prepare and file with the Commission such amendments and
post-effective amendments to each Shelf Registration Statement or Exchange Offer
Registration Statement, as the case may be, as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period, in
the case of a Shelf Registration Statement, or until the later of the Expiration
Date and the Applicable Period (if applicable), in the case of the Exchange
Offer Registration Statement; cause the related Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 (or any similar provisions then in force) under the Securities Act;
and comply with the provisions of the Securities Act, the Exchange Act and the
rules and regulations of the Commission promulgated thereunder applicable to it
with respect to the disposition of all securities covered by such Registration
Statement as so amended or in such Prospectus as so supplemented and with
respect to the subsequent resale of any securities being sold by a Participating
Broker-Dealer covered by any such Prospectus;
(c) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, notify the selling Holders of
Registrable Securities, or each such Participating Broker-Dealer, as the case
may be, their counsel and the managing underwriters, if any, promptly, and
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective (including in such notice a written statement that any Holder may,
upon request, obtain, without charge, one conformed copy of such Registration
Statement or post-effective amendment including financial statements and
schedules, but without documents incorporated or deemed to be incorporated by
reference or exhibits unless specifically requested); (ii) of the issuance by
the Commission of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus or the initiation of any proceedings for that purpose; (iii) if at
any time when a prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Securities the representations and
warranties of the Company contained in any agreement (including any underwriting
agreement) contemplated by Section 5(n) below cease to be true and correct; (iv)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of a Registration Statement
or any of the Registrable Securities or the Exchange Securities to be sold by
any Participating Broker-Dealer for offer or sale in any
<PAGE> 11
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jurisdiction, or the initiation or threatening of any proceeding for such
purpose; (v) of the happening of any event or any information becoming known
that makes any statement made in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in such Registration Statement, Prospectus or documents so that, in the
case of the Registration Statement, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the Prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that such notification need not
specifically identify such event if notification of the occurrence thereof would
in the Company's reasonable judgment, involve the disclosure of confidential
non-public information; and (vi) of the Company's reasonable determination that
a post-effective amendments to the Registration Statement would be appropriate;
(d) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, use its reasonable best efforts to
prevent the issuance of any order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any of the
Registrable Securities or the Exchange Securities to be sold by any
Participating Broker-Dealer, for sale in any jurisdiction, and, if any such
order is issued, to use its reasonable best efforts to obtain the withdrawal of
any such order at the earliest possible moment;
(e) if a Shelf Registration Statement is filed pursuant to
Section 3 and if requested by the managing underwriters, if any, or the Holders
of a majority in aggregate principal amount of the Registrable Securities being
sold in connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, or such Holders or their respective counsel
reasonably request to be included therein; and (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
reasonably practicable after the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment;
(f) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, furnish to each selling Holder of
Registrable Securities and to each such Participating Broker-Dealer who so
requests and upon request to their respective counsel and each managing
underwriter, if any, without charge, one conformed copy of the Registration
Statement or Statements and each post-effective amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits;
(g) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, deliver to each selling Holder of
Registrable Securities, or each such Participating Broker-Dealer, as the case
may be, their counsel, and the underwriters, if any, without charge, as many
copies of the Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request; and,
sub-
<PAGE> 12
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ject to the last paragraph of this Section 5, the Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling holders of Registrable Securities or each such Participating
Broker-Dealer, as the case may be, and the underwriters or agents, if any, and
dealers (if any), in connection with the offering and sale of the Registrable
Securities covered by or the sale by Participating Broker-Dealers of the
Exchange Securities pursuant to such Prospectus and any amendment or supplement
thereto provided such use complies with all applicable laws and regulations;
(h) prior to any public offering of Registrable Securities or
any delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, use its reasonable best efforts to
register or qualify, and to cooperate with the selling Holders of Registrable
Securities or each such Participating Broker-Dealer, as the case may be, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder, Participating Broker-Dealer, or the managing underwriters
reasonably request in writing; provided, however, that where Exchange Securities
held by Participating Broker-Dealers or Registrable Securities are offered other
than through an underwritten offering, the Company shall cause its counsel to
(i) perform Blue Sky investigations and file registrations and qualifications
required to be filed pursuant to this Section 5(h); (ii) use its reasonable best
efforts to keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective; and (iii) do any and all other acts or things necessary or advisable
to enable the disposition in such jurisdictions of the Exchange Securities held
by Participating Broker-Dealers or the Registrable Securities covered by the
applicable Registration Statement; provided, further, that the Company shall not
in any case be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject, (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction;
(i) if a Shelf Registration Statement is filed pursuant to
Section 3, cooperate with the selling Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company; and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriter or underwriters, if any, or Holders may reasonably
request;
(j) use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities, except as may be
required solely as a consequence of the nature of such selling Holder's
business, in which case the Company will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals; provided, further, that the Company shall not in any case be required
to (A) qualify generally to do business in any jurisdiction where it is not then
so qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject, (C) subject
itself to taxation in excess of a nominal dollar amount in any such
jurisdiction;
(k) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) above, as
<PAGE> 13
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promptly as practicable prepare and (subject to Section 5(a) above) file with
the Commission, solely at the expense of the Company, a supplement or
post-effective amendment to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder
or to the purchasers of the Exchange Securities to whom such Prospectus will be
delivered by a Participating Broker-Dealer, any such Prospectus will not 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, in the light
of the circumstances under which they were made, not misleading. The Company
agrees to notify the Holders to suspend use of any such Prospectus as promptly
as practicable after the occurrence of such event, and the Holders agree, upon
receipt of such notice, to suspend use of any such Prospectus until the Company
has amended or supplemented such Prospectus to correct such misstatement or
omission;
(l) use its reasonable best efforts to cause the Registrable
Securities covered by a Registration Statement or the Exchange Securities, as
the case may be, to be rated with the appropriate rating agencies, if so
requested by the Holders of a majority in aggregate principal amount of
Registrable Securities covered by such Registration Statement or the Exchange
Securities, as the case may be, or the managing underwriters, if any;
(m) prior to the effective date of the first Registration
Statement relating to the Registrable Securities, (i) provide the Trustee with
certificates for the Registrable Securities in a form eligible for deposit with
The Depository Trust Company; and (ii) provide a CUSIP number for the
Registrable Securities;
(n) in connection with an underwritten offering of Registrable
Securities pursuant to a Shelf Registration Statement, enter into an
underwriting agreement as is customary in underwritten offerings, provided such
agreement is reasonably acceptable to the Company and provided that the
underwriters are reasonably acceptable to the Company, and take all such other
actions as are reasonably requested by the managing underwriters in order to
expedite or facilitate the registration or the disposition of such Registrable
Securities, and in such connection if reasonably requested, (i) make such
representations and warranties to the underwriters, with respect to the business
of the Company and its subsidiaries and the Registration Statement, Prospectus
and documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when reasonably requested;
(ii) use its reasonable best efforts to obtain opinions of counsel to the
Company and updates thereof in form and substance reasonably satisfactory to the
managing underwriters, addressed to the underwriters covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by underwriters; (iii) use its
reasonable best efforts to obtain "cold comfort" letters and updates thereof in
form and substance reasonably satisfactory to the managing underwriters from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company or any of its subsidiaries for which
financial statements and financial data are, or are required to be, included in
the Registration Statement), addressed to each of the underwriters, such letters
to be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings and such other
matters as reasonably requested by underwriters; and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures comparable to those set forth in Section 7 hereof (or such other
provisions and procedures reasonably acceptable to the Company and the Holders
of a majority in aggregate principal amount of Registrable Securities covered by
such Registration Statement and the managing underwriters or agents) with
respect to all parties to be indemnified pursuant to said section, all of which
shall be done at each closing under such underwriting agreement, or as and to
the extent required thereunder;
<PAGE> 14
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(o) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, subject to the prior receipt by the
Company of undertakings to use commercially reasonable best efforts to preserve
the confidentiality of any information disclosed by the Company pursuant hereto
in form and substance reasonably satisfactory to the Company, make available for
inspection by any selling Holder of such Registrable Securities being sold, or
each such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Securities, if any, and any
attorney, accountant or other agent retained by any such selling holder or each
such Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
reasonable business hours, all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be necessary to enable them to exercise
any applicable due diligence responsibilities, and cause the officers, directors
and employees of the Company and its subsidiaries to supply all information in
each case requested by any such Inspector in connection with such Registration
Statement; however, records which the Company determines, in good faith, to be
confidential and any Records which the Company notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
such Registration Statement; (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction;
(iii) the information in such Records has been made generally available to the
public; or (iv) release thereof is necessary or advisable in connection with any
action, suit or proceeding involving any Holder or other Inspector;
(p) provide for an indenture trustee for the Registrable
Securities or the Exchange Securities, as the case may be, and cause the
Indenture or the trust indenture provided for in Section 2(a), as the case may
be, to be qualified under the TIA not later than the effective date of the
Exchange Offer or the first Registration Statement relating to the Registrable
Securities; and in connection therewith, cooperate with the trustee under any
such indenture and the holders of the Registrable Securities, to effect such
changes to such indenture as may be required for such indenture to be so
qualified in accordance with the terms of the TIA; and execute, and use its
reasonable best efforts to cause such trustee to execute, all documents as may
be required to effect such changes, and all other forms and documents required
to be filed with the Commission to enable such indenture to be so qualified in a
timely manner;
(q) comply with all applicable rules and regulations of the
Commission to the extent and so long as they are applicable to the Exchange
Offer Registration Statement or the Shelf Registration Statement and make
generally available to their Securityholders earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Securities are sold to underwriters in a firm
commitment or best efforts underwritten offering; and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month periods;
(r) upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Company in customary form,
relating to the Exchange Securities or the Private Exchange Securities, as
the case may be, addressed to the Trustee for the benefit of all Holders of
Registrable Securities participating in the Exchange Offer or the Private
Exchange, as the case may be, and which includes an opinion that (i) the Company
has duly authorized, executed and delivered the Exchange Securities and Private
Exchange Securities and the related indenture; and (ii) each of the Exchange
Securities or the Private Exchange Securities, as
<PAGE> 15
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the case may be, and related indenture constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms (with customary exceptions);
(s) if an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Securities by Holders to the
Company (or to such other Person as directed by the Company) in exchange for the
Exchange Securities or the Private Exchange Securities, as the case may be,
mark, or caused to be marked, on such Registrable Securities that such
Registrable Securities are being canceled in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be; in no event
shall such Registrable Securities be marked as paid or otherwise satisfied;
(t) cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and their
respective counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD"); and
(u) use its reasonable best efforts to take all other steps
necessary to effect the registration of the Registrable Securities covered by a
Registration Statement contemplated hereby.
The Company may require each seller of Registrable Securities
or Participating Broker-Dealer as to which any registration is being effected to
furnish to the Company such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
as the Company may, from time to time, reasonably request. The Company may
exclude from such registration the Registrable Securities of any seller or
Participating Broker-Dealer who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
Each Holder of Registrable Securities and each Participating
Broker-Dealer agrees by acquisition of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus or Exchange Securities to
be sold by such Participating Broker-Dealer, as the case may be, until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and has
received copies of any amendments or supplements thereto.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer Registration Statement or a Shelf Registration
Statement is filed or becomes effective, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel) in such jurisdictions (x) where the holders of
Registrable Securities are located, in the case of the Exchange Securities, or
(y) as provided in Section 5(h), in the case of Registrable Securities to be
sold in a public offering or Exchange Securities to be sold by a Participating
Broker-Dealer during the Applicable Period)); (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
or Exchange Securities in a form eligible
<PAGE> 16
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for deposit with The Depository Trust Company and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriters, if any,
or, in respect of Registrable Securities or Exchange Securities to be sold by
any Participating Broker-Dealer during the Applicable Period, by the Holders of
a majority in aggregate principal amount of the Registrable Securities included
in any Registration Statement or of such Exchange Securities, as the case may
be); (iii) messenger, telephone and delivery expenses incurred by the Company;
(iv) fees and disbursements of counsel for the Company and all documentation
related thereto, including any underwriting agreement and all related
documentation (subject to the provisions of Section 6(b)); (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(n)(iii) (including, without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance);
(vi) the reasonable fees and expenses of any "qualified independent underwriter"
or other independent appraiser participating in an offering pursuant to the
Conduct Rules of the NASD; (vii) rating agency fees; (viii) Securities Act
liability insurance, if the Company desires such insurance; (ix) fees and
expenses of all other Persons retained by the Company; (x) internal expenses of
the Company (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties);
(xi) the expense of any annual audit of the Company; (xii) the fees and expenses
incurred by the Company in connection with the listing of the Registrable
Securities on any Securities exchange; and (xiii) the expenses relating to
printing, word processing and distributing all Registration Statements,
underwriting agreements, securities sales agreements, indentures and any other
documents necessary in order to comply with this Agreement. Anything contained
herein to the contrary notwithstanding, the Company shall not have any
obligation whatsoever in respect of any fees or expenses of counsel to any
underwriters, underwriters' discounts or commissions, brokerage commissions,
dealers' selling concessions, transfer taxes or any other selling expenses
(other than those expressly enumerated in clauses (i) through (xiii) above)
incurred in connection with the underwriting, offering or sale of Registrable
Securities or Exchange Securities by or on behalf of any Person.
(b) In connection with any Shelf Registration Statement
hereunder, the Company shall reimburse the Holders of the Registrable Securities
being registered in such registration for the reasonable fees and disbursements
of not more than one counsel (in addition to appropriate local counsel) chosen
by the Holders of a majority in aggregate principal amount of the Registrable
Securities to be included in such Registration Statement and other reasonable
out-of-pocket expenses of the Holders of Registrable Securities incurred in
connection with the registration of the Registrable Securities.
7. INDEMNIFICATION
The Company agrees to indemnify and hold harmless each Holder
of Registrable Securities and each Participating Broker-Dealer selling Exchange
Securities during the Applicable Period, the officers and directors of each such
person, and each person, if any, who controls any such person within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each, a "Participant"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, the reasonable legal fees and
other expenses incurred in connection with any suit, action or proceeding or any
claim asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (or any amendment thereto)
or Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to such Participant furnished to the
Company in writing by such Participant (or, if such Participant is not a Holder
or a Participating Broker-Dealer, furnished in writing by the Holder or
Participating Broker-Dealer in respect of which such person is a Participant
<PAGE> 17
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relating to such Participant) expressly for use therein; provided, however, that
the foregoing indemnity with respect to any preliminary prospectus shall not
inure to the benefit of any Participant (or, if such Participant is not a Holder
or a Participating Broker-Dealer, furnished in writing by the Holder or
Participating Broker-Dealer in respect of which such person is a Participant
relating to such Participant) from whom the person asserting any such losses,
claims, damages or liabilities purchased Registrable Securities to the extent
that such untrue statement or omission or alleged untrue statement or omission
made in such preliminary prospectus is eliminated or remedied in the related
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) and a copy of the related Prospectus (as so
amended or supplemented) shall not have been furnished to such person at or
prior to the sale of such Registrable Securities or Exchange Securities, as the
case may be, to such person .
Each Participant will be required to agree, severally and not
jointly, to indemnify and hold harmless each of the Company, its directors, its
officers who sign the Registration Statement and each person who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to each Participant, but only with reference to information relating to such
Participant furnished to the Company in writing by such Participant expressly
for use in any Registration Statement or Prospectus, any amendment or supplement
thereto, or any preliminary prospectus. The liability of any Participant under
this paragraph shall in no event exceed the proceeds received by such
Participant from sales of Registrable Securities giving rise to such
obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding; and shall pay the
reasonable fees and expenses incurred by such counsel related to such
proceeding, provided, however, that the failure to so notify the Indemnifying
Person shall not relieve it of any obligation or liability which it may have
hereunder or otherwise (unless and only to the extent that such failure actually
prejudices the Indemnifying Person). In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but, other than in
circumstances involving a conflict among Indemnified Persons, the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have agreed
to the contrary; (ii) the Indemnifying Person has failed within a reasonable
time to retain counsel reasonably satisfactory to the Indemnified Person; or
(iii) the named parties in any such proceeding (including any impleaded parties)
include both the Indemnifying Person and the Indemnified Person and
representation of both parties by the same counsel would be inappropriate due to
an actual or potential conflict of interest. It is understood that, other than
in circumstances involving a conflict among Indemnified Persons, the
Indemnifying Person shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed as they are
incurred. Any such separate firm for the Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable
Securities sold by all such Participants and any such separate firm for the
Company, its directors, its officers and such control persons of the Company
shall be designated in writing by the Company. The Indemnifying Person shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for reasonable fees and expenses
<PAGE> 18
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incurred by counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 60 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party, unless such settlement includes an unconditional written release of such
Indemnified Person in form and substance satisfactory to the Indemnified Persons
from all liability on claims that are the subject matter of such proceeding.
If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or insufficient
to hold harmless, an Indemnified Person in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Person under
such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the initial
offering of the Notes or (ii) if the allocation provided by the foregoing clause
(i) is not permitted by applicable law, not only such relative benefits but also
the relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Participants on the other shall be deemed to be
in the same proportion as the total proceeds from the initial offering (net of
discounts and commissions but before deducting expenses) of the Notes received
by the Company bears to the total proceeds received by such Participant from the
sale of Registrable Securities. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, on the one hand,
or such Participant or such other Indemnified Person, as the case may be, on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
The parties shall agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
exceeds the amount of any damages that such Participant has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. 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 indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
<PAGE> 19
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8. RULE 144 AND RULE 144A
The Company covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the Commission thereunder in a timely manner and, if
at any time the Company is not required to file such reports, it will, upon the
request of any Holder of Registrable Securities, make publicly available other
information so long as necessary to permit sales pursuant to Rule 144 and Rule
144A under the Securities Act. The Company further covenants that it will take
such further action as any Holder of Registrable Securities may reasonably
request, to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 and Rule 144A under the
Securities Act.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Holders of a majority in aggregate
principal amount of such Registrable Securities included in such offering and
reasonably acceptable to the Company.
No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements (however the terms applicable to each Holder shall be identical in
all respects) and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements applicable to all Holders.
10. MISCELLANEOUS
(a) Remedies. In the event of a breach by the Company of any
of its obligations under this Agreement, each Holder of Registrable Securities,
in addition to being entitled to exercise all rights provided herein, in the
Indenture or, in the case of the Initial Purchasers, in the Purchase Agreement
or granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect of
such breach, it shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company has not, as of the
date hereof, entered into and shall not, after the date of this Agreement, enter
into any agreement with respect to any of its Securities that is inconsistent
with the rights granted to the Holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
entered into and will not enter into any agreement with respect to any of its
securities which will grant to any Person "piggy-back" rights with respect to a
Registration Statement.
(c) Adjustments Affecting Registrable Securities. The Company
shall not, directly or indirectly, take any action with respect to the
Registrable Securities as a class that would adversely affect the ability of the
Holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement.
<PAGE> 20
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(e) Amendments and Waivers. Except as provided in paragraph
(d) above, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than by an instrument executed and delivered by (A)
the Holders of not less than a majority in aggregate principal amount of the
then outstanding Registrable Securities and (B) in circumstances that would
adversely affect the Participating Broker-Dealers, the Participating
Broker-Dealers holding not less than a majority in aggregate principal amount of
the Exchange Securities held by all Participating Broker-Dealers; provided,
however, that Section 7 and this Section 10(e) may not be amended, modified or
supplemented except by an instrument executed and delivered by each Holder and
each Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Securities or Exchange Securities, as
the case may be, disposed of pursuant to any Registration Statement) affected by
any such amendment, modification or supplement. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Registrable Securities
whose Securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect, impair, limit or compromise the rights
of other Holders of Registrable Securities may be given pursuant to an
instrument executed and delivered by Holders of at least a majority in aggregate
principal amount of the Registrable Securities being sold by such Holders
pursuant to such Registration Statement.
(f) Notices. All notices and other communications (including
without limitation any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(i) if to a Holder of Registrable Securities, at the most
current address given by the Trustee to the Company; and
(ii) if to the Company, at Hermes Europe Railtel B.V.,
Terhulpsesteenweg 6A, 1560 Hoeilaart, Belgium, Attention: Chief Financial
Officer with a copy to Global TeleSystems Group, Inc., 1751 Pinnacle Drive,
North Tower, 12th Floor, McLean, VA 22102, Attention: Chief Executive Officer.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the trustee
under the Indenture at the address specified in such Indenture.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Registrable Securities.
(h) 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.
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
<PAGE> 21
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(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(k) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable best efforts to find and employ
an alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(l) Entire Agreement. This Agreement, together with the
Purchase Agreement, is intended by the parties as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein.
(m) Securities Held by the Company or Its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its affiliates (as such term is defined in Rule 405 under the Securities Act)
shall not be deemed to be not outstanding for purposes of determining whether
such consent or approval was given by the Holders of such required percentage.
(n) Agent for Service; Submission to Jurisdiction; Waiver of
Immunities. By the execution and delivery of this Agreement, the Company (i)
acknowledges that it has, by separate written instruments, designated and
appointed CT Corporation System, 1633 Broadway, New York, NY 10019 ("CT
Corporation System") (and any successor entity), as its authorized agent upon
which process may be served in any suit or proceeding arising out of or relating
to this Agreement that may be instituted in any federal or state court in the
Borough of Manhattan, City of New York, State of New York or brought under
federal or state securities laws, and represent and warrant that CT Corporation
System has accepted such designation, (ii) submit to the jurisdiction of any
such court in any such suit or proceeding and (iii) agree that service of
process upon CT Corporation System and written notice of said service to the
Company in accordance with the provisions of this Agreement shall be deemed in
every respect effective service of process upon the Company in any such suit or
proceeding. The Company further agrees to take any and all action, including the
execution and filing of any and all such documents and instruments, as may be
necessary to continue such designation and appointment of CT Corporation System
in full force and effect for as long as any of the Notes remain outstanding
(subject to the limitation set forth in clause (i)); provided, however, that the
Company may, and to the extent CT Corporation System ceases to be able to be
served on the basis contemplated herein shall, by written notice to the Initial
Purchasers, designate such additional or alternative agent for service of
process that (i) maintains an office located in the Borough of Manhattan, City
of New York, State of New York, and (ii) is either (x) United States counsel for
the Company or (y) a corporate service company which acts as agent for service
of process for other persons in the ordinary course of its business. Such
written notice shall identify the name of such agent for service of process and
the address of the office of such agent for service of process in the Borough of
Manhattan, City of New York, State of New York.
<PAGE> 22
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To the extent that the Company has or hereafter may acquire
any immunity from jurisdiction of any court of (i) any jurisdiction in which the
Company owns or leases property or assets, (ii) the United States or the State
of New York or (iii) the Netherlands or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property and assets or
this Agreement or any of the Notes or actions to enforce judgments in respect of
any thereof, the Company hereby irrevocably waives such immunity in respect of
its obligations under the above-referenced documents, to the extent permitted by
law.
(o) Judgment Currency. The Company hereby agrees to indemnify
each Participant against any loss incurred by such person as a result of any
judgment or order being given or made against the Company for any U.S. dollar
amount due under this Agreement and such judgment or order being expressed and
paid in a currency (the "Judgment Currency") other than United States dollars
and as a result of any variation as between (i) the rate of exchange at which
the United States dollar amount is converted into the Judgment Currency for the
purpose of such judgment or order and (ii) the spot rate of exchange in The City
of New York at which such party on the date of payment of such judgment or order
is able to purchase United States dollars with the amount of the Judgment
Currency actually received by such party. The foregoing indemnity shall continue
in full force and effect notwithstanding any such judgment or order as
aforesaid. The term "spot rate of exchange" shall include any premiums and costs
of exchange payable in connection with the purchase of, or conversion into,
United States dollars.
[Signature Pages Follow]
<PAGE> 23
S-1
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
HERMES EUROPE RAILTEL B.V.
By: /s/ Peter Magnas
-----------------------------
Name: Peter Magnas
Title: Attorney-in-Fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
UBS SECURITIES LLC
LEHMAN BROTHERS INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Anthony S. Belinkoff
-----------------------------
Name: Anthony S. Belinkoff
Title: Managing Director
<PAGE> 1
Exhibit 4.5
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement"), dated as of August 19,
1997, among The Bank of New York, as escrow agent (in such capacity, "Escrow
Agent"), The Bank of New York, as Trustee (in such capacity, "Trustee") under
the Indenture (as defined herein), and Hermes Europe Railtel B.V., a Netherlands
limited company ("Company").
R E C I T A L S :
A. Pursuant to the Indenture, dated as of August 19, 1997 (the
"Indenture"), between Company and Trustee, Company is issuing $265,000,000
aggregate principal amount of its 1l 1/2% Senior Notes due 2007 (the "Series A
Securities") and authorizing the issuance of 1l 1/2% Senior Notes due 2007,
Series B (the "Series B Securities," and together with the Series A Securities,
the "Securities").
B. As security for its obligations under the Securities and the
Indenture, Company hereby grants to Escrow Agent, for the benefit of Trustee,
any predecessor Trustee under the Indenture and the holders of the Securities, a
security interest in and lien upon the Escrow Account (as defined herein).
C. The parties have entered into this Agreement in order to set
forth the conditions upon which, and the manner in which, funds will be
disbursed from the Escrow Account and released from the security interest and
lien described above.
A G R E E M E N T
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms. All terms used but not defined herein shall have
the meanings ascribed to them in the Indenture. In addition to any other defined
terms used herein, the following terms shall constitute defined terms for
purposes of this Agreement and shall have the meanings set forth below:
"Affiliate" of any specified person means any other person which,
directly or indirectly, controls, is controlled
<PAGE> 2
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by or is under common control with such specified person. For the purposes of
this definition, "control" when used with respect to any person means the power
to direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise and
the terms "affiliated," "controlling" and "controlled" have meanings correlative
to the foregoing.
"Applied" means that disbursed funds have been applied (i) to the
payment of interest on the Securities, (ii) pursuant to Section 3(c), or
(iii) pursuant to Section 6(b)(iii) hereof.
"Available Funds" means, at any date, (A) the sum of (i) the Pledged
Securities and any funds or Cash Equivalents (ii) interest earned or dividends
paid on the Pledged Securities and any funds or Cash Equivalents, less (B) the
aggregate disbursements made prior to such date pursuant to this Agreement.
"Beneficiaries" see Section 2(b).
"Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than 12 months from the
date of acquisition; (c) certificates of deposit and eurodollar time deposits
with maturities of 12 months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding 12 months and overnight bank deposits,
in each case with any commercial bank having capital and surplus in excess of
$500 million; (d) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (b) and (c) entered
into with any financial institution meeting the qualifications specified in
clause (c) above; and (e) commercial paper rated P-1, A-1 or the Equivalents
thereof by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group,
respectively, and in each case maturing within six months after the date of
acquisition.
"Collateral" see Section 6(a).
"Escrow Account" shall mean the escrow account established pursuant
to Section 2.
"Escrow Account Statement" see Section 2(f).
"Escrow Funds" see Section 6(c).
<PAGE> 3
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"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
the full faith and credit of the United States is pledged.
"Initial Escrow Amount" shall mean $56.6 million.
"Interest" has, other than for purposes of Section 2(d)(v), the
meaning set forth in the Indenture.
"Interest Payment Date" means February 15 and August 15 of each
year, commencing on February 15, 1998 until the Securities are paid in full.
"Payment Notice and Disbursement Request" means a notice sent by
Company to Escrow Agent requesting a disbursement of funds from the Escrow
Account, in substantially the form of Exhibit A hereto. Each Payment Notice and
Disbursement Request shall be signed by an officer of Company.
"Pledged Securities" means the Government Securities, as more fully
described on Schedule I attached hereto, purchased by the Escrow Agent with a
portion of the net proceeds from the offering of the Notes and deposited into
the Escrow Account. The scheduled payments of principal and interest on the
Pledged Securities will be sufficient to provide for the payment in full of the
interest due on the Notes on the first four scheduled Interest Payment Dates
commencing February 15, 1998 and ending August 15, 1999.
"Secured Obligations" see Section 6(a).
2. Escrow Account; Escrow Agent.
(a) Appointment of Escrow Agent. Company and Trustee hereby appoint
Escrow Agent, and Escrow Agent hereby accepts appointment, as escrow agent,
under the terms and conditions of this Agreement.
(b) Establishment of Escrow Account.
(i) On the Issue Date, Escrow Agent shall establish an escrow
account entitled the "Escrow Account pledged by Hermes Europe Railtel B.V. to
The Bank of New York, as Trustee" (the "Escrow Account") at its office located
at 101 Barclay Street, New York, New York 10286. The Escrow Account shall be
"securities account" as such term is defined in Section 8-501(a) of the 1994
Official Text of Article 8 of the Uniform
<PAGE> 4
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Commercial Code with conforming amendments to Article 9 (the "Revised UCC"). All
funds, including the Initial Escrow Amount, Pledged Securities and any Cash
Equivalents accepted by Escrow Agent pursuant to this Agreement shall be held
for the exclusive benefit of Trustee, any predecessor Trustee under the
Indenture and holders of the Securities, as secured parties hereunder
(collectively, the "Beneficiaries"). All such funds shall be held in the Escrow
Account until disbursed or paid in accordance with the terms hereof. The Escrow
Account and all funds held therein, including the Initial Escrow Amount, the
Pledged Securities and any Cash Equivalents held by Escrow Agent shall be under
the sole dominion and control of Escrow Agent for the benefit of the
Beneficiaries.
(ii) On the Issue Date, Company shall deliver, or cause the delivery
of, the Initial Escrow Amount to Escrow Agent for deposit into the Escrow
Account against Escrow Agent's written acknowledgment and receipt of the Initial
Escrow Amount. The Escrow Agent shall purchase, or cause to be purchased, the
Pledged Securities, with all or a portion of the Initial Escrow Amount. The
Pledged Securities shall be held by the Escrow Agent and deposited into the
Escrow Account for the exclusive benefit of the Beneficiaries. All payments of
interest and principal on the Pledged Securities shall be deposited into the
Escrow Account to be paid or disbursed in accordance with the terms hereof or,
to the extent permitted by Section 2(d) hereof, reinvested in Cash Equivalents.
(c) Escrow Agent Compensation. Company shall pay to Escrow Agent
such compensation for services to be performed by it under this Agreement as
Company and Escrow Agent may agree in writing from time to time. Escrow Agent
shall be paid any compensation owed to it directly by Company and shall not
disburse from the Escrow Account any such amounts nor shall Escrow Agent have
any interest in the Escrow Account with respect to such amounts.
Company shall reimburse Escrow Agent upon request for all reasonable
expenses, disbursements, and advances incurred or made by Escrow Agent in
implementing any of the provisions of this Agreement, including compensation and
the reasonable expenses and disbursements of its counsel. Escrow Agent shall be
paid any such expenses owed to it directly by Company and shall not disburse
from the Escrow Account any such amounts nor shall Escrow Agent have any
interest in the Escrow Account with respect to such amounts.
<PAGE> 5
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(d) Investment of Funds in Escrow Account. Any funds on deposit in
the Escrow Account which are not invested may be reinvested, at the Company's
option, only upon the following terms and conditions:
(i) Acceptable Investments. All funds deposited or held in the
Escrow Account at any time shall be invested by Escrow Agent in Cash
Equivalents in accordance with Company's written instructions from time to
time to Escrow Agent; provided, however, that (1) Company shall only
designate investment of funds in Cash Equivalents maturing in an amount
sufficient to and/or generating interest income sufficient to, when added
to the balance of funds held in the Escrow Account, provide for the
payment of interest on the outstanding Securities on each Interest Payment
Date beginning on and including February 15, 1998 and through and
including the Interest Payment Date on August 15, 1999 and (2) any such
written instruction shall specify the particular investment to be made,
shall state that such investment is authorized to be made hereby and in
particular satisfies the requirements of the preceding clause (1) of this
proviso, shall contain the certification referred to in Section 2(d)(ii),
if required, and shall be executed by an Officer of Company. Escrow Agent
shall have no responsibility for determining whether funds held in the
Escrow Account shall have been invested in such a manner so as to comply
with the requirements of this clause (i). All Cash Equivalents shall be
assigned to and held in the possession of, or, in the case of Cash
Equivalents maintained in book entry form with the Federal Reserve Bank
(i.e., TRADES), transferred to a book entry account in the name of Escrow
Agent for the benefit of the Beneficiaries, with such guarantees as are
customary, except that Cash Equivalents maintained in book entry form with
the Federal Reserve Bank shall be transferred to a book entry account in
the name of Escrow Agent at the Federal Reserve Bank that includes only
Cash Equivalents held by Escrow Agent for its customers and segregated by
separate recordation in the books and records of Escrow Agent. Escrow
Agent shall not be liable for losses on any investments made by it
pursuant to and in compliance with such written instructions. In the
absence of instructions from Company that meet the requirements of this
Section 2(d)(i), Escrow Agent shall have no obligation to invest funds
held in the Escrow Account.
<PAGE> 6
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(ii) Security Interest in Investments. No investment of funds in the
Escrow Account shall be made unless the Company has certified to Escrow
Agent and Trustee that, upon such investment, Escrow Agent will have a
first priority perfected security interest in the applicable investment.
If a certificate as to a class of investments has been provided to Escrow
Agent, a certificate need not be issued with respect to individual
investments in securities in that class if the certificate applicable to
the class remains accurate with respect to such individual investments,
which continued accuracy Escrow Agent may conclusively assume. On the date
of this Agreement, and on each anniversary thereof (upon receipt of
written notice from Escrow Agent), until the date upon which the balance
of the Available Funds shall have been reduced to zero, each of Trustee
and Escrow Agent shall receive an Opinion of Counsel to Company, dated
each such date as applicable, which opinion shall meet the requirements of
Section 314(b) of the United States Trust Indenture Act of 1939, as
amended (the "TIA") and shall comply with Section 11.02 of the Indenture.
(iii) Interest and Dividends. All interest earned and dividends paid
on the Pledged Securities or any funds invested in Cash Equivalents shall
be deposited in the Escrow Account as additional Collateral for the
exclusive benefit of the Beneficiaries and, if not required to be
disbursed in accordance with the terms hereof, subject to subsections
6(b)(iii), 6(e) and 6(f), shall be reinvested in accordance with the terms
hereof at Company's written instruction unless a Default or Event of
Default has occurred or Trustee has notified Escrow Agent that it should
only take direction from Trustee or should no longer take direction from
Company.
(iv) Limitation on Escrow Agent's Responsibilities. Escrow Agent's
sole responsibilities under this Section 2 shall be (A) to retain
possession of certificated Cash Equivalents (except, however, that Escrow
Agent may surrender possession to the issuer of any such Cash Equivalent
for the purposes of effecting assignment, crediting interest, or
reinvesting such security or reducing such security to cash) and to be the
registered or designated owner of the Pledged Securities and any Cash
Equivalents which are not certificated, (B) to follow Company's written
instructions given in accordance with Section 2(d)(i), (C) to invest and
reinvest funds pursuant to this Section 2(d) and (D) to use reasonable
efforts to
<PAGE> 7
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reduce to cash such Cash Equivalents as may be required to fund any
disbursement or payment in accordance with Section 3. In connection with
clause (A) above, Escrow Agent will maintain continuous possession in the
jurisdiction of its principal place of business of certificated Cash
Equivalents and cash included in the Collateral and will cause the Pledged
Securities and any uncertificated Cash Equivalents to be registered in the
book-entry system of, and transferred to an account of Escrow Agent or a
sub-agent of Escrow Agent at, any Federal Reserve Bank. Except as provided
in Section 6, Escrow Agent shall have no other responsibilities with
respect to perfecting or maintaining the perfection of the security
interest in the Collateral and shall not be required to file any
instrument, document or notice in any public office at any time or times.
In connection with clause (D) above and subject to the following sentence,
Escrow Agent shall not be required to reduce to cash any Cash Equivalents
to fund any disbursement or payment in accordance with Section 3 in the
absence of written instructions signed by an Officer of Company specifying
the particular investment to liquidate. If no such written instructions
are received, Escrow Agent may liquidate those Cash Equivalents having the
lowest interest rate per annum or if none such exist, those having the
nearest maturity.
(e) Substitution of Escrow Agent. Escrow Agent may resign by giving
no less than 15 Business Days prior written notice to Company and Trustee. Such
resignation shall take effect upon the later to occur of (i) delivery of all
funds, the Pledged Securities and any Cash Equivalents maintained by Escrow
Agent hereunder and copies of all books, records, plans and other documents in
Escrow Agent's possession relating to such funds, the Pledged Securities or any
Cash Equivalents or this Agreement to a successor escrow agent mutually approved
by Company and Trustee (which approvals shall not be unreasonably withheld or
delayed) and the taking of such other steps as may be necessary to give the
successor escrow agent a first priority security interest in the Pledged
Securities and (ii) Company, Trustee and such successor escrow agent entering
into this Agreement or any written successor agreement no less favorable to the
interests of the holders of the Securities and Trustee than this Agreement; and
Escrow Agent shall thereupon be discharged of all obligations under this
Agreement and shall have no further duties, obligations or responsibilities in
connection herewith, except as set forth in Section 4. If a successor escrow
agent has not been appointed or has not accepted
<PAGE> 8
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such appointment within 20 Business Days after notice of resignation is given to
Company, Escrow Agent may apply to a court of competent jurisdiction for the
appointment of a successor escrow agent.
(f) Escrow Account Statement. At least 30 days prior to each
Interest Payment Date, Escrow Agent shall deliver to Company and Trustee a
statement setting forth with reasonable particularity the balance of funds then
in the Escrow Account and the manner in which such funds are invested ("Escrow
Account Statement"). The parties hereto irrevocably instruct Escrow Agent that
on the first date upon which the balance in the Escrow Account (including the
holdings of all Cash Equivalents) is reduced to zero, Escrow Agent shall deliver
to Company and to Trustee a notice that the balance in the Escrow Account has
been reduced to zero.
3. Disbursements
(a) Payment Notice and Disbursement Request; Disbursements. Up to
five business days prior to an Interest Payment Date, Company may submit to
Escrow Agent, with a copy to Trustee a completed Payment Notice and Disbursement
Request substantially in the form of Exhibit A hereto.
Escrow Agent's disbursement pursuant to any Payment Notice and
Disbursement Request shall be subject to the satisfaction of the applicable
conditions set forth in Section 3 (b). Provided such Payment Notice and
Disbursement Request is not rejected by it, Escrow Agent, as soon as reasonably
practicable on the Interest Payment Date, but in no event later than 12:00 Noon
(New York City time) on the Interest Payment Date, shall disburse the funds
requested in such Payment Notice and Disbursement Request by wire or book-entry
transfer of immediately available funds to the account of Trustee for the
benefit of the Beneficiaries. Escrow Agent shall notify Trustee as soon as
reasonably possible (but not later than two (2) Business Days from the date of
receipt of the Payment Notice and Disbursement Request) if any Payment Notice
and Disbursement Request is rejected and the reason(s) therefor. In the event
such rejection is based upon nonsatisfaction of the condition in Section 3 (b)
(I), Company shall thereupon resubmit the Payment Notice and Disbursement
Request with appropriate changes.
(b) Conditions Precedent to Disbursement. Escrow Agent's payment of
any disbursement shall be made only if: (I) Company shall have submitted, in
accordance with the provisions
<PAGE> 9
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of Section 3(a), a completed Payment Notice and Disbursement Request to Escrow
Agent substantially in the form of Exhibit A with blanks appropriately filled
in, and (II) Escrow Agent shall not have received any notice from Trustee that
as a result of an Event of Default the indebtedness represented by the
Securities has been accelerated and has become due and payable (in which event
Escrow Agent shall apply all Available Funds as required by Section 6(b)(iii)).
(c) Company Payments. If Company makes any interest payment or
portion of an interest payment on the Securities from a source of funds other
than the Escrow Account ("Company Funds"), Company may, after payment in full of
such interest payment, direct Escrow Agent to release to Company or at the
direction of Company an amount of funds from the Escrow Account less than or
equal to the amount of Company Funds so expended. Upon receipt of a request from
Company (including the certificate described in the following sentence), Escrow
Agent will pay over to Company the requested amount. Concurrently with any
release of funds to Company pursuant to this Section 3(c), Company will deliver
to Escrow Agent a certificate signed by an authorized signatory of Company
stating that such release has been duly authorized by all necessary corporate
action, and does not contravene, or constitute a default under, any provision of
applicable law or regulation or of the Articles of Association of Company or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon Company or result in the creation or imposition of any Lien on any assets
of Company.
(d) If at any time the principal of and interest on the Collateral
exceeds 100% of the amount sufficient, in the written opinion of a nationally
recognized firm of independent accountants selected by Company and delivered to
Escrow Agent and Trustee, to provide for payment in full of the interest on
outstanding Securities on each Interest Payment Date beginning on and including
February 15, 1998 and through and including the Interest Payment Date on August
15, 1999 (or, in the event one or more interest payments have been made thereon,
an amount sufficient to provide for the payment in full of any and all interest
payments on the Securities then remaining, up to and including the fourth
scheduled interest payment), Company may direct Escrow Agent and Trustee to
release any such overfunded amount to Company or to such other party as Company
may direct. Upon receipt of written instructions executed by Company in the form
of an Officers' Certificate, Trustee shall pay, or shall cause the payment, over
to Company or Company's designee, as
<PAGE> 10
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the case may be, any such overfunded amount.
4. Escrow Agent.
(a) Limitation of Escrow Agent's Liability; Responsibilities of
Escrow Agent. Escrow Agent's responsibility and liability under this Agreement
shall be limited as follows: (i) Escrow Agent does not represent, warrant or
guaranty to the holders of the Securities from time to time the performance of
Company; (ii) Escrow Agent shall have no responsibility to Company or the
holders of the Securities or Trustee from time to time as a consequence of
performance or non-performance by Escrow Agent hereunder, except for any bad
faith, gross negligence or willful misconduct of Escrow Agent; (iii) Company
shall remain solely responsible for all aspects of Company's business and
conduct; and (iv) Escrow Agent is not obligated to supervise, inspect or inform
Company or any third party of any matter referred to above. In no event shall
Escrow Agent be liable (i) for acting in accordance with or relying upon any
instruction, notice, demand, certificate or document from Company or any entity
acting on behalf of Company, (ii) for any consequential, punitive or special
damages, (iii) for the acts or omissions of its nominees, correspondents,
designees, subagents or subcustodians or (iv) for an amount in excess of the
value of the Escrow Account, valued as of the date of deposit.
No implied covenants or obligations shall be inferred from this
Agreement against Escrow Agent, nor shall Escrow Agent be bound by the
provisions of any agreement beyond the specific terms hereof. Specifically and
without limiting the foregoing, Escrow Agent shall in no event have any
liability in connection with its investment, reinvestment or liquidation, in
good faith and in accordance with the terms hereof, of any funds, the Pledged
Securities or Cash Equivalents held by it hereunder, including without
limitation any liability for any delay not resulting from gross negligence or
willful misconduct in such investment, reinvestment or liquidation, or for any
loss of principal or income incident to any such delay.
Escrow Agent shall be entitled to rely upon any judicial or
administrative order or judgment, upon any opinion of counsel or upon any
certification, instruction, notice, or other writing delivered to it by Company
or Trustee in compliance with the provisions of this Agreement without being
required to determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of service thereof. Escrow Agent may act in
reliance upon any instrument
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comporting with the provisions of this Agreement or signature believed by it to
be genuine and may assume that any person purporting to give notice or receipt
or advice or make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so.
At any time Escrow Agent may request in writing an instruction in
writing from Company (other than any disbursement pursuant to Section
6(b)(iii)), and may at its own option include in such request the course of
action it proposes to take and the date on which it proposes to act, regarding
any matter arising in connection with its duties and obligations hereunder;
provided, however, that Escrow Agent shall state in such request that it
believes in good faith that such proposed course of action is consistent with
another identified provision of this Agreement. Escrow Agent shall not be liable
to Company for acting without Company's consent in accordance with such a
proposal on or after the date specified therein if (i) the specified date is at
least four Business Days after Company receives Escrow Agent's request for
instructions and its proposed course of action, and (ii) prior to so acting,
Escrow Agent has not received the written instructions requested from Company.
At the expense of Company, Escrow Agent may act pursuant to the
advice of counsel chosen by it with respect to any matter relating to this
Agreement and (subject to clause (ii) of the first paragraph of this Section
4(a)) shall not be liable for any action taken or omitted in accordance with
such advice.
Escrow Agent shall not be called upon to advise any party as to
selling or retaining, or taking or refraining from taking any action with
respect to, any securities or other property deposited hereunder.
In the event of any ambiguity in the provisions of this Agreement
with respect to any funds, securities or property deposited hereunder, Escrow
Agent shall be entitled to refuse to comply with any and all claims, demands or
instructions with respect to such funds, securities or property, and Escrow
Agent shall not be or become liable for its failure or refusal to comply with
conflicting claims, demands or instructions. Escrow Agent shall be entitled to
refuse to act until either any conflicting or adverse claims or demands shall
have been finally determined by a court of competent jurisdiction or settled by
agreement between the conflicting claimants as evidenced in a writing,
satisfactory to Escrow Agent, or Escrow
<PAGE> 12
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Agent shall have received security or an indemnity satisfactory to Escrow Agent
sufficient to save Escrow Agent harmless from and against any and all loss,
liability or expense which Escrow Agent may incur by reason of its acting.
Escrow Agent may in addition elect in its sole option to commence an
interpleader action or seek other judicial relief or orders as Escrow Agent may
deem necessary. The costs and expenses (including reasonable attorney's fees and
expenses) incurred in connection with such proceedings shall be paid by, and
shall be deemed an obligation of Company.
No provision of this Agreement shall require Escrow Agent to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder.
Escrow Agent shall not incur any liability for not performing any
act or fulfilling any duty, obligation or responsibility hereunder by reason of
any occurrence beyond the control of Escrow Agent (including but not limited to
any act or provision of any present or future law or regulation or governmental
authority, any act of God or war, or the unavailability of the Federal Reserve
Bank wire or telex or other wire or communication facility).
5. Indemnity. Company shall indemnify, hold harmless and defend
Trustee and Escrow Agent and their respective directors, officers, agents,
employees and controlling persons, from and against any and all claims, actions,
obligations, liabilities and expenses, including reasonable defense costs,
reasonable investigative fees and costs, reasonable legal fees, and claims for
damages, arising from Trustee's or Escrow Agent's performance or
non-performance, or in connection with Escrow Agent's acceptance of appointment
as Escrow Agent under this Agreement, except to the extent that such liability,
expense or claim is solely and directly attributable to the bad faith, gross
negligence or willful misconduct of any of the foregoing persons. The provisions
of this Section 5 shall survive any termination, satisfaction or discharge of
this Agreement as well as the resignation or removal of Escrow Agent.
6. Grant of Security Interest; Instructions to Escrow Agent.
(a) Company hereby irrevocably grants a first priority security
interest in and lien on, and pledges, assigns, transfers and sets over to Escrow
Agent for the ratable benefit of the Beneficiaries, all of Company's right,
title and inter-
<PAGE> 13
-13-
est in the Escrow Account, and all property now or hereafter placed or deposited
in, or delivered to Escrow Agent for placement or deposit in, the Escrow
Account, including, without limitation, the Pledged Securities, all funds held
therein, all Cash Equivalents held by (or otherwise maintained in the name of)
Escrow Agent pursuant to Section 2, and all proceeds thereof as well as all
rights of Company under this Agreement (collectively, the "Collateral"), in
order to secure all obligations and indebtedness of Company under the Indenture,
the Securities and any other obligation, now or hereafter arising, of every kind
and nature, owed by Company under the Indenture or the Securities to the holders
of the Securities or to Trustee or any predecessor Trustee (the "Secured
Obligations"). Escrow Agent hereby acknowledges Trustee's security interest and
lien as set forth above. Company shall take all actions necessary on its part to
insure the continuance of a first priority security interest in the Collateral
in favor of Trustee in order to secure all such obligations and indebtedness.
(b) Company and Trustee hereby irrevocably instruct Escrow Agent to,
and Escrow Agent shall:
(i)(A) maintain sole dominion and control over the Pledged
Securities, funds and any Cash Equivalents in the Escrow Account for the benefit
of Trustee to the extent specifically required herein, (B) maintain, or cause
its agent within the jurisdiction of its principal place of business to
maintain, possession of all certificated Cash Equivalents purchased hereunder
that are physically possessed by Escrow Agent in order for Trustee to enjoy a
continuous perfected first priority security interest therein under the law of
the State of New York (Company hereby agreeing that in the event any
certificated Cash Equivalents are in the possession of Company or a third party,
Company shall use its best efforts to deliver all such certificates to Escrow
Agent), (C) take all steps specified by Company pursuant to paragraph (a) of
this Section 6 to cause Escrow Agent to enjoy a continuous perfected first
priority security interest under any applicable Federal and State of New York
law in all Cash Equivalents purchased hereunder that are not certificated and
(D) maintain the Collateral free and clear of all liens, security interests,
safekeeping or other charges, demands and claims against Escrow Agent of any
nature now or hereafter existing in favor of anyone other than Trustee;
(ii) promptly notify Trustee if Escrow Agent receives written notice
that any Person other than Escrow Agent has a lien or security interest upon any
portion of the Collateral;
<PAGE> 14
-14-
and
(iii) in addition to disbursing amounts held in escrow pursuant to
any Payment Notice and Disbursement Requests given to it pursuant to Section 3,
upon receipt of written notice from Trustee of the acceleration of the maturity
of the Securities, and direction from Trustee to disburse all Available Funds to
Trustee, as promptly as practicable, disburse all funds held in the Escrow
Account to Trustee and transfer title to all Cash Equivalents held by Escrow
Agent hereunder to Trustee. In addition, upon an Event of Default (as defined in
the Indenture) and for so long as such Event of Default continues, Trustee may,
and Escrow Agent shall on behalf of Trustee when instructed by Trustee, exercise
in respect of the Collateral, in addition to other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of a
secured party under the UCC or other applicable law, and Trustee may, and Escrow
Agent shall on behalf of Trustee when instructed by Trustee, also upon obtaining
possession of the Collateral as set forth herein, without notice to Company
except as specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any exchange, broker's board or at
any of Trustee's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Trustee may deem commercially reasonable.
Company acknowledges and agrees that any such private sale may result in prices
and other terms less favorable to the seller than if such sale were a public
sale. Company agrees that, to the extent notice of sale shall be required by
law, at least ten (10) days' notice to Company of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Trustee shall not be obligated to make any
sale regardless of notice of sale having been given. Trustee may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
The lien and security interest provided for by this Section 6 shall
automatically terminate and cease as to, and shall not extend or apply to, and
Trustee and Escrow Agent shall have no security interest in, any funds disbursed
by Escrow Agent whether for payment of interest or to Company pursuant to this
Agreement to the extent not inconsistent with the terms hereof. Notwithstanding
any other provision contained in this Agreement, Escrow Agent shall act solely
as Trustee's agent in connection with its duties under this Section 6 or any
other duties herein relating to the Escrow Account or the
<PAGE> 15
-15-
Pledged Securities or any funds or Cash Equivalents held thereunder. Escrow
Agent shall not have any right to receive compensation from Trustee and shall
have no authority to obligate Trustee or to compromise or pledge its security
interest hereunder. Accordingly, Escrow Agent is hereby directed to cooperate
with Trustee in the exercise of its rights in the Collateral provided for
herein.
(c) Any money and Cash Equivalents collected by Trustee pursuant to
Section 6(b)(iii) shall be applied as provided in Section 4.21 of the Indenture.
Any surplus of such cash or cash proceeds held by Trustee and remaining after
indefeasible payment in full of all the obligations under the Indenture (the
"Escrow Funds") shall be paid over to Company upon Company request or as a court
of competent jurisdiction may direct.
(d) Company will execute and deliver or cause to be executed and
delivered, or use its best efforts to procure, all stock powers, proxies,
assignments, instruments and other documents, deliver any instruments to Trustee
and take any other actions that are necessary or desirable to perfect, continue
the perfection of, or protect the first priority of Trustee's security interest
in and to the Collateral, to protect the Collateral against the rights, claims,
or interests of third persons or to effect the purposes of this Agreement.
Company also hereby authorizes Trustee to file any financing or continuation
statements with respect to the Collateral without the signature of Company (to
the extent permitted by applicable law). Company will pay all reasonable costs
incurred in connection with any of the foregoing. It being understood that
Trustee has no duty to determine whether to file or record any document or
instrument relating to Collateral.
(e) Company hereby appoints Trustee as its attorney-in-fact with
full power of substitution to do any act which Company is obligated hereto to
do, and Trustee may, but shall not be obligated to, exercise such rights as
Company might exercise with respect to the Collateral and take any action in
Company's name to protect Trustee's security interest hereunder.
(f) If at any time Escrow Agent shall receive an "entitlement order"
(within the meaning of Section 8-102(a)(8) of the Revised UCC) issued by Trustee
and relating to the Escrow Account, Escrow Agent shall comply with such
entitlement order without further consent by Company or any other person.
<PAGE> 16
- 16 -
7. Termination. This Agreement and the security interest in the
Collateral evidenced by this Agreement shall terminate automatically and be of
no further force or effect upon the payment in full in cash of all interest
(including any Additional Interest and any Additional Amounts) due through the
Interest Payment Date occurring on August 15, 1999 and the Collateral shall
promptly be paid over and transferred to the Company; provided, however, that
the obligations of Company under Section 2(c) and Section 5 (and any existing
claims thereunder) shall survive termination of this Agreement and the
resignation of Escrow Agent. At such time, Escrow Agent shall, pursuant to a
certificate of an officer of Company, reassign and redeliver to the Company all
of the Collateral hereunder that has not been sold, disposed of, retained or
applied by Escrow Agent in accordance with the terms of this Agreement and the
Indenture. Such reassignment and delivery shall be without warranty by or
recourse to Escrow Agent in its capacity as such, except as to the absence of
any liens on the Collateral created by or arising through Escrow Agent, and
shall be at the sole expense of Company.
8. Representations and Warranties.
Company hereby represents and warrants that:
(a) The execution, delivery and performance by Company of this
Agreement are within Company's corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
Articles of Association of Company or of any agreement, judgment,
injunction, order, decree or other instrument binding upon Company or
result in the creation or imposition of any Lien on any assets of Company,
except for the security interests granted under this Agreement.
(b) Company is the beneficial owner of the Collateral, free and
clear of any Lien or claims of any person or entity (except for the
security interest, granted under this Agreement). No financing statement
covering the Collateral is on file in any public office other than the
financing statements, if any, filed pursuant to this Agreement.
(c) This Agreement has been duly executed and delivered by Company
and assuming the due authorization and valid execution and delivery of
this Agreement by
<PAGE> 17
-17-
Trustee and Escrow Agent and enforceability of this Agreement against
Escrow Agent and Trustee in accordance with its terms, constitutes a valid
and binding obligation of Company, enforceable against Company in
accordance with its terms, except as such enforceability may be limited by
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally,
(ii) general principles of equity and commercial reasonableness or, (iii)
the exculpation provisions and rights to indemnification hereunder may be
limited by U.S. federal and state securities laws and public policy
considerations and (iv) the waiver of rights and defenses contained in
Sections 15(j) and 15(o).
(d) Upon the delivery to Escrow Agent of the certificates or
instruments, if any, representing the Collateral and the filing of
financing statements, if any, required by the Uniform Commercial Code (the
"UCC"), and the transfer and pledge to Escrow Agent of the Collateral and
the acquisition by Escrow Agent of a security entitlement thereto in
accordance with Section 6 the pledge of the Collateral pursuant to this
Agreement creates a valid and perfected first priority security interest
in and to the Collateral, securing the payment of the Secured Obligations
for the benefit of the Beneficiaries, enforceable as such against all
creditors of the Company and any persons purporting to purchase any of the
Collateral from Company other than as permitted by the Indenture.
(e) No consent of any other person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the
pledge by Company of the Collateral pursuant to this Agreement or for the
execution, delivery or performance of this Agreement by Company (except
for any filings necessary to perfect Liens on the Collateral) or (ii) for
the exercise by Trustee of the rights provided for in this Agreement or
the remedies in respect of the Collateral pursuant to this Agreement,
except, in each case, as may be required in connection with such
disposition by laws affecting the offering and sale of securities.
(f) No litigation, investigation or proceeding of or before any
arbitrator or governmental authority is
<PAGE> 18
-18-
pending or, to the knowledge of Company, threatened by or against Company
with respect to this Agreement or any of the transactions contemplated
hereby.
(g) The pledge of the Collateral pursuant to this Agreement is not
prohibited by any applicable law or governmental regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System).
9. Covenants.
Company covenants and agrees with the Beneficiaries from and after
the date of this Agreement until the earlier of payment in full in cash of (A)
all interest due through the Interest Payment Date occurring on August 15, 1999
or (B) all obligations due and owing under the Indenture and the Securities in
the event such obligations become due and payable prior to the payment of the
first four scheduled interest payments on the Securities:
(a) Company agrees that it will not (i) sell or otherwise dispose
of, or grant any option or warrant with respect to, any of the Collateral
or (ii) create or permit to exist any Lien upon or with respect to any of
the Collateral (except for the lien created pursuant to this Agreement)
and at all times will be the sole beneficial owner of the Collateral.
(b) Company agrees that it will not (i) enter into any agreement or
understanding that purports to or may restrict or inhibit Trustee's rights
or remedies hereunder, including, without limitation, Trustee's right to
sell or otherwise dispose of the Collateral or (ii) fail to pay or
discharge any tax, assessment or levy of any nature not later than five
days prior to the date of any proposed sale under any judgment, writ or
warrant of attachment with regard to the Collateral.
10. Power of Attorney.
In addition to all of the powers granted to Trustee pursuant to
Article 7 of the Indenture, Company hereby appoints and constitutes Trustee as
Company's attorney-in-fact to exercise to the fullest extent permitted by law
all of the following powers upon and at any time after the occurrence and during
<PAGE> 19
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the continuance of an Event of Default: (i) collection of proceeds of any
Collateral; (ii) conveyance of any item of Collateral to any purchaser thereof;
(iii) giving of any notices or recording of any Liens under Section 6; (iv)
making of any payments or taking any acts under Section 11; and (v) paying or
discharging taxes or Liens levied or placed upon the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by Trustee in its sole discretion, and such payments made by Trustee
to become the obligations of Company to Trustee, due and payable immediately
upon demand. Trustee's authority hereunder shall include, without limitation,
the authority to endorse and negotiate any checks or instruments representing
proceeds of Collateral in the name of Company, execute and give receipt for any
certificate of ownership or any document constituting Collateral, transfer title
to any item of Collateral, sign Company's name on all financing statements (to
the extent permitted by applicable law) or any other documents deemed necessary
or appropriate by Trustee to preserve, protect or perfect this security interest
in the Collateral and to file the same, prepare, file and sign Company's name on
any notice of Lien, to take any other actions arising from or incident to the
powers granted to Trustee in this Agreement. This power of attorney is coupled
with an interest and is irrevocable by Company.
11. Trustee May Perform.
If Company fails to perform any agreement contained herein, Trustee
may itself perform, but shall not be obligated to, or cause performance of, such
agreement, and the reasonable expenses of Trustee incurred in connection
therewith shall be payable by Company under Section 13 hereof.
12. No Assumption of Duties; Reasonable Care.
The rights and powers granted to Trustee hereunder are being granted
in order to preserve and protect Trustee's and the Holders' of Securities
security interest in and to the Collateral granted hereby and shall not be
interpreted to, and shall not, impose any duties on Trustee in connection
therewith other than those imposed under applicable law. Except as provided by
applicable law or by the Indenture, Trustee shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which Trustee accords similar property in similar situations, it being
understood that Trustee shall not have any responsibility for (i) ascertaining
or taking action with respect to calls,
<PAGE> 20
-20-
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not Trustee has or is deemed to have knowledge of such
matters or (ii) taking any necessary steps to preserve rights against any
parties with respect to any Collateral; provided, however, that nothing
contained in this Agreement shall relieve Trustee of any responsibilities as a
securities intermediary under applicable law.
13. Expenses.
Company will upon demand pay to Trustee the amount of any and all
reasonable expenses, including, without limitation, the reasonable fees,
expenses and disbursements of its counsel, experts and agents retained by
Trustee that Trustee may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Beneficiaries hereunder, or (iv) the
failure by Company to perform or observe any of the provisions hereof.
14. Security Interest Absolute.
All rights of the Beneficiaries and security interests hereunder,
and all obligations of Company hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or nonperfection of any Liens
on any other collateral for all or any of the Secured Obligations; or
(d) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, Company in respect of the Secured Obligations or of this
Agreement.
<PAGE> 21
-21-
15. Miscellaneous.
(a) Waiver. Any party hereto may specifically waive any breach of
this Agreement by any other party, but no such waiver shall be deemed to have
been given unless such waiver is in writing, signed by the waiving party and
specifically designating the breach waived, nor shall any such waiver constitute
a continuing waiver of similar or other breaches.
(b) Invalidity. If for any reason whatsoever any one or more of the
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid, and the inoperative,
unenforceable or invalid provision shall be construed as if it were written so
as to effectuate, to the maximum extent possible, the parties' intent.
(c) Assignment. This Agreement is personal to the parties hereto,
and the rights and duties of any party hereunder shall not be assignable except
with the prior written consent of the other parties. Notwithstanding the
foregoing, this Agreement shall inure to and be binding upon the parties and
their successors and permitted assigns.
(d) Benefit. The parties hereto and their successors and permitted
assigns, but no others, shall be bound hereby and entitled to the benefits
hereof; provided, however, that the Beneficiaries (including holders of the
Securities) and their assigns shall be entitled to the benefits hereof and to
enforce this Agreement.
(e) Time. Time is of the essence with respect to each provision of
this Agreement.
(f) Entire Agreement; Amendments. This Agreement and the Indenture
contain the entire agreement among the parties with respect to the subject
matter hereof and supersede any and all prior agreements, understandings and
commitments, whether oral or written. Any amendment or waiver of any provision
of this Agreement and any consent to any departure by Company from any provision
of this Agreement shall be effective only if made or duly given in compliance
with all of the terms and provisions of the Indenture, and none of Escrow Agent,
Trustee or any Holder of Securities shall be deemed, by any act, delay,
indulgence, omission or otherwise, to have waived any right or remedy hereunder
or to have acquiesced in any De-
<PAGE> 22
-22-
fault or Event of Default or in any breach of any of the terms and conditions
hereof. Failure of Escrow Agent, Trustee or any Holder of Securities to
exercise, or delay in exercising, any right, power or privilege hereunder shall
not operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall not operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Escrow Agent, Trustee or any Holder of Securities of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy that Escrow Agent, Trustee or such Holder of
Securities would otherwise have on any future occasion. The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any rights or remedies provided by law.
(g) Notices. All notices and other communications required or
permitted to be given or made under this Agreement shall be in writing and shall
be deemed to have been duly given and received when actually received,
including: (a) on the day of hand delivery; (b) three business days following
the day sent, when sent by United States certified mail, postage and
certification fee prepaid, return receipt requested, addressed as set forth
below; (c) when transmitted by telecopy with verbal confirmation of receipt by
the telecopy operator to the telecopy number set forth below; or (d) one
business day following the day timely delivered to a next-day air courier
addressed as set forth below:
To Escrow Agent:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Department
Telecopy: (212) 815-5915
Telephone: (212) 815-4701
To Trustee:
The Bank of New York
101 Barclay Street
New York, New York 10286
<PAGE> 23
-23-
Attention: Corporate Trust Department
Telecopy: (212) 815-5915
Telephone: (212) 815-4701
To Company:
Hermes Europe Railtel B.V.
Terhulpsesteenweg 6A,
1560 Hoeilaart,
Belgium
Attention: Chief Financial Officer
Telecopy: 322-658-5100
Telephone: 322-658-5200
with a copy to:
Global Telesystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102
Attention: Chief Financial Officer
Telecopy: (703) 847-0663
Telephone: (703) 918-4500
or at such other address as the specified entity most recently may have
designated in writing in accordance with this Section.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(i) Captions. Captions in this Agreement are for convenience only
and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(j) GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
WAIVER OF DAMAGES.
(i) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER THE
LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR
<PAGE> 24
-24-
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN COMPANY, ESCROW AGENT,
TRUSTEE AND THE HOLDERS OF SECURITIES IN CONNECTION WITH THIS AGREEMENT, AND
WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS
PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
(ii) COMPANY AGREES THAT TRUSTEE SHALL, IN ITS CAPACITY AS TRUSTEE
OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF SECURITIES, HAVE THE RIGHT, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST COMPANY OR ITS PROPERTY
IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND HAVING
PERSONAL OR IN REM JURISDICTION OVER COMPANY OR ITS PROPERTY, AS THE CASE MAY
BE) TO ENABLE TRUSTEE TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER ENTERED IN FAVOR OF TRUSTEE. COMPANY AGREES THAT IT WILL NOT
ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS IN ANY PROCEEDING BROUGHT BY
TRUSTEE TO REALIZE ON SUCH PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF TRUSTEE, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS
WHICH, IF NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR
ASSERTED. COMPANY WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE
COURT IN WHICH TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS.
(iii) COMPANY, ESCROW AGENT AND TRUSTEE EACH WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT.
INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL
WITHOUT A JURY.
(iv) COMPANY AGREES THAT NONE OF ESCROW AGENT, TRUSTEE OR ANY HOLDER
OF SECURITIES SHALL HAVE ANY LIABILITY TO COMPANY (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY COMPANY IN CONNECTION WITH,
ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED AND THE
RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT
OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND
NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON ESCROW AGENT, TRUSTEE OR
SUCH HOLDER OF SECURITIES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT
OF ACTS OR OMISSIONS ON THE PART OF ESCROW AGENT,
<PAGE> 25
-25-
TRUSTEE OR SUCH HOLDER OF SECURITIES, AS THE CASE MAY BE, CONSTITUTING BAD
FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(v) TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, COMPANY WAIVES ALL RIGHTS OF NOTICE AND
HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE TRUSTEE OR ANY HOLDER OF
SECURITIES OF ITS RIGHTS DURING THE CONTINUANCE OF AN EVENT OF DEFAULT TO
REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY
UPON THE COLLATERAL OR OTHER SECURITY FOR THE SECURED OBLIGATIONS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, COMPANY WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF ESCROW AGENT, TRUSTEE OR ANY HOLDER OF SECURITIES IN CONNECTION WITH
ANY JUDICIAL PROCESS OR PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR
LEVY UPON THE COLLATERAL OR OTHER SECURITY FOR THE SECURED OBLIGATIONS, TO
ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF ESCROW AGENT,
TRUSTEE OR ANY HOLDER OF SECURITIES, OR TO ENFORCE BY SPECIFIC PERFORMANCE,
TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION, THIS
AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN COMPANY ON THE ONE HAND AND
ESCROW AGENT, TRUSTEE AND/OR THE HOLDERS OF SECURITIES ON THE OTHER HAND.
(k) No Adverse Interpretation of Other Agreements. This Agreement
may not be used to interpret another pledge, security or debt agreement of
Company or any subsidiary thereof. No such pledge, security or debt agreement
may be used to interpret this Agreement.
(1) Benefits of Agreement. Nothing in this Agreement, express or
implied, shall give to any person, other than the parties hereto and their
successors hereunder, and the Holders of Securities, any benefit or any legal or
equitable right, remedy or claim under this Agreement.
(m) Interpretation of Agreement. All terms not defined herein or in
the Indenture shall have the meaning set forth in the applicable Uniform
Commercial Code, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with the Indenture, the Indenture
shall control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under this
Agreement shall not be relevant to determine the meaning of this Agreement even
though the accepting or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
<PAGE> 26
-26-
(n) Survival of Provisions. All representations, warranties and
covenants of Company contained herein shall survive the execution and delivery
of this Agreement, and shall terminate only upon the termination of this
Agreement.
(o Waivers. Company waives presentment and demand for payment of
any of the Secured Obligations, protest and notice of dishonor or default with
respect to any of the Secured Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
(p) Agent for Service; Submission to Jurisdiction; Waiver of
Immunities. By the execution and delivery of this Agreement, the Company (i)
acknowledges that it has, by separate written instruments, designated and
appointed CT Corporation System, 1633 Broadway, New York, NY 10019 ("CT
Corporation System") (and any successor entity), as its authorized agent upon
which process may be served in any suit or proceeding arising out of or relating
to this Agreement that may be instituted in any federal or state court in the
Borough of Manhattan, City of New York, State of New York or brought under
federal or state securities laws, and represent and warrant that CT Corporation
System has accepted such designation, (ii) submit to the jurisdiction of any
such court in any such suit or proceeding and (iii) agree that service of
process upon CT Corporation System and written notice of said service to the
Company in accordance with the provisions of this Agreement shall be deemed in
every respect effective service of process upon the Company in any such suit or
proceeding. The Company further agrees to take any and all action, including the
execution and filing of any and all such documents and instruments, as may be
necessary to continue such designation and appointment of CT Corporation System
in full force and effect for as long as any of the Securities remain outstanding
(subject to the limitation set forth in clause (i)); provided, however, that the
Company may, and to the extent CT Corporation System ceases to be able to be
served on the basis contemplated herein shall, by written notice to the Escrow
Agent and the Trustee, designate such additional or alternative agent for
service of process that (i) maintains an office located in the Borough of
Manhattan, City of New York, State of New York, and (ii) is either (x) United
States counsel for the Company or (y) a corporate service company which acts as
agent for service of process for other persons in the ordinary course of its
business. Such written notice shall identify the name of such agent for service
of process and the address of the office of such agent for
<PAGE> 27
-27-
service of process in the Borough of Manhattan, City of New York, State of New
York.
To the extent that the Company has or hereafter may acquire any
immunity from jurisdiction of any court of (i) any jurisdiction in which the
Company owns or leases property or assets, (ii) the United States or the State
of New York or (iii) the Netherlands or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property and assets or
this Agreement or the Escrow Account or actions to enforce judgments in respect
of any thereof, the Company hereby irrevocably waives such immunity in respect
of its obligations under the above-referenced documents, to the extent permitted
by law.
(q) Judgment Currency. The Company hereby agrees to indemnify each
of the Escrow Agent and the Trustee, their directors, their officers and each
person, if any, who controls the Escrow Agent or the Trustee, as the case may
be, within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act against any loss incurred by such person as a result of any judgment or
order being given or made against the Company for any U.S. dollar amount due
under this Agreement and such judgment or order being expressed and paid in a
currency (the "Judgment Currency") other than United States dollars and as a
result of any variation as between (i) the rate of exchange at which the United
States dollar amount is converted into the Judgment Currency for the purpose of
such judgment or order and (ii) the spot rate of exchange in The City of New
York at which such party on the date of payment of such judgment or order is
able to purchase United States dollars with the amount of the Judgment Currency
actually received by such party. The foregoing indemnity shall continue in full
force and effect notwithstanding any such judgment or order as aforesaid. The
term "spot rate of exchange" shall include any premiums and costs of exchange
payable in connection with the purchase of, or conversion into, United States
dollars.
[Signature Page Follows]
<PAGE> 28
IN WITNESS WHEREOF. the parties have executed and delivered this
Escrow Agreement as of the day first above written.
THE BANK OF NEW YORK,
as Escrow Agent
By: /s/ Ming J. Shiang
----------------------------------
Name: Ming J. Shiang
Title: Assistant Vice President
THE BANK OF NEW YORK,
as Trustee
By: /s/ Ming J. Shiang
----------------------------------
Name: Ming J. Shiang
Title: Assistant Vice President
HERMES EUROPE RAILTEL B.V.
By: /s/ Peter Magnus
----------------------------------
Name: Peter Magnus
Title: Attorney-in-Fact
<PAGE> 29
EXHIBIT A
Form of Payment Notice and Disbursement Request
[Letterhead of Company)
[Date]
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Department
Re: Disbursement Request No. ____
[indicate whether revised]
Ladies and Gentlemen:
We refer to the Escrow Agreement, dated as of August 19, 1997 (the
"Escrow Agreement") among you (the "Escrow Agent"), the undersigned as Trustee,
and HERMES EUROPE RAILTEL B.V., a company organized under the laws of the
Netherlands ("Company"). Capitalized terms used herein shall have the meaning
given in the Escrow Agreement.
This letter constitutes a Payment Notice and Disbursement Request
under the Escrow Agreement.
[choose one of the following, as applicable]
[The undersigned hereby notifies you that a scheduled interest
payment in the amount of $__________ is due and payable on _____________, ____
and requests a disbursement of funds contained in the Escrow Account in such
amount to Trustee.]
[The undersigned hereby notifies you and certifies you that the
release $___________ of funds in the Escrow Account to Company (to an account
designated by Company in writing), is currently permitted to be released in
accordance with Section 3(c) of the Escrow Agreement and such amount shall be so
remitted to Company.]
[The undersigned hereby notifies you that the Escrow Agreement has
been terminated in accordance with Section 7 thereof and requests that you
release the Escrow Account to Company.]
<PAGE> 30
2
[The undersigned hereby notifies you that there has been an
acceleration of the maturity of the Securities. Accordingly, you are hereby
requested to disburse all remaining funds contained in the Escrow Account to
Trustee such that the balance in the Escrow Account is reduced to zero.]
In connection with the requested disbursement, the undersigned
hereby notifies you that:
1. [The Securities have not, as a result of an Event of Default (as
defined in the Indenture), been accelerated and become due and
payable.]
2. All prior disbursements from the Escrow Account have been
Applied.
3. [add wire instructions]
Escrow Agent is entitled to rely on the foregoing in disbursing
funds relating to this Payment Notice and Disbursement Request.
By:
--------------------------------------
Name:
Title:
<PAGE> 31
SCHEDULE I
PLEDGED SECURITIES
<TABLE>
<CAPTION>
Actual Par Interest Due on
Amount at First 4 Interest Excess
Security Maturity Cusip Yield Price Cost Maturity Payment Dates Cash Flow
- -------- -------- ----- ----- ----- ---- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US Strip P 2/15/98 912820AM9 5.44% 97.408% $14,512,817.92 $14,899,000 $14,898,888.89 $ 111.11
US Strip P 8/15/98 912820AP2 5.51% 94.766% $14,440,443.08 $15,238,000 $15,237,500.00 $ 500.00
US Strip C 2/15/99 912833BZ2 5.58% 92.131% $14,038,921.78 $15,238,000 $15,237,500.00 $ 500.00
US Strip P 8/15/99 912820AT4 5.66% 89.492% $13,636,790.96 $15,238,000 $15,237,500.00 $ 500.00
--------------
Total Purchase Price: $56,628,973.74
==============
</TABLE>
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is made and entered into as of the third
day of January, 1995, by and between SFMT, Inc., a Delaware corporation (the
"Corporation"), and Jan Loeber (the "Executive").
WITNESSETH:
WHEREAS, the Executive has substantial experience in the
telecommunications industry in both operations and finance; and
WHEREAS, the Corporation desires to employ the Executive, and the
Executive desires to be employed by the Corporation, in accordance with the
terms and provisions herein contained;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Employment.
(a) The Corporation hereby employs the Executive, and the Executive hereby
accepts such employment, on the terms, and subject to the conditions herein
contained.
(b) The Executive shall be the Senior Vice President - Hermes of the
Corporation, and by secondment agreement shall be assigned to work at
SFMT-Hermes ("SFMT-Hermes"), a subsidiary of the Corporation, or Hermes Europe
Railtel B.V. ("Hermes Europe"), a subsidiary of SFMT-Hermes, as the Managing
Director of Hermes Europe. In his capacity as Senior Vice President - Hermes,
the Executive shall report to and shall perform such duties and exercise such
power and authority as may from time to time be delegated to him by, the Chief
Executive Officer of the Corporation. As the Managing Director of Hermes Europe
he shall also report to the Board of Supervisory Directors of Hermes Europe.
(c) The Executive shall devote all of his business time and attention and
his best efforts to the performance of his duties pursuant to this Employment
Agreement.
(d) Initially, the Executive shall be required to reside in Brussels and
work from the Corporation's offices in Brussels. The Corporation reserves the
right to require that the Executive will move to and reside in and operate from
the offices of the Corporation's or Hermes Europe in another major city within
the region in which Hermes Europe operates.
2. Term. The initial term of the employment of the Executive under this
Employment Agreement shall be Two (2) years, commencing on January 3, 1995, and
continuing, unless sooner terminated pursuant to Section 9 to and including
January 2, 1997. Thereafter this Agreement shall he automatically renewed
annually, unless either party hereto shall
<PAGE> 2
deliver written notice in accordance with Section 9 to the other party at least
Six (6) months prior to the date of termination of the initial term or any
extension or renewal thereof (the "Term") of its desire to terminate such
employment (a "Notice of Termination").
3. Compensation.
(a) During the initial Term, the Executive shall be paid a salary at the
rate of Two Hundred Thirty-Five Thousand Dollars ($235,000) per annum, payable
in accordance with the Corporation's customary payment practices for executive
officers.
(b) Thereafter, at the end of each year the Compensation Committee of the
Board of Directors of the Corporation shall review the salary of the Executive,
and shall make such increases to such salary as the Board of Directors shall, in
its sole and absolute discretion, deem appropriate.
(c) For the purposes of this Agreement, "Salary" shall mean any payment by
the Corporation to the Executive pursuant to this Section 3.
4. Bonus.
(a) After the Executive has been employed by the Corporation for a period
of eighteen (18) months, and as additional compensation to the Executive
hereunder, the Executive will he assessed for eligibility to receive a
discretionary bonus (the "Bonus") in respect of the initial employment period.
Subject to the provisions of Section 4(b), the initial target for such Bonus,
based on the achievement by Hermes Europe of the objectives shall be Fifty
percent (50%) of the Salary of the Executive earned during the initial
employment period. The first bonus shall be in respect of two years ("the
Initial Bonus"), payable in accordance with Section 4(c). One-half of the
maximum target for the Initial Bonus shall be guaranteed. The remainder of the
potential Initial Bonus shall be subject to the achievement of the performance
objectives set forth in the approved Hermes Europe Business Plan.
(b) The formula or other method for determining the Bonus for the
Executive in each subsequent fiscal year shall be determined by the Corporation
and shall be based upon the performance of Hermes Europe in such fiscal year as
compared with the Hermes Europe approved business plan for such fiscal years.
The amount of the Bonus paid to the Executive in respect of any fiscal year of
the Corporation shall be subject to the sole and absolute discretion of the
Board of Directors of the Corporation. The objectives for each fiscal year and
the amount of bonus for successful completion of objectives (as a percentage of
base salary or other formula declared for the period) shall be established
during the period between Twelve (12) and Fifteen (15) months prior to the
fiscal year for which such objectives apply (e.g., October 1 - December 31, 1994
for fiscal year 1996).
(c) All Bonuses in respect of any fiscal year of the Hermes Europe shall
be paid within Thirty (30) days after the issuance of the audited financial
statements of Hermes Europe for such fiscal year. The only exception will be the
guaranteed portion of the initial Bonus which shall be paid on or before January
2, 1997.
2
<PAGE> 3
5. Equity Participation
(a) The Corporation shall use its best efforts to cause SFMT-Hermes to
adopt a Stock Option Plan (the "Option Plan") for its senior executives. Subject
to the provision of the Plan, SFMT-Hermes shall grant to the Executive options
to purchase shares of Capital Stock of SFMT-Hermes ("Capital Stock"). The number
of shares of Capital Stock which shall be subject to the option shall be an
amount equal to Three and One-Half percent (3.5%) of the outstanding shares of
SFMT-Hermes to be determined at the time of the completion of the capitalization
required to achieve the build-out of the first phase of network installation in
accordance with an approved business plan of Hermes Europe; provided, however,
that the issuance of such options is conditioned upon such capitalization being
committed to in writing on or prior to January 1, 1997 and completed within six
months thereafter; provided, further, that if Hermes Europe does not for any
reason adopt a stock option plan for its senior executives, the Corporation
shall provide options to purchase a number of shares of Common Stock of the
Corporation of comparable value as of the same date, which options shall be
issued pursuant to the Corporation's 1992 Stock Option Plan, as amended. Any
options which may be issued to the Executive shall vest as follows:
(i) options to purchase 33.33% (one-third) of the shares of Capital
Stock shall vest as at the close of business on January 2, 1997;
(ii) options to purchase 33.33% (one-third) of the shares of Capital
Stock shall vest as at the close of business of January 2,1998; and
(iii) options to purchase 33.33% (one-third) of the shares of
Capital Stock shall vest as at the close of business on January 2, 1999.
Notwithstanding the foregoing, in the event the Hermes Europe business plan is
revised to provide for the capitalization of Hermes Europe on a date subsequent
to January 1, 1997, then the foregoing options shall be issued on each of the
date of commitments for such capitalization (subject to its completion within
six months thereafter), and one-third of such options shall vest on the close of
business on each of the date of such commitment, and the first and second
anniversaries of the commitment of such financing (in each case subject to
completion of such financing within six months of the commitment for such
financing).
(b) The Corporation has a Restricted Stock Plan (the "Restricted Plan").
Subject to the provision of the Restricted Plan, the Corporation shall grant to
the Executive Twenty Thousand (20,000) shares of Restricted Stock of the
Corporation ("Restricted Stock") upon achievement of the first year Hermes
Europe Business Plan objectives. The shares shall vest as follows:
(i) Six Thousand Six Hundred Sixty-Six (6,666) shares of Restricted
Stock shall vest as at the close of business on January 2, 1997;
(ii) Six Thousand Six Hundred Sixty-Seven (6,667) shares of
Restricted Stock shall vest as at the close of business on January 2,
1998; and
3
<PAGE> 4
(ii) Six Thousand Six Hundred Sixty-Seven (6,667) shares of
Restricted Stock shall vest as at the close of business on January 1,
1999.
6. Benefits.
(a) During the Term, the Executive shall be entitled to receive such
benefits and to participate in such employee group benefit plans as are
generally provided by the Corporation, or made available by the Corporation, to
its executive officers, including without limitation, but subject to the
conditions imposed by the carriers, any medical, health, disability and life
insurance policies.
(b) During the Term, the Corporation or Hermes Europe shall provide to the
Executive, at the Corporation's expense, use of a late model automobile
appropriate in the geographic location of Executive's residence, and acceptable
to the Corporation.
(c) During the Term, the Corporation or Hermes Europe shall provide
business class transportation to and from the United States for one trip per
annum for Executive and Executive's immediate family living with Executive in
Brussels.
(d) During the initial first Two (2) years of the Term, the Corporation or
Hermes Europe shall provide to the Executive a furnished residence in the city
of residence of the Executive.
(e) The Corporation or Hermes Europe shall pay to the Executive during the
Term an amount per annum as shall compensate the Executive for tax equalization
in connection with the requirement that the Executive reside outside the United
States for so long as the Executive is required to live outside the United
States. Such tax equalization shall apply to Salary, Bonus taxable components of
equity awards and any other payment deemed taxable in a foreign jurisdiction.
SFMT will also be responsible for paying for the preparation and filing of your
domestic and international income taxes.
(f) The Executive shall he paid an amount equal to Seven percent (7%) of
the Executive's Salary as a cost of living adjustment in connection with
requirement that the Executive reside in Brussels for so long as the Executive
is required to live in Brussels.
(g) The Corporation or Hermes Europe shall provide relocation and moving
support as provided in the Schedule to this Agreement in connection with the
Executive's relocation to Brussels.
7. Expense Reimbursement.
(a) During the Term, the Corporation shall reimburse the Executive for all
reasonable expenditures actually and necessarily paid or incurred by the
Executive in the course of and pursuant to the business of the Corporation. Such
reimbursement shall be subject to the submission to the Corporation by the
Executive of appropriate documentation and/or vouchers,
4
<PAGE> 5
and shall he made in accordance with the customary procedures of the Corporation
for expense reimbursement, as may from time to time be established.
(b) Should the Corporation provide Executive with a credit card, Executive
acknowledges complete personal responsibility for all charges made on such
credit card. Any charges received by the Corporation for expenses not documented
on a approved expense report may be deducted by the Corporation from the
Executives payroll check. Upon termination of this Agreement, non approved
charges shall be deducted from the last payroll check issued to the Executive.
8. Vacation. In each fiscal year of the Corporation during the Term, the
Executive shall be entitled to Four (4) weeks vacation time, which shall not be
cumulative from year to year without the prior written consent of the
Corporation or unless the Executive shall be unable to take such vacation due to
Executive's duties under this Agreement; provided, however, that to the extent
the Executive cannot take vacation time during the Term due to his
responsibilities under this Agreement, upon termination, Executive shall he
entitled to be compensated for accrued but unused vacation time.
9. Termination.
(a) Notwithstanding anything to the contrary contained in this Agreement,
the Corporation shall at all times have the right to terminate this Agreement
and the employment of the Executive hereunder for "Cause" by written notice to
the Executive in accordance with Section 15. For the purpose of this Agreement,
the term "Cause" shall mean any action of the Executive or any failure to act by
the Executive which constitutes:
(i) fraud, embezzlement or any felony in connection with the
Executive's duties as an executive officer of the Corporation or any
subsidiary or affiliate of the Corporation, or willful misconduct or the
commission of any other act which causes or may reasonably be expected to
cause substantial economic or reputational injury to the Corporation or
any such subsidiary or affiliate of the Corporation, including any
violation of the Foreign Corrupt Practices Act, as described in Section 15
of this Agreement;
(ii) continuing conflict of interest or continuing failure to follow
reasonable directions or instructions of the Board of Directors or Chief
Executive Officer of the Corporation. A conflict of interest or a failure
to follow directions of the Board of Directors or the Chief Executive
Officer of the Corporation shall be deemed to be continuing if the
Executive shall have received written notice thereof and shall have not
terminated the conflict of interest or failure to follow directions within
Thirty (30) days after receipt of such notice; or
(iii) an extended period of absence by the Executive from the
performance of the obligations of the Executive provided hereunder, which
absence shall be for a reason other than a disability, and which has not
been approved in writing advance by the Board of Directors or the Chief
Executive Officer of the Corporation.
5
<PAGE> 6
(b) Notwithstanding anything to the contrary contained in this Agreement,
the Corporation, by written notice to the Executive, shall at all times have the
right to terminate this Agreement and the employment of the Executive hereunder
if the Executive shall experience a "Total Disability." For the purpose of this
Agreement, the term "Total Disability" shall mean any mental or physical
illness, condition, disability or incapacity as shall:
(i) prevent the Executive from reasonably discharging his services
and employment duties hereunder;
(ii) be attested to in writing by a physician acceptable to the
Corporation; and
(iii) continue during any period of Three (3) consecutive months or
for periods aggregating three months in any twelve-month period.
A Total Disability shall be deemed to have occurred on the last day of
such applicable three-month period.
(c) This Agreement shall terminate automatically upon the date of the
death of the Executive.
10. Payments upon Termination.
(a) If the Corporation shall terminate the employment of the Executive
under this Agreement pursuant to Section 9 (a) hereof, or if the employment of
the Executive hereunder shall be terminated by the Executive other than in
accordance with Section 2 hereof, then, in any such event, the Corporation shall
have no obligation to pay to the Executive his Salary or any other compensation
or benefits provided under this Agreement for any period after the date of such
termination, or to pay any Bonus for the year in which such termination occurs;
provided, however, that the Corporation shall pay all Salary earned by the
Executive prior to the date of such termination and the reimbursement of all
expenses incurred by the Executive prior to the date of such termination in
accordance with Section 7 hereof. Upon a termination pursuant to Section 9 (a)
or by the Executive, all options and restricted shares granted to Executive
pursuant to Section 5 shall immediately be canceled and no further options shall
vest.
(b) If the employment of the Executive hereunder shall terminate pursuant
to Sections 9 (b) or (c) hereof, if the employment of the Executive shall be
terminated by the Corporation in accordance with Section 2 hereof, or if the
Executive shall be terminated by the Corporation other than in accordance with
the provisions of this Agreement, the Corporation shall pay to the Executive or
his Estate, as the case may be, the Salary and Bonus for the fiscal year in
which such termination occurs, prorated for the number of weeks during which the
Executive was employed by the Corporation during such fiscal year.
(c) In the event that the Corporation terminates the employment of the
Executive by delivering notice in accordance with Section 2, or for any reason
other than those set forth in
6
<PAGE> 7
Section 9 above, the Executive shall receive as severance an amount equal to the
greater of (i) Six (6) months salary, and (ii) the amount of salary that would
have been payable to the Executive form the date of Notice of Termination until
the end of the Term, had the Corporation not delivered such Notice of
Termination. Such severance pay shall be paid in equal monthly installments,
commencing the month following such termination, and shall be payable in
accordance with the Corporation's customary practices for executive officers.
(d) In the event that the employment of the Executive is terminated due to
a Total Disability or the death of the Executive in accordance with Section 9
(6) or 9 (c) hereof, then the Executive or his designated beneficiary, as the
case may be, shall be entitled to receive such amounts as are provided for in
any disability policy or life insurance policy provided by the Corporation for
the benefit of the Executive.
11. Covenants of the Executive. In order to induce the Corporation to
enter into this Agreement and employ the Executive hereunder, the Executive
hereby covenants and agrees as follows:
(a) During the Term and for a period of Twelve (12) months thereafter, the
Executive shall not, without the prior written consent of the Corporation:
(i) directly or indirectly acquire or own in any manner any interest
in any person, firm, partnership, corporation, association or other entity
which competes with the Corporation or any of its affiliates or
subsidiaries; or
(ii) be employed by, or serve as an employee, agent, officer,
director of, any person, firm, partnership, corporation association which
competes with the Corporation or any of its affiliates or subsidiaries.
The foregoing provisions of this Section 11(a) shall not prevent the Executive
from acquiring and/or owning not more than nine per cent of the equity or debt
securities of any company which has securities listed for trading on a
recognized securities exchange or are regularly traded in the National
Association of Securities Dealers Automated Quotation System.
(b) The Executive shall not at any time, other than in the ordinary course
of business of the Corporation, when and if required, disclose, directly or
indirectly, to any person, firm, corporation, partnership, association or other
entity, any confidential information relating to the Corporation or any of its
affiliates or subsidiaries, or any information concerning the financial
condition, suppliers, customers, lessors, lessees, sources of leads for and
methods of obtaining new business or the methods generally of doing and
operating the respective businesses of the Corporation, its affiliates and
subsidiaries, except to the extent that such information is a matter of public
knowledge or is required to be disclosed by law or judicial or administrative
process.
(c) During the Term and for a period of Twelve (12) months thereafter, the
Executive shall not, without the prior written consent of the Corporation,
directly or indirectly through any other individual or entity:
(i) solicit, entice, persuade or induce any individual who currently
is, or at any time during the Term shall be, an employee of the
Corporation, or any of its affiliates, to
7
<PAGE> 8
terminate or refrain from renewing or extending such person's employment
with the Corporation or such subsidiary or affiliate, or to become
employed by or enter into contractual relations with any other individual
or entity, and the Executive shall not approach any such employee for any
such purpose or authorize or knowingly cooperate with the taking of any
such actions by any other individual or entity; or
(ii) except in accordance with the Executive's duties hereunder on
behalf of the Corporation, solicit, entice, persuade, or induce any
individual or entity which currently is, or at any time during the Term
shall be, a customer, supplier, lessor or lessee of the Corporation, or
any of its subsidiaries of affiliates, to terminate or refrain from
renewing or extending its contractual or other relationship with the
Corporation or such subsidiary or affiliate, and the Executive shall not
approach any such customer, supplier, lessor or lessee for such purpose or
authorize or knowingly cooperate with the taking of any such actions by
any other individual or entity.
12. Specific Performance. The Executive acknowledges that a breach or
violation by the Executive of the covenants or agreements contained in Section
11 of this Agreement would cause irreparable harm and damage to the Corporation
if such provisions are not specifically enforced, the monetary amount of which
would be impossible to ascertain. Therefore, the Corporation shall be entitled
to enforce such provisions in a court of equity by a decree of specific
performance and to obtain an injunction from any court of competent jurisdiction
enjoining and restraining any breach or violation of any or all of the covenants
and agreements contained in Section 11 of this Agreement by the Executive and/or
his employees, associates, partners or agents, or entities controlled by one or
more of them, either directly or indirectly. Such remedies shall be cumulative
and not exclusive and shall be in addition to whatever other rights or remedies
the Corporation shall have for damages for a breach by the Executive of the
covenants or agreements contained in Section 11 or elsewhere in this Agreement.
13. Foreign Corrupt Practices Act. The Executive agrees to comply in all
respects with the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA"), as
amended, which provides generally that: under no circumstances will foreign
officials, representatives, political parties or holders of public offices be
offered, promised or paid any money, remuneration, things of value, or provided
any other benefit, direct or indirect, in connection with obtaining or
maintaining contracts or orders hereunder. The Executive's failure to comply in
all respects with the provisions of the FCPA shall constitute a material breach
by him of his obligations hereunder and shall entitle SFMT to terminate this
Agreement immediately. A copy of the Corporation's FCPA policy is annexed hereto
as Exhibit C.
14. No Delegation. The Executive shall not delegate his employment
obligations under this Agreement to any other person.
15. Notices. Any notice required or permitted to be given under this
Agreement shall he in writing and sent by facsimile, with appropriate
confirmation of receipt, certified mail, return receipt requested, or overnight
courier to the following addresses:
If to the Corporation: SFMT, Inc.
477 Madison Avenue, 8th floor
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<PAGE> 9
New York, New York 10022
Attention: General Counsel
Fax: 212-371-9552
If to the Executive: 2 Cobblefield Drive
Mendham, New Jersey 07945
Either party may change the address to which notices, requests, demands and
other communications to such party shall be delivered personally or mailed by
giving notice thereof to the other party hereto in the manner herein provided.
Notices shall be deemed given at the time of receipt.
16. Deductions and Withholding. The Executive acknowledges and agrees that
the Company shall be entitled to withhold from the Executive's compensation
hereunder, including Salary and Bonus and other payments made pursuant to the
Agreement, all applicable taxes that are due to the appropriate jurisdictions,
and pay this withholding to the appropriate tax authorities, consistent with the
tax equalization treatment described in Section 6(e) herein. Tax equalization,
applied in the context of monthly withholding, shall be reconciled at year end.
17. Binding Effect This Agreement shall be for the benefit of and binding
upon the parties hereto and their respective heirs, personal representatives,
legal representatives, successors and, where applicable, assigns.
18. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, understandings and arrangements, both oral and
written, between the parties hereto with respect to such subject matter. This
Agreement may not be modified, amended, altered or rescinded in any manner,
except by written instrument signed by both of the parties hereto; provided,
however, that the waiver by any party of compliance by any other party with
respect to any provision hereof or of any breach by such other party need be
signed only by the party waiving such provision or breach; provided, further,
that the waiver by either party hereto of a breach or compliance with any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach or compliance.
19. Severability. In case any one or more of the provisions of this
Agreement shall be held by any court of competent jurisdiction so be illegal,
invalid or unenforceable in any respect, such provision shall be of no force and
effect, but the illegality, invalidity or unenforceability of such provision
shall have no effect upon and shall not impair the enforceability of any other
provision of this Agreement, but this Agreement shall be construed as if such
illegal, invalid or unenforceable provision had never been contained herein.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within New York.
21. Arbitration. Any and all disputes, controversies and claims arising
out of or relating to this Agreement, shall be settled and determined by
arbitration conducted before a panel
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<PAGE> 10
of three arbitrators in New York in accordance with the rules of the American
Arbitration Association then in effect. The arbitrators' award shall be final
and binding upon the Corporation and the Executive, and judgment confirming such
arbitration may be entered thereon in any court having jurisdiction over such
proceedings.
22. Section Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any manner the meaning or
interpretation of this Agreement.
23. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
SFMT, INC.
By: /s/ Gerald W. Thames
---------------------------
/s/ Jan Loeber
---------------------------
Jan Loeber
10
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is made and entered into as of the third
day of January, 1995, by and between SFMT, Inc., a Delaware corporation (the
"Corporation"), and Gerard J. Caccappolo (the "Employee").
WITNESSETH:
WHEREAS, the Employee has substantial experience in the
telecommunications industry in soles and marketing; and
WHEREAS, the Corporation desires to employ the Employee, and the
Employee desires to be employed by the Corporation, in accordance with the terms
and provisions herein contained;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Employment
(a) The Corporation hereby employs the Employee, and the Employee hereby
accepts such employment, on the terms, and subject to the conditions herein
contained.
(b) The Employee shall by secondment agreement be assigned to work at
SFMT-Hermes ("SFMT-Hermes"), a subsidiary of the Corporation, or Hermes Europe
Railtel B.V. ("Hermes Europe"), a subsidiary of SFMT-Hermes, as the Vice
President and Director of Sales and Marketing of Hermes Europe. In his capacity
as Vice President and Director of Sales and Marketing of Hermes Europe, the
Employee shall report to and shall perform such duties and exercise such power
and authority as may from time to time be delegated to him by Managing Director
of Hermes Europe.
(c) The Employee shall devote all of his business time and attention and
his best efforts to the performance of his duties pursuant to this Employment
Agreement.
(d) Initially, the Employee shall be required to reside in Brussels and
work from the Corporation's or Hermes' offices in Brussels. The Corporation
reserves the right to require that the Employee will move to and reside in and
operate from the offices of the Corporation's or Hermes Europe in another city
within the region in which Hermes Europe operates.
2. Term. The initial term of the employment of the Employee under this
Employment Agreement shall be Two (2) years, commencing on January 3, 1995, and
continuing, unless sooner terminated pursuant to Section 9 to and including
January 2, 1997. Thereafter this Agreement shall be automatically renewed
annually for successive one year periods, unless either party hereto shall
deliver written notice in accordance with Section 9 to the other party at least
three (3) months prior to the date of termination of the initial term or any
extension or renewal thereof (the "Term") of its desire to terminate such
employment (a "Notice of Termination").
<PAGE> 2
3. Compensation.
(a) During the initial Term, the Employee shall be paid a salary at the
rate of One Hundred Sixty Thousand Dollars ($160,000) per annum, payable in
accordance with the Corporation's customary payroll practices for employees.
(b) Thereafter, at the end of each year Chief Executive Officer of the
Corporation shall review the salary of the Employee, and shall make such
adjustments to such salary as the Chief Executive Officer shall, in its sole and
absolute discretion, deem appropriate.
(c) For the purposes of this Agreement, "Salary" shall mean any payment by
the Corporation to the Employee pursuant to this Section 3.
4. Bonus.
(a) After the Employee has been employed by the Corporation for a period
of eighteen (18) months, and as additional compensation to the Employee
hereunder, the Employee will be assessed for eligibility to receive a
discretionary bonus (the "Bonus") in respect of the initial employment period.
Subject to the provisions of Section 4(b), the initial target for such Bonus,
based on the achievement by Hermes Europe of the objectives shall be thirty
percent (30%) of the Salary of the Employee earned during the initial employment
period. The first bonus shall be in respect of two years ("the Initial Bonus"),
payable in accordance with Section 4(c). The potential Initial Bonus shall be
subject to the achievement of the performance objectives set forth in the
approved Hermes Europe Business Plan.
(b) The formula or other method for determining the Bonus for the Employee
in each subsequent fiscal year shall be determined by the Corporation and shall
be based upon the performance of Hermes Europe in such fiscal year as compared
with the Hermes Europe approved business plan for such fiscal years. The amount
of the Bonus paid to the Employee in respect of any fiscal year of the
Corporation shall be subject to the sole and absolute discretion of Chief
Executive Officer of the Corporation. The objectives for each fiscal year and
the amount of bonus for successful completion of objectives (as a percentage of
base salary or other formula declared for the period) shall be established
during the period between twelve (12) and fifteen (15) months prior to the
fiscal year for which such objectives apply (e.g., October 1 - December 31, 1994
for fiscal year 1996).
(c) All Bonuses in respect of any fiscal year of the Hermes Europe shall
be paid within thirty (30) days after the issuance of the audited financial
statements of Hermes Europe for such fiscal year.
5. Equity Participation
(a) SFMT-Hermes has adopted a Stock Option Plan (the "Option Plan") for
its senior executives. Subject to the provisions of the Plan, SFMT-Hermes shall
grant to the Employee options to purchase shares of Capital Stock of SFMT-Hermes
("Capital Stock"). The number of shares of Capital Stock which shall be subject
to the option shall be an amount equal to one and one-half percent (1.5%) of the
outstanding shares of SFMT-Hermes to be determined at January 2, 1996. The
options granted to the Employee shall be granted and vest as follows:
2
<PAGE> 3
(i) options to purchase 33.33% (one-third) of the shares of Capital
Stock shall be granted on January 3, 1996 and vest as at the close of
business on January 2, 1997;
(ii) options to purchase 33.33% (one-third) of the shares of Capital
Stock shall be granted on January 3, 1997 and vest as at the close of
business of January 2,1998; and
(iii) options to purchase 33.33% (one-third) of the shares of
Capital Stock shall be granted on January 3, 1998 and vest as at the close
of business on January 2, 1999.
6. Benefits.
(a) During the Term, the Employee shall be entitled to receive such
benefits and to participate in such employee group benefit plans as are
generally provided by the Corporation, or made available by the Corporation, to
its executive officers, including without limitation, but subject to the
conditions imposed by the carriers, any medical, health, disability and life
insurance policies.
(b) During the Term, the Corporation or Hermes Europe shall provide to the
Employee, at the Corporation's expense, use of a late model automobile
appropriate in the geographic location of Employee's residence, and acceptable
to the Corporation.
(c) During the Term, the Corporation or Hermes Europe shall provide
business class transportation to and from the United States for one trip per
annum for Employee and Employee's immediate family living with Employee in
Brussels.
(d) During the initial first Two (2) years of the Term, the Corporation or
Hermes Europe shall provide to the Employee a furnished residence in Brussels.
The Corporation or Hermes Europe shall provide for the relocation of Employee's
household goods to Brussels from their location in either Paris or New Jersey;
provided, Employee notifies the Corporation in writing prior to January 2, 1996
of Employee's election to have such household goods moved; provided, however,
that neither the Corporation nor Hermes Europe shall provide for the relocation
of Employee's household goods if either the Corporation or Employee provides a
Notice of Termination in accordance with Section 2 of this Agreement on or
before July 2, 1996, or the employment of the Employee is otherwise terminated.
In the event that Employee elects to have his household goods moved, the
Corporation or Hermes Europe shall provide an unfurnished apartment in the city
in which Employee is required to reside. Any relocation costs and expenses shall
be in accordance with the Corporation's policies for relocation expenses;
provided, however, that such costs and expenses shall not exceed Employee's
Salary for one month.
(e) The Corporation or Hermes Europe shall pay to the Employee during the
Term an amount per annum as shall compensate the Employee for tax equalization
in connection with the requirement that the Employee reside outside the United
States for so long as the Employee is required to live outside the United
States. Such tax equalization shall apply to Salary and Bonus and any other
payments made to Employee deemed taxable in the foreign jurisdiction where
Employee is required to reside. SFMT will also be responsible for the
preparation and filing of your domestic and international income taxes.
(f) The Employee shall be paid an amount equal to Seven percent (7%) of
the Employee's Salary as a cost of living adjustment in connection with
requirement that the Employee reside in Brussels for so long as the Employee is
required to live in Brussels.
3
<PAGE> 4
7. Expense Reimbursement
(a) During the Term, the Corporation shall reimburse the Employee for all
reasonable expenditures actually and necessarily paid or incurred by the
Employee in the course of and pursuant to the business of the Corporation. Such
reimbursement shall be subject to the submission to the Corporation by the
Employee of appropriate documentation and/or vouchers, and shall be made in
accordance with the customary procedures of the Corporation for expense
reimbursement, as may from time to time be established.
(b) Should the Corporation provide Employee with a credit card, Employee
acknowledges complete personal responsibility for all charges made on such
credit card. Any charges received by the Corporation for expenses not documented
on a approved expense report may be deducted by the Corporation from the
Executives payroll check. Upon termination of this Agreement, non approved
charges shall be deducted from the last payroll check issued to the Employee.
8. Vacation. In each fiscal year of the Corporation during the Term, the
Employee shall be entitled to Four (4) weeks vacation time, which shall not be
cumulative from year to year without the prior written consent of the
Corporation or unless the Employee shall be unable to take such vacation due to
Employee's duties under this Agreement; provided, however, that to the extent
the Employee cannot take vacation time during the Term due to his
responsibilities under this Agreement, upon termination, Employee shall be
entitled to be compensated for accrued but unused vacation time.
9. Termination.
(a) Notwithstanding anything to the contrary contained in this Agreement,
the Corporation shall at all times have the right to terminate this Agreement
and the employment of the Employee hereunder for "Cause" by written notice to
the Employee in accordance with Section 15. For the purpose of this Agreement,
the term "Cause" shall mean any action of the Employee or any failure to act by
the Employee which constitutes:
(i) fraud, embezzlement or any felony in connection with the
Employee's duties as an executive officer of the Corporation or any
subsidiary or affiliate of the Corporation, or willful misconduct or the
commission of any other act which causes or may reasonably be expected to
cause substantial economic or reputational injury to the Corporation or
any such subsidiary or affiliate of the Corporation, including any
violation of the Foreign Corrupt Practices Act, as described in Section 13
of this Agreement;
(ii) continuing conflict of interest or continuing failure to follow
reasonable directions or instructions of the Board of Directors or Chief
Employee Officer of the Corporation. A conflict of interest or a failure
to follow directions of the Board of Directors or the Chief Employee
Officer of the Corporation shall be deemed to be continuing if the
Employee shall have received written notice thereof and shall have not
terminated the conflict of interest or failure to follow directions within
Thirty (30) days after receipt of such notice; or
(iii) an extended period of absence by the Employee from the
performance of the obligations of the Employee provided hereunder, which
absence shall be for a reason other than a disability, and which has not
been approved in writing advance by the Board of
4
<PAGE> 5
Directors or the Chief Employee Officer of the Corporation.
(b) Notwithstanding anything to the contrary contained in this Agreement,
the Corporation, by written notice to the Employee, shall at all times have the
right to terminate this Agreement and the employment of the Employee hereunder
if the Employee shall experience a "Total Disability." For the purpose of this
Agreement, the term "Total Disability" shall mean any mental or physical
illness, condition, disability or incapacity as shall:
(i) prevent the Employee from reasonably discharging his services
and employment duties hereunder;
(ii) be attested to in writing by a physician acceptable to the
Corporation; and
(iii) continue during any period of Three (3) consecutive months or
for periods aggregating three months in any twelve-month period.
A Total Disability shall be deemed to have occurred on the last day of
such applicable three-month period.
(c) This Agreement shall terminate automatically upon the date of the
death of the Employee.
10. Payments upon Termination.
(a) If the Corporation shall terminate the employment of the Employee
under this Agreement pursuant to Section 9 (a) hereof, or if the employment of
the Employee hereunder shall be terminated by the Employee other than in
accordance with Section 2 hereof, then, in any such event, the Corporation shall
have no obligation to pay to the Employee his Salary or any other compensation
or benefits provided under this Agreement for any period after the date of such
termination, or to pay any Bonus for the year in which such termination occurs;
provided, however, that the Corporation shall pay all Salary earned by the
Employee prior to the date of such termination and the reimbursement of all
expenses incurred by the Employee prior to the date of such termination in
accordance with Section 7 hereof. Upon a termination pursuant to Section 9 (a)
or by the Employee, all options and restricted shares granted to Employee
pursuant to Section 5 shall immediately be canceled and no further options shall
vest.
(b) If the employment of the Employee hereunder shall terminate pursuant
to Sections 9 (b) or (c) hereof, if the employment of the Employee shall be
terminated by the Corporation in accordance with Section 2 hereof, or if the
Employee shall be terminated by the Corporation other than in accordance with
the provisions of this Agreement, the Corporation shall pay to the Employee or
his Estate, as the case may be, the Salary and Bonus for the fiscal year in
which such termination occurs, prorated for the number of weeks during which the
Employee was employed by the Corporation during such fiscal year.
(c) In the event that the Corporation terminates the employment of the
Employee by delivering notice in accordance with Section 2, or for any reason
other than those set forth in Section 9 above, the Employee shall receive as
severance an amount equal to the greater of (i) three (3) months salary, and
(ii) the amount of salary that would have been payable to the Employee form the
date of Notice of Termination until the end of the Term, had the Corporation not
delivered such Notice of Termination. Such severance pay shall be paid in equal
monthly installments,
5
<PAGE> 6
commencing the month following such termination, and shall be payable in
accordance with the Corporation's customary practices for employees.
(d) In the event that the employment of the Employee is terminated due to
a Total Disability or the death of the Employee in accordance with Section 9
(b) or 9 (c) hereof, then the Employee or his designated beneficiary, as the
case may be, shall be entitled to receive such amounts as are provided for in
any disability policy or life insurance policy provided by the Corporation for
the benefit of the Employee.
11. Covenants of the Employee. In order to induce the Corporation to enter
into this Agreement and employ the Employee hereunder, the Employee hereby
covenants and agrees as follows:
(a) During the Term and for a period of Twelve (12) months thereafter, the
Employee shall not, without the prior written consent of the Corporation:
(i) directly or indirectly acquire or own in any manner any interest
in any person, firm, partnership, corporation, association or other entity
which competes with the Corporation or any of its affiliates or
subsidiaries; or
(ii) be employed by, or serve as an employee, agent, officer,
director of, any person, firm, partnership, corporation association which
competes with the Corporation or any of its affiliates or subsidiaries.
The foregoing provisions of this Section 11(a) shall not prevent the Employee
from acquiring and/or owning not more than nine per cent of the equity or debt
securities of any company which has securities listed for trading on a
recognized securities exchange or are regularly traded in the National
Association of Securities Dealers Automated Quotation System.
(b) The Employee shall not at any time, other than in the ordinary course
of business of the Corporation, when and if required, disclose, directly or
indirectly, to any person, firm, corporation, partnership, association or other
entity, any confidential information relating to the Corporation or any of its
affiliates or subsidiaries, or any information concerning the financial
condition, suppliers, customers, lessors, lessees, sources of leads for and
methods of obtaining new business or the methods generally of doing and
operating the respective businesses of the Corporation, its affiliates and
subsidiaries, except to the extent that such information is a matter of public
knowledge or is required to be disclosed by law or judicial or administrative
process.
(c) During the Term and for a period of twelve (12) months thereafter, the
Employee shall not, without the prior written consent of the Corporation,
directly or indirectly through any other individual or entity:
(i) solicit, entice, persuade or induce any individual who currently
is, or at any time during the Term shall be, an employee of the
Corporation, or any of its affiliates, to terminate or refrain from
renewing or extending such person's employment with the Corporation or
such subsidiary or affiliate, or to become employed by or enter into
contractual relations with any other individual or entity, and the
Employee shall not approach any such employee for any such purpose or
authorize or knowingly cooperate with the taking of any such actions by
any other individual or entity; or
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<PAGE> 7
(ii) except in accordance with the Employee's duties hereunder on
behalf of the Corporation, solicit, entice, persuade, or induce any
individual or entity which currently is, or at any time during the Term
shall be, a customer, supplier, lessor or lessee of the Corporation, or
any of its subsidiaries of affiliates, to terminate or refrain from
renewing or extending its contractual or other relationship with the
Corporation or such subsidiary or affiliate, and the Employee shall not
approach any such customer, supplier, lessor or lessee for such purpose or
authorize or knowingly cooperate with the taking of any such actions by
any other individual or entity.
12. Specific Performance. The Employee acknowledges that a breach or
violation by the Employee of the covenants or agreements contained in Section 11
of this Agreement would cause irreparable harm and damage to the Corporation if
such provisions are not specifically enforced, the monetary amount of which
would be impossible to ascertain. Therefore, the Corporation shall be entitled
to enforce such provisions in a court of equity by a decree of specific
performance and to obtain an injunction from any court of competent jurisdiction
enjoining and restraining any breach or violation of any or all of the covenants
and agreements contained in Section 11 of this Agreement by the Employee and/or
his employees, associates, partners or agents, or entities controlled by one or
more of them, either directly or indirectly. Such remedies shall be cumulative
and not exclusive and shall he in addition to whatever other rights or remedies
the Corporation shall have for damages for a breach by the Employee of the
covenants or agreements contained in Section 11 or elsewhere in this Agreement.
13. Foreign Corrupt Practices Act. The Employee agrees to comply in all
respects with the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA"), as
amended, which provides generally that: under no circumstances will foreign
officials, representatives, political parties or holders of public offices be
offered, promised or paid any money, remuneration, things of value, or provided
any other benefit, direct or indirect, in connection with obtaining or
maintaining contracts or orders hereunder. The Executive's failure to comply in
all respects with the provisions of the FCPA shall constitute a material breach
by him of his obligations hereunder and shall entitle SFMT to terminate this
Agreement immediately. A copy of the Corporation's FCPA policy is annexed hereto
as Exhibit A.
14. No Delegation. The Employee shall not delegate his employment
obligations under this Agreement to any other person.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and sent by facsimile, with appropriate
confirmation of receipt, certified mail, return receipt requested, or overnight
courier to the following addresses:
If to the Corporation: SFMT, Inc.
477 Madison Avenue, 8th floor
New York, New York 10022
Attention: General Counsel
Fax: 212-371-9552
If to the Employee: 1 Highview Terrace
Madison, New Jersey 07940
7
<PAGE> 8
Either party may change the address to which notices, requests, demands and
other communications to such party shall be delivered personally or mailed by
giving notice thereof to the other party hereto in the manner herein provided.
Notices shall be deemed given at the time of receipt.
16. Deductions and Withholding. The Employee acknowledges and agrees that
the Company shall be entitled to withhold from the Employee's compensation
hereunder, including Salary and Bonus and other payments made pursuant to the
Agreement, all applicable taxes that are due to the appropriate jurisdictions,
and pay this withholding to the appropriate tax authorities, consistent with the
tax equalization treatment described in Section 6(e) herein. Tax equalization,
applied in the context of monthly withholding, shall he reconciled at year end.
17. Binding Effect. This Agreement shall be for the benefit of and binding
upon the parties hereto and their respective heirs, personal representatives,
legal representatives, successors and, where applicable, assigns.
18. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, understandings and arrangements, both oral and
written, between the parties hereto with respect to such subject matter. This
Agreement may not be modified, amended, altered or rescinded in any manner,
except by written instrument signed by both of the parties hereto; provided,
however, that the waiver by any party of compliance by any other party with
respect to any provision hereof or of any breach by such other party need be
signed only by the party waiving such provision or breach; provided, further;
that the waiver by either party hereto of a breach or compliance with any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach or compliance.
19 Severability. In case any one or more of the provisions of this
Agreement shall be held by any court of competent jurisdiction so be illegal,
invalid or unenforceable in any respect, such provision shall be of no force and
effect, but the illegality, invalidity or unenforceability of such provision
shall have no effect upon and shall not impair the enforceability of any other
provision of this Agreement, but this Agreement shall be construed as if such
illegal, invalid or unenforceable provision had never been contained herein.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within New York.
21. Arbitration. Any and all disputes, controversies and claims arising
out of or relating to this Agreement, shall be settled and determined by
arbitration conducted before a panel of three arbitrators in New York in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators' award shall be final and binding upon the Corporation
and the Employee, and judgment confirming such arbitration may be entered
thereon in any court having jurisdiction over such proceedings.
22. Section Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any manner the meaning or
interpretation of this Agreement.
Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which taken together
shall constitute one and the same
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<PAGE> 9
instrument
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
SFMT, INC.
by: [Illegible]
------------------------------
------------------------------
Gerard J. Caccappolo
9
<PAGE> 1
Exhibit 10.4
Employment Agreement
THIS EMPLOYMENT AGREEMENT, is made and entered into as of the first day
of January, 1996, by and between GTS Group, Inc. a Delaware corporation (the
"Corporation"), and Bruce C. Rudy (the "Employee").
WITNESSETH:
WHEREAS, the Employee has substantial experience in the planning and
development of telecommunications ventures;
WHEREAS, the Corporation desires to employ the Employee, and the Employee
desires to be employed by the Corporation, in accordance with the terms and
provisions herein contained;
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Employment.
(a) The Corporation hereby employs the Employee, and the Employee hereby
accepts such employment, on the terms, and subject to the conditions herein
contained.
(b) The Employee shall be seconded to work at the Corporation's affiliate,
GTS-Hermes, Inc. ("GTS-Hermes") and its subsidiary in Brussels, Belgium, Hermes
Europe Railtel B.V. ("Hermes"), as the Vice President and Director of Business
Planning and Development of Hermes. In his capacity as Vice President and
Director of Business Development, Planning and Regulatory Affairs for Hermes,
the Employee shall report to and perform such duties and exercise such power and
authority as may from time to time be delegated to the Employee by the Managing
Director of Hermes.
(c) The Employee shall devote all of the Employee's business time and
attention and dedicate with the Employee's best efforts toward the fulfillment
and execution, including performance criteria, of the Employee's defined duties
pursuant to this Employment Agreement.
2. Term.
(a) The initial term of the employment of the Employee under this
Employment Agreement shall be three years commencing on January 1, 1996, and
continuing, unless sooner terminated pursuant to Section 9, to and including
December 31, 1998.
(b) Thereafter this Agreement shall terminate, unless (i) at least one
hundred and twenty days prior to the date of termination of the initial term or
any extension or renewal thereof (the "Term") either party requests verbally or
in writing and in accordance with the notice requirements of Section 15 an
extension of the Agreement (the Term of such extension shall be confirmed in
writing by a formal agreement extension approval from the Managing Director of
Hermes (the "Renewal Approval") within forty-five days of receipt).
3. Compensation
<PAGE> 2
(a) During the initial 24 consecutive month period of service, the
Employee shall be paid a salary at the rate of one hundred thirty five thousand
dollars ($135,000) per annum, payable in accordance with the Corporation's
customary payroll practices for Employees.
(b) At the end of each fiscal year the Managing Director of Hermes shall
review the performance of the Employee, and in connection with such review shall
review the salary of the Employee, and shall make a recomendation with respect
to adjustment to the base salary to the Chief Executive Officer of the
Corporation who shall make such adjustment to the base salary, if any, in his
sole and absolute discretion, deem appropriate.
(c) For the purposes of this Agreement, "Salary" shall mean any payment by
the Corporation to the Employee pursuant to this Section 3.
4. Bonus Opportunities.
(a) As additional compensation opportunities for the Employee hereunder,
the Corporation or Hermes shall provide to the Employee a bonus program which
allows for possible incentive compensation (the "Bonus") in respect of each
fiscal year of the Corporation. Subject to the provisions of Section 4(b), the
basis for such bonus, shall be based on performance achievements by the
Corporation and the Employee. Incentive award opportunities shall be up to
fifteen percent (15%) of the Salary of the Employee in any fiscal year. The
Bonus plan will be reviewed and adjusted on an annual basis, if deemed
appropriate, by the Chief Executive Officer of the Corporation in coordination
with the Compensation Committee of the Board of Directors of the Corporation, in
its sole and absolute discretion.
(b) The formula or other methods for determining the Bonus for the
Employee in each fiscal year shall be determined by the Chief Executive Officer
in coordination with the Compensation Committee of the Board of Directors of the
Corporation, and shall be based upon the performance of the Corporation and the
Employee in such fiscal year as compared with the projected expected performance
of the Corporation for such fiscal years. The actual amount of the Bonus paid to
the Employee in respect to the performance of any fiscal year of the Corporation
shall be subject to the sole and absolute discretion of the Compensation
Committee of the Board of Directors of the Corporation.
(c) All bonuses with respect to any fiscal year of the Corporation shall
be paid as soon as practical subsequent to the issuance of the consolidated
financial statements of the Corporation.
(d) The Employee shall have the opportunity to earn an additional deferred
bonus (the "Deferred Bonus") of up to fifteen per cent (15%) of the Salary of
the Employee earned. The Deferred Bonus, if any, shall be in an amount equal to
the Bonus, and payable on December 31, 1998, provided that the employee
continues to be employed by the Corporation on December 31, 1998.
5. Stock Option Plan. GTS-Hermes has adopted the 1994 GTS-Hermes Stock
Option Plan, (the "Plan") for its employees. Subject to the provisions of the
Plan, a copy of which is annexed hereto as Exhibit A, and the execution and
delivery of an option agreement (the "Option Agreement"), in the form annexed
hereto as Exhibit B, Hermes to grant to the Employee options to purchase a
number of shares of common stock of GTS-Hermes (the "Common Stock"). The number
of shares of Common Stock
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<PAGE> 3
which shall be subject to the option shall be an amount equal to one-half of one
per centum (0.5%) of the outstanding shares of GTS-Hermes on the date of grant.
6. Benefits.
(a) During the Term, the Employee shall be entitled to receive such
benefits and to participate in such employee group benefit plans as are
generally provided by the Corporation, or made available by the Corporation, to
its Employees, including without limitation, but subject to the conditions
imposed by the carriers, any medical, health, disability and life insurance
policies.
(b) During the Term, the Corporation or Hermes shall provide to the
Employee, at the its expense, use of a late model automobile appropriate in the
geographic location of Employee's residence, and acceptable to the Corporation.
(c) During the Term, the Corporation or Hermes shall provide business
class transportation (or coach class transportation with an upgrade to business
class if more economical to the Corporation) to and from the United States for
one trip per annum for Employee and Employee's immediate family living with
Employee. Until such time as the Employee's family shall be relocated to
Belgium, the Corporation or Hermes shall provide Employee a travel allowance of
up to US $2,400 per month.
(d) During the Term, the Corporation or Hermes shall provide Employee a
housing allowance of 45,000 Belgian Francs per month. The Corporation or Hermes
shall provide for the relocation of Employee's household goods to Belgium from
their location in Sudbury, MA USA; provided, that the Employee shall have
provided the Company a written notice of election to have such household goods
moved to Belgium; provided, further, that the Corporation or Hermes shall only
be obligated to relocate such household good if it shall not have provided
Employee with a Notice of Termination, or the employment of the Employee is
otherwise terminated, on or before July 2 1996. Any such relocation of the
household goods of the Employee shall be in accordance with the Corporation's
relocation policy.
(e) The Corporation or Hermes shall pay to the Employee during the Term an
amount per annum as shall compensate the Employee for tax equalization in
connection with the requirement that the Employee reside outside the United
States in accordance with the Corporation's tax equalization policy. The
Corporation or Hermes shall prepare all all tax returns for the Employee.
7. Expense Reimbursement.
(a) During the Term, the Corporation or Hermes shall reimburse the
Employee for all reasonable expenditures actually and necessarily paid or
incurred by the Employee in the course of and pursuant to the business of the
Corporation. Such reimbursement shall be subject to the submission to the
Corporation or Hermes by the Employee of appropriate documentation and/or
vouchers, and shall be made in accordance with the customary procedures of the
Corporation for expense reimbursement, as may from time to time be established.
(b) Should the Corporation provide Employee with a credit card, Employee
acknowledges complete personal responsibility for all charges made on such
credit card. Any charges received by the Corporation for expenses not documented
on an approved expense report may be deducted by the Corporation from the
Employee's payroll check.
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<PAGE> 4
Upon termination of this Agreement, non approved charges shall be deducted from
the last payroll check issued to the Employee.
8. Vacation. In each fiscal year of the Corporation during the Term, the
Employee shall be entitled to four weeks vacation time, which shall not be
cumulative from year to year without the prior written consent of the
Corporation.
9. Termination.
(a) Notwithstanding anything to the contrary contained in this Agreement,
the Corporation shall at all times have the right to terminate immediately this
Agreement and the employment of the Employee hereunder for "Cause" by written
notice to the Employee in accordance with Section 15. For the purpose of this
Agreement, the term "Cause" shall mean any action of the Employee or any failure
to act by the Employee which constitutes:
(i) fraud, embezzlement or any felony in connection with the
Employee's duties as an Employee officer of the Corporation or any
subsidiary or affiliate of the Corporation, or willful misconduct or the
commission of any other act which causes or may reasonably be expected to
cause substantial economic or reputational injury to the Corporation or
any such subsidiary or affiliate of the Corporation, including any
violation of the Foreign Corrupt Practices Act, as described in Section 13
of this Agreement;
(ii) a continuing conflict of interest or continuing failure to
follow reasonable directions or instructions of the Board of Directors or
Chief Executive Officer of the Corporation. A conflict of interest or a
failure to follow directions of the Chief Executive Officer of the
Corporation shall be deemed to be continuing if the Employee shall have
received written notice thereof and shall have not terminated the conflict
of interest or failure to follow directions within thirty days after
receipt of such notice;
(iii) an extended period of absence by the Employee from the
performance of the obligations of the Employee provided hereunder, which
absence shall be for a reason other than a disability, and which has not
been approved in writing in advance by the Managing Director of Hermes or
the Chief Executive Officer of the Corporation; or
(iv) a failure to meet minimum satisfactory performance requirements
for a performance period as determined by the Managing Director of Hermes.
(b) Notwithstanding anything to the contrary contained in this Agreement,
the Corporation, by written notice to the Employee, shall at all times have the
right to terminate this Agreement and the employment of the Employee hereunder
if the Employee shall experience a "Total Disability". For the purpose of this
Agreement, the term "Total Disability" shall mean any mental or physical
illness, condition, disability or incapacity as shall:
(i) prevent the Employee from reasonably discharging required
services and employment duties hereunder;
(ii) be attested to in writing by a physician or a group of
physicians acceptable to the Corporation; and
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<PAGE> 5
(iii) continue during any period of six consecutive months or for
periods aggregating six months in any twenty four month period.
A Total Disability shall be deemed to have occurred on the last day of
such applicable six month period.
(c) This Agreement shall terminate automatically upon the date of the
death of the Employee.
(d) The Employee may terminate the Agreement at any time by giving 120
days written notice to the Corporation in accordance with Section 15. Upon
giving such notice, the Employee shall be continued in employment with the
Corporation for the full 120 days of the notice period, be continued in
employment with the Corporation without the existence of an employement
agreement, or at the discretion of the Corporation may be paid the Employee's
salary and have applicable benefits hereunder continued for such 120 days period
in lieu of continued employment. Failure of the Employee to provide the full 120
days notice shall be deemed a breach of the agreement by the Employee and permit
the Corporation to cease immediately the compensation and benefits provided
herein, and if deemed necessary, to take remedial action to prohibit any further
damages as may occur from the breach by the Employee.
10. Payments Upon Termination.
(a) If the Corporation shall terminate the employment of the Employee
under this Agreement pursuant to Section 9(a) hereof, or if the employment of
the Employee hereunder shall be terminated by the Employee other than in
accordance with Section 2 or Section 9(d), then, in any such event, the
Corporation shall have no obligation to pay to the Employee base salary or any
other compensation or benefits provided under this Agreement for any period
after the date of such termination, or to pay any Bonus for the year in which
such termination occurs; provided, however, that the Corporation shall pay all
Salary earned by the Employee prior to the date of such termination and the
reimbursement of all expenses incurred by the Employee prior to the date of such
termination in accordance with Section 7 hereof. Upon termination pursuant to
Section 9(a) or by the Employee other than in accordance with Section 2 or
Section 9(d), all options granted to the Employee pursuant to Section 5 shall
immediately be canceled and no further options shall vest.
(b) If the employment of the Employee hereunder shall terminate pursuant
to subsections 9(b) or (c) hereof, if the employment of the Employee shall be
terminated by the Corporation in accordance with Section 2 hereof, or if the
Employee shall be terminated by the Corporation other than in accordance with
the provisions of this Agreement, the Corporation shall pay to the Employee or
the Employee's Estate, as the case may be, the Salary and target Bonus for the
fiscal year in which the termination occurs, prorated for the number of weeks
during which the Employee was employed by the Corporation during such fiscal
year.
(c) In the event that the Corporation terminates the employment of the
Employee by delivering notice in accordance with Section 2, or for any reason
other than those set forth in Section 9 above, the Employee shall receive as
severance an amount equal to 120 days of Salary and benefits. Such severance pay
shall be paid in equal monthly installments, commencing the month following such
termination, and shall be payable in accordance with the Corporation's customary
practices for Employees.
5
<PAGE> 6
(d) In the event that the employment of the Employee is terminated due to
a Total Disability or the death of the Employee in accordance with Section 9(b)
or 9(c) hereof, then the Employee or his designated beneficiary, as the case may
be, shall receive such amounts as are provided for in the disability policy or
life insurance policy provided by the Corporation for the benefit of the
Employee.
11. Covenants of the Employee. In order to induce the Corporation to enter
into this Agreement and employ the Employee hereunder, the Employee hereby
covenants and agrees as follows:
(a) During the term and for a period of twelve months thereafter, the
Employee shall not, without the prior written consent of the Corporation,
directly or indirectly, own, acquire, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with or use or permit his/her name to be
used in connection with:
(i) any business or enterprise engaged in the business of providing
carrier's carrier services in the European Union, including but not
limited to the following businesses or enterprises: AT&T/Unisource,
/Atlas, Phoenix (this subparagraph shall include any business operations
and activities that Hermes will expand into after the date this agreement
is extended); and
(ii) in a geographic area in which the Corporation or any of its
affiliates is operating either during the term or on the date Employee's
employment terminates and within which the Employee provides services or
has responsibility for the business operations and activities of the
Corporation, including but not limited to the following: the member states
of the European Union and the EFTA (including any area into which the
Corporation's business operations or activities expand after the date
hereof and within which the Employee provides services or as
responsibility for such business operations or activities) (the
"Geographic Area).
It is recognized by the Employee that the business of the Corporation,
Hermes, and their respective affiliates and the Employee's connection therewith
is or will be involved in activity throughout the Geographic Area and that more
limited geographical limitations on this non-competition covenant are therefore
not appropriate.
The foregoing provisions of this Section 11(a) shall not prevent the
Employee from acquiring and/or owning not more than nine per cent of the equity
or debt securities of any company which has securities listed for trading on a
recognized securities exchange or are regularly traded in the National
Association of Securities Dealers Automated Quotation System.
(b) The Employee shall not at any time, other than in the ordinary course
of business of the Corporation, when and if required, disclose, directly or
indirectly, to any person, firm, corporation, partnership, association or other
entity, any confidential information concerning the financial condition,
suppliers, customers, lessors, lessees, sources of leads for and methods of
obtaining new business or the methods generally of doing and operating the
respective businesses of the Corporation, its affiliates and subsidiaries,
except that such information is a matter of public knowledge or is required to
be disclosed by law or judicial or administrative process.
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<PAGE> 7
(c) During the Term and for a period of twelve months thereafter, the
Employee shall not, without the prior written consent of the Corporation,
directly or indirectly through any other individual or entity:
(i) solicit, entice, persuade or induce any individual who currently
is, or at any time during the Term shall be, an employee of the
Corporation, or any of its affiliates, to terminate or refrain from
renewing or extending such person's employment with the Corporation or
such subsidiary or affiliate, or to become employed by or enter into
contractual relations with any other individual or entity, and the
Employee shall not approach any such employee for any such purpose or
authorize or knowingly cooperate with the taking of any such actions by
any other individual or entity; or
(ii) except in accordance with the Executive's duties hereunder on
behalf of the Corporation, solicit, entice, persuade, or induce any
individual or entity which currently is, or at any time during the Term
shall be, a customer, supplier, lessor or lessee of the Corporation, or
any of its subsidiaries or affiliates, to terminate or refrain from
renewing or extending its contractual or other relationship with the
Corporation or such subsidiary or affiliate, and the Employee shall not
approach any such customer, supplier, lessor or lessee for such purpose or
authorize or knowingly cooperate with the taking of any such actions by
any other individual or entity.
12. Specific Performance. The Employee acknowledges that a breach or
violation by the Employee of the covenants or agreements contained in Sections
11 and 13 of this Agreement would cause irreparable harm and damage to the
Corporation if such provisions are not specifically enforced, the monetary
amount of which would be impossible to ascertain. Therefore, the Corporation
shall be entitled to enforce such provisions in a court of equity by a decree of
specific performance and to obtain an injunction from any court of competent
jurisdiction enjoining and restraining any breach or violation of any or all of
the covenants and agreements contained in Sections 11 and 13 of this Agreement
by the Employee and/or his employees, associates, partners or agents, or
entities controlled by one or more of them, either directly or indirectly. Such
remedies shall be cumulative and not exclusive and shall be in addition to
whatever other rights or remedies the Corporation shall have for damages for a
breach by the Employee of the covenants or agreements contained in Section 11 or
elsewhere in this Agreement. Notwithstanding anything herein to the contrary,
the Corporation hereby expressly reserves the right to seek damages and other
economic remedies for a breach by the Employee of the covenants or agreements
contained in Section 11 or elsewhere in this Agreement.
13. Foreign Corrupt Practices Act. You agree to comply in all respects
with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA), as amended, which
provides generally that: under no circumstances will foreign officials,
representatives, political parties or holders of public offices be offered,
promised or paid any money, remuneration, things of value, or provided any other
benefit, direct or indirect, in connection with obtaining or maintaining
contracts or orders hereunder. Your failure to comply in all respects with the
provisions of the FCPA shall constitute a material breach by you of your
obligations hereunder and shall entitle SFMT to terminate this Agreement
immediately. A copy of the Corporation's FCPA policy is annexed hereto as
Exhibit C:
14. No Delegation. The Employee shall not delegate his employment
obligations under this Agreement to any other person.
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<PAGE> 8
15. Renewal Notices. Any renewal requests permitted must be approved by
the Compensation Committee according to the terms of this Agreement and must be
approved in writing and with appropriate confirmation of receipt, certified
mail, return receipt requested, or overnight courier to the following addresses:
If to the Corporation: GTS Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, VA 22102 USA
Attention:General Counsel
If to the Employee: 1074 Concord Road
Sudbury, MA 01776 USA
Either party may change the address to which notices, requests, demands
and other communications to such party shall be delivered personally or mailed
by giving notice thereof to the other party hereto in the manner herein
provided. Renewal notices shall be deemed approved at the time when such are
approved by the Managing Director of Hermes .
16. Binding Effect. This Agreement shall be for the benefit of and binding
upon the parties hereto and their respective heirs, personal representatives,
legal representatives, successors and, where applicable, assigns.
17. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, understandings and arrangements, both oral and
written, between the parties hereto with respect to such subject matter. This
Agreement may not be modified, amended, altered or rescinded in any manner,
except by written instrument signed by both of the parties hereto; provided,
however, that the waiver by any party of compliance by any other party with
respect to any provision hereof or of any breach by such other party need be
signed only by the party waiving such provision or breach; provided, further,
that the waiver by either party hereto of a breach or compliance with any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach or compliance.
18. Severability. In case any one or more of the provisions of this
Agreement shall be held by any court of competent jurisdiction to be illegal,
invalid or unenforceable in any respect, such provision shall be not force and
effect, but the illegality, invalidity or unenforceability of any other
provision of this Agreement, but this Agreement shall be constured as if such
illegal, invalid or unenforceable provision had never been contained herein.
19. Choice of Laws. The Employee and the Corporation intend and hereby
acknowledge that jurisdiction over disputes with regard to this Agreement shall
be exclusively in the courts of the Commonwealth of Virginia, and this
Agreement shall be governed by the laws of the Commonwealth of Virginia as to
the validity, interpretation, and enforcement thereof.
20. Arbitration. Any and all disputes, controversies and cliams arising
out of or relating to this Agreement, shall be settled and determined by
arbitration conducted before a panel of three arbitrators in Virginia in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators' award shall be final and binding upon the Corporation
and the Employee, and judgement confirming such arbitration may be entered
thereon in any court having juridiction over such proceedings.
8
<PAGE> 9
21. Section Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any manner the meaning or
interpretation of this Agreement.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
GTS GROUP, INC.
by: [Illegible] /s/ Bruce C. Rudy
---------------------------------- -------------------------
Title: Vice President - General Counsel Bruce C. Rudy
9
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT FOR A LIMITED PERIOD OF TIME
BETWEEN
- -- HERMES EUROPE RAILTEL B.V., a Dutch company with a branch office at
Louisalaan 480, 1050 Brussels
hereafter referred to as the "employer"
AND
- -- Mr. Peter Magnus, having his domicile at 2610 Wilrijk, Jules Moretuslei 279
hereafter referred to as the "employee"
IS HEREBY AGREED UPON AND ACCEPTED THE FOLLOWING:
ARTICLE 1
The employer accepts Mr. P. Magnus as its employee in the capacity of General
Manager of the Belgian branch office of Hermes Europe Railtel B.V. in Brussels
and in the capacity of Vice President and Chief Financial Officer of Hermes
Europe Railtel B.V.
The authority of the employee shall mainly consist of the daily management of
the branch office in Brussels.
In that capacity, Mr. Magnus will report directly to the Managing Director of
Hermes and also the Finance Director Europe of SFMT.
The professional activities will mainly be performed in Brussels, at Louizalaan
480, but parties hereby explicitly agree that the change of the place of
employment to another place located in Belgium cannot constitute a fundamental
change of the conditions of employment.
ARTICLE 2
This agreement is entered into for a limited period of time, starting on 3
January 1995 and ending 31 December 1996.
Parties will discuss a possible prolongation of this agreement at the latest on
1 July 1996.
Each party has the right to terminate this agreement on grounds of -- to the
discretion of the court -- compelling reasons, without notification or before
the end of the term, without prejudice to all possible damages.
ARTICLE 3
The total yearly gross salary is BEF 4.080.000 an amount in which the statutory
right to a single and double vacation allowance and a thirteenth month
allowance is included.
<PAGE> 2
After 18 months, i.e. 1 July 1996, the employee can be granted a bonus,
depending on the achieved results and to be assessed in a way to be determined
by the employer in its discretion.
This bonus may amount up to a maximum of 30% of the total gross salary received
by the employee during these first 18 months of his employment.
A representation allowance up to a maximum of BEF 13.000 per month is granted
to the employee, provided that this allowance will be accepted by the
governmental tax administration.
The employee will receive a meal coupon for each day of actual employment.
A company car will be placed at the employee's disposal, who is allowed to use
this car also for private purposes. All expenses in connection with the use of
this car will be for the employer's account.
ARTICLE 4
If possible, the existing non-statutory pension insurance will be assumed and
continued by the employer; if this is impossible, the employee will be paid the
equivalent in money, after the value thereof has been determined by both
parties in mutual consultation.
The employee and his relatives will become beneficiaries of the hospitalization
insurance which the employer will enter into to the benefit of its employees
and to all other group insurances which may be entered into in the future.
ARTICLE 5
The employee will be granted an option to buy shares SFMT-Hermes, as was
specified in the written proposal dated 6 December 1994. This option will be
the object of a separate agreement between the parties hereto.
ARTICLE 6
During the term of the agreement as well as after termination thereof, the
employee will refrain from disclosing any confidential information or document
of the company to any other person and from performing any act constituting
unfair competition.
ARTICLE 7
The employee is obliged to dedicate all his professional activities solely to
the company and shall not, neither in person nor through a middleman, hold any
position as employee or undertake any profitable activities without the
employer's prior written consent.
ARTICLE 8
The relationship between the employer and the employee, to the extent not
covered by the specific provisions of this agreement, are governed by the act
of 3 July 1978 regarding employment agreements.
Executed in twofold in ______________________________
on _________________________________
Each party hereby acknowledges receipt of one copy.
________________________________ ________________________________
The employee The employer
<PAGE> 1
Exhibit 10.6
[Logo]
CONTRACT OF EMPLOYMENT
BETWEEN
HERMES EUROPE RAILTEL B.V., Louizalaan 106, 1050 Brussels, represented by Jan
LOEBER, Managing Director,
hereafter referred to as "the employer',
AND Mr J.A. SHEARING, Mouflonlaan 18, 3090 Overijse,
hereafter referred to as "the employee",
IS AGREED AND ACCEPTED WHICH FOLLOWS:
Article 1
Mr J.A. Shearing is appointed by the employer in the position of Director of
Operations.
Article 2
This contract is concluded for an undetermined period, starting November 1st,
1995.
Article 3
The employee shall principally perform his duties at the employer's offices
in Brussels or in the NW MGM Center (location still to be determined). When
necessary, he can be assigned to other offices.
Article 4
The compensation and benefit - package of the employee is composed as follows:
a) salary
The employee shall be paid an annual net base salary of BF 2.800.000 This
net guaranteed salary is after tax and social security contributions and
includes all obligatory allowances to be paid to the employee in
accordance to Belgian laws and regulations.
b) bonus award
Bonus: You will be assessed for award of a net discretionary bonus of up
to 10 % of your net base salary. All bonuses will be paid within 30 days
after receipt of final audited financial statements for Hermes in the
applicable fiscal year. The first year the bonus will be pro-rata the
months worked.
<PAGE> 2
Deferred bonus: You will also have the opportunity to earn an additional
deferred bonus of up to 10% of your base salary, beginning the calendar
year 1996. This deferred bonus is accrued during 3 years at the rate of
your annual actual bonus and payable after the 3rd year as described under
pt. 2. You must be employed by HER as of 31st December 1998 to receive
such deferred bonus. A new deferred bonus plan will be negotiated after
the 2nd year deferred bonus is communicated.
d) insurance
You will continue to be covered by the Belgian social security. You will
be included in the company's hospitalization and pension plan which will
be established. The pension plan at your level will allow a
target-coverage of 80%.
e) expenses
Representation expenses: You will receive a lump sum representation
allowance of BF 13,000.-per month, if accepted by the Belgian tax
administration.
f) Automobile
You will be provided with the use of a leased automobile including
reimbursement of all operating costs in accordance with the standard
Belgian practice for Executive employees.
Article 5
The weekly working time contains 38 hours and is divided over the first
five days of the week.
Article 6
The employee is obliged to notify the company immediately of any
circumstances which may cause his absence from work. If the absence is the
result of work incapacity, the employee shall submit a medical certificate
to the company, at the latest 48 hours from the day of incapacity,
indicating the estimated duration of the work incapacity.
Article 7
During or after the termination of the employment contract, the employee
shall restrain himself from communicating to third parties any
confidential information or documents of the company and from unfair
competition.
<PAGE> 3
Article 8
The employee will devote all his working activity to the employer and he
will not carry out any "professional activities" for himself or third
parties without the prior approval of the employer.
Article 9
In the event, the agreement is being terminated on the initiative of the
employer, the notice period to be respected by the latter will be equal to
6 months.
Article 10
The employee shall receive one mealcheck per effective working day. The
face value per check will be BF 225, of which 45 BF is for his personal
account and will be deducted per month.
The employee will cooperate in full on any file needed by the company for
tax or social security purposes.
Article 11
This agreement is made and entered into and is to be governed by and
construed in accordance with the laws of Belgium and more specifically the
law of July 3rd, 1978 on Employment Contracts.
Made in two originals in Brussels on 26/09/95
Each party acknowledges to having received one copy.
/s/John A Shearing /s/ Jan Loeber
Mr John A SHEARING Mr. Jan LOEBER
The employee Managing Director
<PAGE> 1
- --------------------------------------------------------------------------------
Exhibit 10.7
LICENCE GRANTED BY
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY TO
HERMES EUROPE RAILTEL B.V.
UNDER SECTION 7 OF THE TELECOMMUNICATIONS ACT 1984
18 December 1996
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
THE LICENCE
SCHEDULE 1: CONDITIONS INCLUDED UNDER SECTION 7 OF THE ACT
PART 1: Definitions and interpretation relating to the Conditions in
Schedule 1
PART 2: Special Conditions referred to in section 8 of the Act
1 Requirement to provide telecommunication services
2 Directory Information
3 Public Emergency Call Services
4 Planning and implementation of special arrangements for Emergencies
5 Requirement to provide Connection Services and connection of apparatus
6 Provision by others of services by means of the Applicable Systems
7 Publication of charges, terms and conditions to be applied
8 Prohibition on undue preference and undue discrimination
PART 3: Other Conditions included under section 7 of the Act
9 Maintenance of effective competition where the licensee operates a system
or provides services overseas
10 Fair Trading
11 Essential Interfaces
12 Customer Interface Standards
13 Metering and Billing Arrangements
<PAGE> 3
14 Numbering arrangements
15 Arrangements for proportionate return
16 Arrangements for parallel accounting
17 Prohibition of exclusive dealing in international services
18 Notification of changes in Shareholdings
19 Licensee's Group
20 Payment of fees
21 Requirement to furnish information to the Director
22 Requirement to submit accounts to the Director
23 Exceptions and limitations on obligations in Schedule 1
SCHEDULE 2: REVOCATION
SCHEDULE 3: AUTHORISATION TO CONNECT OTHER TELECOMMUNICATION
SYSTEMS AND APPARATUS TO THE APPLICABLE SYSTEMS AND
TO PROVIDE TELECOMMUNICATION SERVICES BY MEANS OF
THE APPLICABLE SYSTEMS
SCHEDULE 4: EXCEPTIONS AND CONDITIONS RELATING TO THE APPLICATION
OF THE TELECOMMUNICATIONS CODE
PART 1: Definitions and interpretation relating to Schedule 4
1 Conservation Areas
2 Listed Buildings and Ancient Monuments
3 Overhead Lines
4 National Parks Etc.
5 National Trust and National Trust for Scotland
6 Maintainable Highways and Public Roads
<PAGE> 4
7 Placing of Underground Lines in Ducts
8 Height of Overhead Lines
9 Maintenance and the Safety of Apparatus
10 Arrangements with Electricity Suppliers
11 Instructions for the Installation of Apparatus
12 Records of Apparatus
13 Funds for Meeting Liabilities
14 Emergency Works and Urgent Works
15 Public Events and Construction Sites
16 Emergency Organisations
17 Public Inspection of Code Related Licence Conditions
<PAGE> 5
1
LICENCE GRANTED BY
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY TO
HERMES EUROPE RAILTEL B.V.
UNDER SECTION 7 OF THE TELECOMMUNICATIONS ACT 1984
THE LICENCE
1 The Secretary of State, in exercise of the powers conferred on him by
section 7 of the Telecommunications Act 1984 (hereinafter referred to as "the
Act") and after consulting the Director hereby grants to Hermes Europe Railtel
B.V. hereinafter referred to as "the Licensee") a licence, for the period
specified in paragraph 3, subject to the Conditions set out in the Schedule 1
and to revocation as provided for in paragraph 3 and in Schedule 2, to run
telecommunication systems of every description within the United Kingdom ("the
Applicable Systems") and authorises the Licensee to do all or any of the acts
specified in Schedule 3.
2 The Telecommunications Code contained in Schedule 2 to the Act shall apply
to the Licensee for all purposes except those not relating to the Applicable
Systems and subject to the other exceptions and conditions set out in Schedule 4
for so long as this licence is one to which section 8 of the Act applies.
Duration
3 This Licence shall enter into force on the date of signature and shall be
of six months duration in the first instance but, without prejudice to Schedule
2 to this Licence, shall be subject to revocation thereafter on one month's
notice in writing of such revocation.
Interpretation
4 The Interpretation Act 1978 shall apply for the purpose of interpreting
this Licence as if it were an Act of Parliament. In this Licence, except as
hereinafter provided or unless the context otherwise requires, words or
expressions shall have the meaning assigned to them and otherwise any word or
expression shall have the same meaning as it has in the Act. For the purposes of
interpreting this Licence, headings and titles shall be disregarded.
5 In this Licence, "Licence" means a licence granted or having effect as if
granted under section 7 of the Act.
6 For the purposes of this Licence the "Applicable Systems" means any or all
of the telecommunication systems run by the Licensee under this Licence unless
the context otherwise requires.
7 Where this Licence provides for any power of the Secretary of State or the
Director to give any direction or consent or make any specification, designation
or determination, it implies, unless the contrary intention appears, a power,
exerciseable in the
<PAGE> 6
2
same manner and subject to the same conditions or limitations, to revoke, amend
or give or make again any such direction, consent, specification, designation or
determination.
8 Any notification which is required to be given under this Licence by the
Secretary of State or the Director shall be satisfied by serving the document by
post on the Licensee at the Licensee's registered office.
/s/ [ILLEGIBLE]
Parliamentary Under Secretary of State
for Science and Technology
18 December 1996
<PAGE> 7
3
SCHEDULE 1: CONDITIONS INCLUDED UNDER SECTION 7 OF THE ACT
PART 1: DEFINITIONS AND INTERPRETATION RELATING TO THE
CONDITIONS IN SCHEDULE 1
1 In this Schedule unless the context otherwise requires:
(a) "Accounting Rate Service" means each telecommunications service to
each country and territory for which a separate accounting rate has
been agreed, not including Transit Services;
(b) "Applicable Terminal Equipment" means apparatus which is applicable
terminal equipment within the meaning of regulation 4 of the
Telecommunications Terminal Equipment Regulations 1992;
(c) "Approved Apparatus" means in relation to any system apparatus
approved under section 22 of the Act for connection to that system;
(d) "Associated Person" means any member of the Licensee's Group or a
person with a Participating Interest in a member of the Licensee's
Group or in whom a member of the Licensee's Group has a
Participating Interest;
(e) "Authorised Overseas System" means any telecommunication system
outside the United Kingdom which is authorised to be connected to
the Applicable Systems under Schedule 3;
(f) "Compatibility" means that between the parties concerned there is no
reasonably foreseeable risk of:
(i) duplication of any Number; or
(ii) any other related effect,
such as would introduce ambiguity or errors or impose undue
restrictions on any user or group of users;
(g) "Compliant Terminal Equipment" means Applicable Terminal Equipment
which satisfies the requirements of regulation 8 of the
Telecommunications Terminal Equipment Regulations 1992;
(h) "Condition" means a Condition in this Schedule;
(i) "Connectable System" means a telecommunication system which is
authorised to be run under a Licence which authorises connection of
that system to the Applicable Systems;
<PAGE> 8
4
(j) "Connection Service" means a telecommunication service consisting in
the conveyance of any Message which has been, or is to be, conveyed
by means of the Applicable Systems;
(k) "Dwelling-House" has the same meaning as in section 202 of the
Broadcasting Act 1990;
(l) "Emergency" means an emergency of any kind, including any
circumstance whatever resulting from major accidents, natural
disasters and incidents involving toxic or radio-active materials;
(m) "Emergency Organisations" means in respect of any locality:
(i) the relevant public police, fire, ambulance and coastguard
services for that locality; and
(ii) any other similar organisation in respect of which any public
telecommunications operator licensed to operate in the
locality in question is providing a Public Emergency Call
Service on the day on which this Licence enters into force;
(n) "Essential Interface" means in respect of a Point of Connection an
interface at which in the opinion of the Director it is essential
that interoperability between the Applicable Systems and the
respective Operator's systems is available;
(o) "Group" means a parent undertaking and its subsidiary undertaking or
undertakings within the meaning of section 258 of the Companies Act
1985 as substituted by section 21 of the Companies Act 1989; and
"Licensee's Group" means a Group in respect of which the Licensee is
either a parent undertaking or a subsidiary undertaking;
(p) "International Business" means the business of providing
telecommunication services including, without limitation, any
services comprised in a Relevant International Function, which
consist in the conveyance of Messages to countries or territories
outside the United Kingdom carried on under a Licence and include
the running of such parts of the Applicable Systems as are used for
the provision of those services, and the installation, maintenance,
adjustment, repair, alteration, moving, removal or replacement of
such Systems and any apparatus comprised therein;
(q) "International Conveyance Service" means a telecommunication service
consisting in the conveyance of any Message which has been or is to
be conveyed by means of any telecommunication system outside the
United Kingdom the connection of which to the system by means of
which that service is provided is authorised by a Licence;
<PAGE> 9
5
(r) "International Private Leased Circuit" means a communication
facility which is:
(i) comprised both in a public telecommunication system and in an
equivalent telecommunication system in a country or territory
other than the United Kingdom;
(ii) for the conveyance of Messages between points, all of which
are points of connection between telecommunication systems
referred to in paragraph 1(r)(i) and other telecommunication
systems;
(iii) made available to a particular person or particular persons;
(iv) such that all of the Messages transmitted at any of the points
mentioned in paragraph 1(r)(ii) are received at every other
such point; and
(v) such that the points mentioned in paragraph 1(r)(ii) are fixed
by the way in which the facility is installed and cannot
otherwise be selected by persons or telecommunication
apparatus sending Messages by means of that facility;
(s) "International Simple Data Resale Services" means telecommunication
services consisting in the conveyance of Messages which do not
include two-way live speech, but include only such switching,
processing, data storage or protocol conversion as is necessary for
the conveyance of those Messages in real time, which have been or
are to be conveyed by means of all of the following:
(i) a Public Switched Network;
(ii) an International Private Leased Circuit; and
(iii) the equivalent of a Public Service Network in another country
or territory;
provided that conveyance of a Message by means of a Public Switched
Network or, as the case may be, the equivalent of a Public Switched
Network in another country or territory shall be disregarded where
that Message is so conveyed in circumstances specified for the time
being by the Secretary of State as not being material for the
purposes of paragraph 3 of Schedule 3 to this Licence and included
in a list kept for that purpose by the Director and made available
by him for inspection by the general public;
(t) "International Simple Voice Resale Services" means telecommunication
services consisting in the conveyance of Messages which include
two-way live speech which have been or are to be conveyed by means
of all of the
<PAGE> 10
6
following:
(i) a Public Switched Network;
(ii) an international Private Leased Circuit; and
(iii) the equivalent of a Public Switched Network in another country
or territory;
provided that conveyance of a Message by means of a Public Switched
Network or, as the case may be, the equivalent of a Public Switched
Network in another country or territory shall be disregarded where
that Message is so conveyed in circumstances specified for the time
being by the Secretary of State as not being material for the
purposes of paragraph 3 of Schedule 3 to this Licence and included
in a list kept for the purpose by the Director and made available by
him for inspection by the general public;
(u) "Long Line Public Telecommunications Operator" means a public
telecommunications operator who is authorised by a Licence to
provide telecommunication services consisting in the conveyance of
Messages by fixed links run by that operator over distances greater
than 50 linear kilometres;
(v) "Major Office" means the Licensee's registered office and such other
offices as the Director, having consulted the Licensee, may direct;
(w) "Message" means anything falling within paragraphs (a) to (d) of
section 4(1) of the Act;
(x) "Network Connecting Apparatus" means telecommunication apparatus
comprised in the Applicable Systems which is not Network Termination
and Testing Apparatus and is connected to another telecommunication
system;
(y) "Network Termination Point" means any point:
(i) within an item of Network Connecting Apparatus at which energy
of any of the forms specified in section 4(1) of the Act is
conveyed directly to or from apparatus comprised in a
telecommunication system other than one in which that Network
Connecting Apparatus is comprised; or
(ii) within an item of Network Termination and Testing Apparatus at
which such energy is conveyed directly to any Relevant
Terminal Apparatus;
(z) "Network Termination and Testing Apparatus" means an item of
telecommunication apparatus comprised in the Applicable Systems
installed in a fixed position on Served Premises which enables:
<PAGE> 11
7
(i) Approved Apparatus to be readily connected to, and
disconnected from, the Applicable Systems;
(ii) the conveyance of Messages between such Apparatus and the
Applicable Systems; and
(iii) the due functioning of the Applicable Systems to be tested.
but the only other functions of which, if any, are:
(1) to supply energy between such Apparatus and the Applicable
Systems;
(2) to protect the safety or security of the operation of the
Applicable Systems; or
(3) to enable other operations exclusively related to the running
of the Applicable Systems to be performed or the due
functioning of any system to which the Applicable Systems are
or are to be connected to be tested (separately or together
with the Applicable Systems).
(aa) "Number" means any identifier which would need to be used in
conjunction with any public switched service for the purposes of
establishing a connection with any Network Termination Point, user,
telecommunication apparatus connected to any Public Switched Network
or service element, but not including any identifier which is not
accessible to the generality of users of a public switched service;
(ab) "Numbering Plan" means a plan describing the method adopted or to be
adopted for allocating and re-allocating a Number to any Network
Termination Point, user telecommunication apparatus or service
element;
(ac) "Operator" means any person who is authorised by a Licence to run a
Relevant Connectable System;
(ad) "Parent Undertaking" has the same meaning as in section 258 of the
Companies Act l985 as substituted by section 21 of the Companies Act
1989;
(ae) "Participating Interest" has the same meaning as in section 260 of
the Companies Act 1985 as substituted by section 22 of the Companies
Act 1989;
(af) "Point of Connection" means a point at which the Applicable Systems
and an Operator's system are connected;
(ag) "Private Leased Circuit" means a communication facility which is:
(i) provided by means of one or more public telecommunication
systems;
<PAGE> 12
8
(ii) for the conveyance of Messages between points, all of which
are points of connection between telecommunication systems
referred to in paragraph l(ag)(i) and other telecommunication
systems;
(iii) made available to a particular person or particular persons;
(iv) such that all of the Messages transmitted at any of the points
mentioned in paragraph 1(ag)(ii) are received at every other
such point; and
(v) such that the points mentioned in paragraph 1(ag)(ii) are
fixed by the way in which the facility is installed and cannot
otherwise be selected by persons or telecommunication
apparatus sending Messages by means of that facility;
(ah) "Public Emergency Call Services" means a telecommunication service
by means of which any member of the public may, at any time and
without incurring any charge, by means of an item of
telecommunication apparatus which is lawfully connected to the
Applicable Systems and which is capable of transmitting and
receiving unrestricted two way voice telephony services when so
connected, communicate as swiftly as practicable with any of the
Emergency Organisations for the purpose of notifying them of an
Emergency;
(ai) "Public Switched Network" means a public telecommunication system by
means of which two-way telecommunication services are provided
whereby Messages are switched incidentally to their conveyance, and,
for the avoidance of doubt, a Public Switched Network does not
include Private Leased Circuits or International Private Leased
Circuits;
(aj) "Relevant Apparatus" means any apparatus which is, or is to be,
connected to any of the switched Applicable Systems;
(ak) "Relevant Company" means:
(i) the Licensee; or
(ii) a Parent Undertaking in relation to the Licensee;
(al) "Relevant Connectable System" means a Connectable System which is
authorised to be run under a Licence which authorises the provision
by means of that system of Connection Services for reward to the
general public, or any class of the general public, not being a
system:
(i) authorised to be run under a Licence granted to all persons or
persons of any class; and
<PAGE> 13
9
(ii) for the connection of which, and for the provision of matters
necessary for such connection, the Licensee offers terms and
conditions which satisfy the requirements of Condition 7 of
Schedule 1.
and not being a system which the Director has determined ought not
to be deemed a Relevant Connectable System for the purposes of this
Licence;
(am) "Relevant International Function" means the business of providing
any of the following telecommunication services by means of the
Applicable Systems:
(i) International Simple Voice Resale and/or International Simple
Data Resale;
(ii) provision to others of International Private Leased Circuits;
(iii) provision of services under any agreement falling within the
description contained in Condition 5.1 in Schedule 1;
(iv) provision of International Conveyance Services (but not
including International Simple Voice Resale or International
Simple Data Resale), charges for which are to be settled at
accounting rates;
(v) provision of International Conveyance Services (but not
including International Simple Voice Resale or International
Simple Data Resale), charges for which are not to be settled
at accounting rates, and where the Messages conveyed in the
provision of such service are conveyed over a circuit which is
capable of conveying two-way live speech;
(vi) provision of International Conveyance Services (including
International Simple Voice Resale or International Simple Date
Resale), charges for which are not to be settled at accounting
rates, and where the Messages conveyed in the provision of
such service are conveyed over a circuit which is not capable
of conveying two-way live speech;
(vii) the installation, maintenance, adjustment, repair, alteration,
moving, removal or replacement of any apparatus comprised or
to be comprised in the Applicable Systems; or
(viii) provision of any other services included in the Licensee's
International Business but not included in any of (am)(i) to
(vii) above.
(an) "Relevant System" means a Connectable System which is, or is to be,
connected to any of the switched Applicable Systems;
(ao) "Relevant Terminal Apparatus" means:
<PAGE> 14
10
(i) "Terminal Apparatus", that is to say any telecommunication
apparatus installed on Served Premises by means of which
Messages are initially transmitted or ultimately received; and
(ii) any other telecommunication apparatus directly connected to
Terminal Apparatus (including apparatus which is Terminal
Apparatus by virtue of this sub-paragraph) which would, if it
were run with such Terminal Apparatus and any other apparatus
by means of which it is so connected, constitute a system
authorised to be run by the person running that Terminal
Apparatus under a Licence;
(ap) "Served Premises" means a single set of premises in single
occupation where apparatus has been installed for the purpose of the
provision of telecommunication services by means of the Applicable
Systems at those premises;
(aq) "Shares" has the same meaning as in section 259(2) of the Companies
Act 1985, as substituted by section 22 of the Companies Act 1989,
and the term "Shareholding" is to be construed accordingly;
(ar) "Specified Numbering Scheme" means a scheme for the allocation and
reallocation of Numbers which is specified by the Director for the
purpose of this Licence and described in a list kept for that
purpose by him and made available by him for inspection by the
general public.
(as) "Subscriber" means a person (other than a public telecommunications
operator) to whom there are provided switched voice telephony
services by means of the Applicable Systems;
(at) "Subsidiary" has the meaning given to it in section 736 of the
Companies Act 1985, as substituted by section 144(1) of the
Companies Act 1989;
(au) "Systems Business" means the following activities of the Licensee or
of any wholly owned Subsidiary to the extent that they are
undertaken in the United Kingdom taken together:
(i) the running of the Applicable Systems; and
(ii) the installation, maintenance, adjustment, repair, alteration,
moving, removal or replacement of any apparatus comprised or
to be comprised in the Applicable Systems;
(av) "Transit Service" means any telecommunications service consisting in
the conveyance of any Message which originates outside the United
Kingdom and is not to be terminated within the United Kingdom and
for which a separate accounting rate has been agreed;
<PAGE> 15
11
(aw) "Well Established International Operator" means an Operator having
25% or more of what is in the opinion of the Director the relevant
market, unless the Director determines that the Operator is not a
Well Established International Operator, or an Operator having less
than 25% of what is in the opinion of the Director the relevant
market which is determined by the Director to be a Well Established
International Operator.
2 Any reference in any Condition in this Schedule, however expressed, to the
Director notifying the Licensee about any matter, affording the Licensee an
opportunity to make representations, taking representations by the Licensee into
account, or explaining, or giving reasons for, any matter to the Licensee, shall
be without prejudice to any obligation of due process or similar obligation
which the Director is or may be under by virtue of any rule or principle of law
or otherwise.
3 Expressions cognate with those referred to in this Schedule shall be
construed accordingly.
<PAGE> 16
12
PART 2: SPECIAL CONDITIONS REFERRED TO IN SECTION 8 OF THE ACT
Condition 1
REQUIREMENTS TO PROVIDE TELECOMMUNICATION SERVICES
1 The Licensee shall take all reasonable steps to provide by means of the
Applicable Systems to any Operator who so requests International Conveyance
Services to the extent necessary to satisfy all reasonable demands for such
Services by such Operator.
<PAGE> 17
13
Condition 2
DIRECTORY INFORMATION
2.1 This Condition shall only apply where the Applicable Systems are connected
to a telecommunication system not run under a Licence issued to a particular
person.
2.2 Subject to paragraph 2.5. where the Licensee provides switched voice
telephony services by means of any of the Applicable Systems which is connected
to an Authorised Overseas System by means of which such services are provided,
then, if a directory information service is provided by means of that Authorised
Overseas System in respect of that Authorised Overseas System, the Licensee
shall provide to any person to whom it provides switched voice telephony
services by means of that Applicable System information as to how that person
may avail himself by means of that Applicable System and that Authorised
Overseas System when connected together of the directory information service
provided and shall take all reasonable steps to secure that that can be done.
2.3 Where the Licensee provides switched voice telephony services by means of
any of the Applicable Systems which is connected to both:
(a) an Authorised Overseas System by means of which such services are
provided; and
(b) a Connectable System in the United Kingdom by means of which such
services are provided which is run under a Licence which does not
authorise the connection of that system to a system outside the
United Kingdom so as to convey Messages from the United Kingdom to a
place outside the United Kingdom
it shall not unreasonably refuse to provide to the operator of that Connectable
System access to such directory information services relating to the Authorised
Overseas System as the Licensee makes available to those to whom it provides
voice telephony services.
2.4 The directory information service provided by the Licensee under paragraph
2.2 shall include a service satisfactory to the Director whereby directory
information is made available in a form which is appropriate to meet their needs
to persons who are so blind or otherwise disabled as to be unable to use a
telephone directory in a form in which it is generally available to persons to
whom the Licensee provides services; and the service so provided to such persons
shall from the date on which this Licence enters into force be provided free of
charge or, if the Director is satisfied that that is not practicable, the
Licensee shall provide, in accordance with arrangements agreed with the
Director, appropriate reasonable compensation in respect of charges that are
paid.
2.5 The obligation in paragraph 2.2 shall not apply:
<PAGE> 18
14
(a) when the directory information requested relates to a person who has
requested the Licensee or the operator of the connected
telecommunication system not to provide such information in relation
to him; or
(b) in respect of any person to whom switched voice telephony services
are provided by means of the Applicable Systems if that person has
notified the Licensee in writing that he is able to obtain from
another public telecommunications operator who provides switched
voice telephony services within the United Kingdom to that person
information as to how to avail himself of such directory information
service as may be provided in respect of any Authorised Overseas
System which is connected to the Applicable Systems.
2.6 This Condition is without prejudice to Condition 5.
<PAGE> 19
15
Condition 3
PUBLIC EMERGENCY CALL SERVICES
3.1 This Condition shall only apply where the Applicable Systems are connected
to a telecommunication system not run under a Licence issued to a particular
person.
3.2 The Licensee shall ensure, except to the extent that the Director
determines is not reasonably practicable, that both the numbers 999 and 112 are
available as emergency call numbers so that any member of the public by dialling
either the number 999 or the number 112 on telecommunication apparatus which is
lawfully connected to the Applicable Systems at any place in the United Kingdom
and which is capable of transmitting and receiving unrestricted two way voice
telephony services when so connected is provided with a Public Emergency Call
Service.
3.3 Where the Director has made a determination in accordance with paragraph
3.2 the Licensee shall take all reasonable steps to ensure that persons to whom
there are provided by means of the Applicable Systems services which do not
include a Public Emergency Call Service are notified in writing that the
services so provided do not include a Public Emergency Call Service.
3.4 For the purposes of this Condition telecommunication apparatus shall be
regarded as capable of transmitting and receiving unrestricted two way voice
telephony services only if it is capable of both:
(a) transmitting for conveyance by means of an Applicable System
specific signals designated by the Licensee for the purpose of
establishing communication with voice telephony apparatus controlled
by the Emergency Organisations; and
(b) transmitting and receiving uninterrupted simultaneous two way speech
to be conveyed, or as the case may be conveyed, by means of that
Applicable System.
3.5 In this Condition, the United Kingdom does not include any area to which
the Act is extended under section 107.
<PAGE> 20
16
Condition 4
PLANNING AND IMPLEMENTATION OF SPECIAL ARRANGEMENTS FOR EMERGENCIES
4.1 The Licensee shall, after consultation with such authorities responsible
for Emergency Organisations and such departments of central and local government
as the Director may from time to time determine and whose names are notified to
the Licensee by him for the purpose, make plans or other arrangements for the
provision or, as the case may be, the rapid restoration of such
telecommunication services as are practicable and may reasonably be required in
Emergencies.
4.2 The Licensee shall, on request by any such person as is designated for the
purpose in the relevant plans or arrangements, implement those plans or
arrangements insofar as it is reasonable and practicable to do so.
4.3 Nothing in this Condition precludes the Licensee from:
(a) recovering the costs which it incurs in making or implementing any
such plans or arrangements from those on behalf of or in
consultation with whom the plans or arrangements are made; or
(b) making implementation of any plans or arrangements conditional upon
the person or persons for whom or on whose behalf that plan or
arrangement is to be implemented indemnifying the Licensee for all
costs incurred as a consequence of the implementation.
<PAGE> 21
17
Condition 5
REQUIREMENT TO PROVIDE CONNECTION SERVICES AND CONNECTION OF APPARATUS
5.1 Subject to the following provisions of this Condition the Licensee shall,
unless it is impracticable to do so, enter into an agreement or agree to amend
such an agreement, within a reasonable period (which shall not, unless the
Director otherwise consents, exceed 6 months), with an Operator if that Operator
requires it to do so:
(a) to connect, and keep connected, to any of the Applicable Systems, or
to permit to be so connected and kept connected, any Relevant
Connectable System run by the Operator and any item of
telecommunication apparatus which is required for that purpose and
which is located on the same premises as the Applicable Systems and
which is approved for the time being under section 22 of the Act or
is Compliant Terminal Equipment, and accordingly to establish and
maintain such one or more Points of Connection as are reasonably
required and are of sufficient capacity and in sufficient number to
enable Messages conveyed or to be conveyed by means of the
Operator's system to be conveyed by means of the Applicable Systems
in such a way as conveniently to meet all reasonable demands for the
conveyance of Messages between the Relevant Connectable System and
the Applicable Systems;
(b) without prejudice to paragraph 5.1(a), where the Operator is a Long
Line Public Telecommunications Operator, to establish and maintain
such Points of Connection as will enable persons running
telecommunication systems connected to the operator's system and
persons running telecommunication systems connected to the
Applicable Systems to exercise freedom of choice as to the extent to
which Messages are conveyed by means of the Applicable Systems and
in routing Messages so conveyed; and
(c) to provide such other telecommunication services (including the
conveyance of Messages which have been, or are to be, transmitted or
received at such Points of Connection), information and other
services as the Director determines are reasonably required (but no
more than reasonably required) to secure that Points of Connection
are established and maintained and to enable the Operator
effectively to provide the Connection Services which he provides or
proposes to provide.
5.2 The Licensee shall not be obliged under paragraph 5.1 to enter into an
agreement to do anything or agree to amend such an agreement to do anything if:
(a) in the opinion of the Licensee it would be liable to cause the death
of or personal injury to, or damage to the property of, the Licensee
or any person engaged in the Licensee's business, or materially to
impair the quality of any telecommunication service provided by
means of the Applicable Systems or
<PAGE> 22
18
any telecommunication system (other than the Operator's system)
connected thereto and the Director has not expressed a contrary
opinion; or
(b) in the opinion of the Licensee:
(i) it would require an adjustment to, or modification of, the
Applicable Systems whether by incorporation of apparatus or
otherwise or the provision by the Licensee of services or
information which in any particular case would not be
reasonably required; or
(ii) it would not be reasonably practicable to require the Licensee
to do that thing, or permit it to be done, at the time or in
the manner required by the Operator, having regard to the
state of technical development of the Applicable Systems or
any other relevant matter,
and the Director has not expressed a contrary opinion.
5.3 The Licensee may require that an agreement under paragraph 5.1 should be
subject to such terms and conditions as are, in the opinion of the Director,
reasonable.
5.4 Apparatus shall not be regarded as approved for connection to any system
for the purposes of paragraph 5.1 unless that apparatus is Compliant Terminal
Equipment or has been so approved:
(a) by the Secretary of State; or
(b) by some other person by virtue of an authorisation given by the
Secretary of State being an authorisation which required the person
authorised, before approving any apparatus or designating any
standard to which apparatus must conform if it is to be approved, to
be satisfied that connection of the apparatus to the system would
not be likely:
(i) to cause the death of, or personal injury to, or damage to the
property of the Licensee or any person engaged in the running
of that system; or
(ii) materially to impair the quality of any telecommunication
service provided by means of that system or any system
connected to it (other than the system being connected).
5.5 No apparatus or system is required under paragraph 5.1 to be, or to be
permitted to be, connected or kept connected to the Applicable Systems if the
apparatus, or any apparatus comprised in that system, as the case may be:
(a) conformed to the relevant standard or standards at the time when the
connection to the Applicable Systems was made but no longer does so
and does not conform to the relevant standard or standards (if any)
for the time being designated under section 22(6) of the Act; or
<PAGE> 23
19
(b) was at the time when the connection to the Applicable Systems was
made but has since ceased to be Complaint Terminal Equipment; or
(c) while continuing to conform to the relevant standard is in the
opinion of the Licensee liable to cause the death of, or personal
injury to, or damage to the property of, the Licensee, or any person
engaged in the running of the Applicable Systems or materially to
impair the quality of any telecommunication service provided by
means of the Applicable Systems and the Director has not directed
otherwise.
5.6 An agreement made pursuant to this Condition shall not contain any
restrictive provision unless, before the agreement is made, the Director has
expressly consented to the inclusion of such a provision. For the purposes of
this paragraph, a provision in an agreement is a restrictive provision if by
virtue of the existence of such a provision (taken alone or with other
provisions) the agreement is one to which the Restrictive Trade Practices Act
1976 would apply but for paragraph 1(1) of Schedule 3 to that Act.
5.7 Where the Director so directs the Crown shall be treated for the purposes
of this Condition as a person authorised to run a Relevant Connectable System
and where he does so he may also direct that the Crown is to be treated as a
Long Line Public Telecommunications Operator for those purposes.
<PAGE> 24
20
Condition 6
PROVISION BY OTHERS OF SERVICES BY MEANS OF THE APPLICABLE SYSTEMS
6.1 The Licensee shall permit any person, who is licensed to run a Connectable
System under a Licence which authorises it to provide telecommunication services
to others, including Connection Services, to provide such services whilst that
Connectable System is connected to the relevant Applicable System.
6.2 The Licensee shall permit any person:
(a) using telecommunication apparatus which has been lawfully connected
to the Applicable Systems or which is connected to another
telecommunication system which itself has been lawfully connected to
the Applicable Systems; or
(b) running a telecommunication system which is so connected,
to provide by means of the Applicable Systems any service other than the
installation, maintenance, adjustment, repair, alteration, moving, removal or
replacement of telecommunication apparatus comprised in the Applicable Systems.
<PAGE> 25
21
Condition 7
PUBLICATION OF CHARGES, TERMS AND CONDITIONS TO BE APPLIED
7.1 The Licensee shall subject to paragraph 7.2, except insofar as the
Director may otherwise consent in writing and except in respect of charges,
terms and conditions in agreements made or modified to comply with Condition 5:
(a) publish in the manner and at the times specified in paragraph 7.4 a
notice specifying, or specifying the method that is to be adopted
for determining, the charges and other terms and conditions on which
it offers:
(i) to provide each description of telecommunication services by
means of the Applicable Systems; or
(ii) to maintain, adjust, repair or replace any apparatus comprised
in the Applicable Systems; or
(iii) to connect to the Applicable Systems any other system which is
not and is not to be comprised in the Applicable Systems; or
(iv) to grant permission to connect such systems to, or to provide
services by means of the Applicable Systems;
where such things are done in accordance with an obligation imposed
by or under this Licence.
(b) Where the Licensee does any of the things described in paragraphs
7.1(a)(i) to 7.1(a)(iv) it shall do those things at the charges and
on the other terms and conditions so published and not depart
therefrom. Provided that this obligation will not be breached by
variations to the charges, terms and conditions referred to in
paragraph 7(1)(z) to the extent that the method which is adopted for
determining those variations has been disclosed to the Director,
except insofar as those charges, terms and conditions relate to a
particular market in respect of which the Director has made a
determination that the Licensee is a Well Established International
Operator.
7.2 Where the Director has made a determination that the Licensee is a Well
Established International Operator in a particular market the Licensee shall
specify the precise amount of such charges in accordance with paragraph 7.1(a),
insofar as they relate to the market in respect of which such a determination
has been made.
7.3 The requirement to publish under paragraph 7.1 shall not apply in respect
of any service which is materially different from any service already provided
by the Licensee by means of the Applicable Systems until such time as it is
provided and a copy of the notice shall be sent to the Director at that time.
<PAGE> 26
22
7.4 Publication of the notice shall be effected by:
(a) sending a copy thereof to the Director to arrive not more than 28
days after the date on which the Licensee first provides services
under the Licence and thereafter not less than one day before any
proposal to amend any charge, term or condition or the method of
determining the same is to become effective; provided that where the
Director has made a determination that the Licensee is a Well
Established International Operator in a particular market, this sub-
paragraph shall have effect as if the words "28 days" were
substituted for the words "one day" insofar as any such proposal
relates to the provision of services in relation to the market in
respect of which such a determination has been made;
(b) placing as soon as practicable thereafter a copy thereof in a
publicly accessible part of every Major Office of the Licensee in
such a manner and in such a place that it is readily available for
inspection free of charge by members of the general public during
such hours as the Secretary of State may by order prescribe under
section 19(4) of the Act that the register of Licences and final and
provisional orders is to be open to public inspection, or in the
absence of any such order having been made by the Secretary of
State, during normal office hours; and
(c) sending a copy thereof or such part or parts thereof as are
appropriate to any person who may request such a copy.
7.5 The obligations imposed on the Licensee by this Condition are without
prejudice to any determination which the Director may make under Condition 9 of
this Licence.
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23
Condition 8
PROHIBITION ON UNDUE PREFERENCE AND UNDUE DISCRIMINATION
8.1 The Licensee shall not (whether in respect of the charges or other terms
or conditions applied or otherwise) show undue preference to, or exercise undue
discrimination against, particular persons or persons of any class or
description as respects:
(a) the connection to the Applicable Systems of any other system which
is not and is not to be comprised in the Applicable Systems in
accordance with an obligation imposed by or under this Licence; or
(b) the maintenance, adjustment, repair or replacement of any apparatus
comprised in the Applicable Systems in accordance with an obligation
imposed by or under this Licence; or
(c) the provision by means of the Applicable Systems of any
telecommunication service in accordance with an obligation imposed
by or under this Licence; or
(d) the granting of permission to connect such systems to, or to provide
services by means of the Applicable Systems in accordance with an
obligation imposed by or under this Licence.
8.2 The Licensee may be deemed to have shown such undue preference or to have
exercised such undue discrimination if it unfairly favours to a material extent
a business carried on by it in relation to the doing of any of the things
mentioned in paragraph 8.1 so as to place at a significant competitive
disadvantage persons competing with that business.
8.3 Any question relating to whether any act done or course of conduct pursued
by the Licensee amounts to such undue preference or such undue discrimination
shall be determined by the Director, but nothing done in any manner by the
Licensee shall be regarded as undue preference or undue discrimination if and to
the extent that the Licensee is required or permitted to do the thing in that
manner by or under any provision of this Licence.
8.4 The obligations imposed on the Licensee by this Condition are without
prejudice to any determination which the Director may make under Condition 9 of
this Licence.
<PAGE> 28
24
PART 3: OTHER CONDITIONS INCLUDED UNDER SECTION 7 OF THE ACT
Condition 9
MAINTENANCE OF EFFECTIVE COMPETITION WHERE THE LICENSEE
OPERATES A SYSTEM OR PROVIDES SERVICE OVERSEAS
9.1 This Condition shall apply where the Licensee or any Associated Person is
the operator of any telecommunication system or provides telecommunication
services in a country or territory outside the United Kingdom.
9.2 Where it appears to the Director that as a result of any act or omission
of the Licensee either by itself or with or through any Associated Person
competition in the provision of any telecommunication service or any particular
description of telecommunication services in the United Kingdom is being or is
likely to be restricted, distorted or prevented he may make a determination to
that effect.
9.3 Where the Director makes a determination under paragraph 9.2 the Licensee
shall take such steps as the Director may direct for the purpose of remedying
the situation. In particular (and without prejudice to the generality of the
foregoing) any such direction may require compliance by the Licensee with any
other Condition, as appropriate, including in particular any Condition providing
for publication of charges, terms and conditions or prohibiting undue
discrimination and undue preference, in relation to the provision of any
telecommunication service within the United Kingdom notwithstanding that any
condition precedent to the application of that Condition is not otherwise
satisfied.
<PAGE> 29
25
Condition 10
FAIR TRADING
10.1 The Licensee shall not do any thing, whether by act or omission, which has
or is intended to have or is likely to have the effect of preventing,
restricting or distorting competition where such act or omission is done in the
course of, as a result of or in connection with, providing telecommunication
services, or any particular description of telecommunication service, or running
a telecommunication system.
For the purpose of this Condition such an act or omission will take the form
of:-
(a) any abuse by the Licensee, either alone or with other undertakings,
of a dominant position within the United Kingdom or a substantial
part of it. Such abuse may, in particular, consist in:
(i) directly or indirectly imposing unfair purchase or selling
prices or other unfair trading conditions;
(ii) limiting production, markets or technical development to the
prejudice of consumers;
(iii) applying dissimilar conditions to equivalent transactions with
other parties, thereby placing them at a competitive
disadvantage; or
(iv) making the conclusion of contracts subject to acceptance by
the other parties of supplementary obligations which, by their
nature or according to commercial usage, have no connection
with the subject of such contracts; or
(b) the making (including the implementation) of any agreement, the
compliance with any decision of any association of undertakings or
the carrying on of any concerted practice with any other undertaking
which has the object or effect of preventing, restricting or
distorting competition within the United Kingdom.
10.2 (a) An act or omission of a kind described in paragraph 10.1 is not
prohibited where:
(i) it has or would have no appreciable effect on competition; or
(ii) it has or would have no effect on competition between persons
engaged in commercial activities connected with
telecommunications and it would have no effect on users of
telecommunication services.
(b) An act or omission of a kind described in paragraph 10.1(b) is not
prohibited by this Condition if the agreement decision or concerted
practice contributes to improving the provision of any goods or
services or to promoting technical or
<PAGE> 30
26
economic progress, while allowing consumers a fair share of the
resulting benefit and does not:
(i) impose on the parties concerned restrictions which are not
indispensable to attaining those objectives; and
(ii) afford such parties the possibility of eliminating competition
in respect of a substantial part of the goods or services in
question.
(c) This Condition shall not apply to any provision of an agreement
insofar as it is a provision by virtue of which the Restrictive
Trade Practices Act 1976 applies to that agreement.
(d) This Condition shall not apply to a merger situation qualifying for
investigation under the Fair Trading Act 1973.
10.3 Whether any act or omission is prohibited by this Condition shall be
determined:-
(a) with a view to securing that there is no inconsistency with the
general principles having application to similar questions of
directly applicable competition law, in particular those laid down
by the Court of Justice of the European Communities on the scope of
the competition rules contained in the EC Treaty and block
exemptions adopted by the European Commission under Article 85(3);
and
(b) having regard to -
(i) any decision taken, or notice issued, by the European
Commission in applying the competition rules contained in the
EC Treaty and any relevant pronouncement of the Director
General of Fair Trading or report of the Monopolies and
Mergers Commission; and
(ii) any guidelines on the application of this Condition issued
from time to time by the Director.
10.4 (a) If it appears to the Director that an act or omission of the
Licensee is or was prohibited by this Condition he may make an
initial determination to that effect (an "Initial Determination").
(b) Before making an Initial Determination the Director shall give a
notice to the Licensee:
(i) stating that he is investigating a possible contravention of
this Condition;
<PAGE> 31
27
(ii) setting out the reasons why it appears to him that this
Condition may be being, or may have been, breached, including
any matters of fact or law which he thinks relevant;
(iii) requesting within a reasonable period laid down by the
Director such further information as he may require from the
Licensee in order to complete his Determination; and
(iv) where appropriate, setting out the steps he believes the
Licensee would have to take in order to remedy the alleged
breach.
10.5 (a) Within 28 days of the Director -
(i) making an Initial Determination;
(ii) making a provisional order; or
(iii) giving notice of his proposal to make a final order under
section 17(1) of the Act
in respect of the contravention in question, the Licensee may notify
the Director that it -
(iv) requires him to make a final determination (a "Final
Determination") of the matter;
(v) requires that in making the Final Determination he take into
account a report of a body of experts appointed by him to
consider the matter ("the Advisory Body").
(b) Before making a Final Determination the Director shall -
(i) give a notice to the Licensee setting out the matters referred
to in paragraph 10.4(b); and
(ii) if the Licensee has given notice under sub-paragraph (a) (v)
above, take into account the report of the Advisory Body on
the matter.
(c) The Director shall then determine whether he is satisfied that the
act or omission in respect of which the Initial Determination was
made is or was prohibited by this Condition.
10.6 (a) Before making his Initial Determination or Final Determination the
Director shall give the Licensee, and any other person whom he
considers it appropriate to consult, such period within which to
make representations (both orally and in writing) in response to the
notice as he considers reasonable in all the circumstances.
<PAGE> 32
28
(b) The Director shall notify the Licensee and any other person whom he
considers it appropriate to notify of every Initial Determination
and Final Determination made by him and of his reasons for making
it; and he shall, if so requested by the Licensee, publish any
report of the Advisory Body on the matter, subject to such
exclusions as he may consider it appropriate to make of matters of a
kind mentioned in section 48(2) of the Act.
10.7 The Director shall publish a description of his office's procedures for
the enforcement of this Condition including the steps taken to ensure that he
has access to appropriate independent advice in enforcing this Condition.
10.8 This Condition shall not limit or affect in any way the Licensee's
obligations arising under any other Condition of this Licence nor limit the
Director's powers of enforcement under sections 16 to 18 of the Act.
10.9 (a) On the coming into force of any Act or subordinate legislation which
-
(i) contains a prohibition enforceable by the Director, or gives
to the Director the power to enforce an existing prohibition,
of any behaviour prohibited under paragraph 10.1;
(ii) gives to third parties in respect of a breach of that
prohibition at least the rights they have under section 18 of
the Act in respect of a breach of a provisional or final
order; and
(iii) permits the imposition on the Licensee of monetary, penalties
in respect of the breach of that prohibition
this Condition shall cease to apply to the behaviour prohibited by
or the prohibition enforceable by such Act or subordinate
legislation.
(b) If this Condition still has effect on 31st July 2001, it shall cease
to have effect after that date.
10.10 (a) This Condition shall come into force on 31st December 1996.
(b) The prohibition in paragraph 10.1(b) shall not apply to acts or
omissions done prior to the expiry of three months from the date of
this Licence in pursuance of agreements entered into prior to the
date of this Licence.
<PAGE> 33
29
Condition 11
ESSENTIAL INTERFACES
11.1 This Condition operates without prejudice to the provisions of Condition 5.
11.2 The Director may, having first notified the Licensee of his proposal and
given the Licensee not less than 28 days in which to make representations,
specify an Essential Interface.
11.3 Where in pursuance of paragraph 11.2 the Director specifies an interface as
an Essential Interface, and the Licensee thereafter makes that interface
available to an Operator in relation to its Applicable Systems, it shall do so
in such a manner as it considers appropriate, but shall ensure such availability
in compliance with a Relevant Standard if the Operator so requires.
11.4 For the purposes of paragraph 11.3 "Relevant Standard" means:
(a) an appropriate European or other international standard; or
(b) in the absence of such a standard, any other standard specified by the
Director after he has notified the Licensee of his proposal to make
the specifications in question and allowed the Licensee not less than
28 days in which to make representations, provided that the Director
shall not specify a standard if an appropriate European or other
international standard is expected to be promulgated within a
reasonable time, including, by way of example, if the European
Telecommunications Standards Institute have published a work programme
for the development of such a standard.
to the extent that such a standard is necessary to ensure interoperability.
11.5 Where in pursuance of paragraph 11.4(b) the Director specifies a standard
as a Relevant Standard, he shall include in that Relevant Standard a technical
specification, using all reasonable endeavours to obtain the agreement of the
Licensee and other relevant licensees to a technical specification applicable to
that Relevant Standard, being a specification defined if possible by reference
to:
(a) an appropriate European or other international specification; or
(b) in the absence of such a specification, a specification defined by
reference to any other standard having currency within the European
Community at the time.
11.6 Where after a reasonable time the Director has been unable in accordance
with paragraph 11.5 to secure the agreement of the Licensee and other relevant
licensees to a technical specification, the Director shall adopt for inclusion
in the Relevant Standard an appropriate technical specification which has been
promulgated by a recognised standards
<PAGE> 34
30
body, including, by way of example, the European Telecommunications Standards
Institute, or the British Standards Institution, or other such body as the
Director considers to be representative of all relevant telecommunications
interests.
11.7 The Director shall specify a Relevant Standard in pursuance of paragraph
11.4 only if the owners of relevant intellectual property rights have agreed to
grant any necessary licences in respect thereof to the Licensee on reasonable
terms.
11.8 For the avoidance of doubt this Condition shall not:
(a) without prejudice to paragraph 11.3, prevent the Licensee using such
interfaces as it considers appropriate in relation to the Applicable
Systems; or
(b) where it makes available to an Operator an interface which the
Director has specified as an Essential Interface, require the Licensee
to comply with the Relevant Standard if the Operator does not require
it to do so.
11.9 When implementing an Essential Interface, the Licensee shall not be obliged
to conform with the Relevant Standard:
(a) if to do so would necessitate the Licensee:
(i) acquiring apparatus, software or other goods or supplies of any
kind, or implementing any operation, incompatible with, as the
case may be, apparatus, software or such other goods or supplies
already in use at the time, or the subject of contracts for their
procurement for use, in connection with the Applicable Systems,
or, in the case of an operation, incompatible with any other
operation being carried out at the time in connection therewith;
or
(ii) incurring any cost, or having to resolve technical difficulties,
disproportionate to the benefits to be gained from the
implementation of the Relevant Standard,
provided that the Licensee shall take reasonable steps to incorporate
the Relevant Standard in its plans for network development, with a
view to implementation of that Standard in connection with the
Applicable Systems, but without the Licensee incurring any incremental
expenditure which, but for the implementation of the Relevant
Standard, would not have been incurred;
(b) if the Relevant Standard is inappropriate for the particular
application for any reason, including, without limitation:
(i) that it does not afford the Licensee adequate protection for the
security of the Applicable Systems;
<PAGE> 35
31
(ii) that its implementation would be liable to cause material
impairment in the quality of any telecommunication service
provided by means of the Applicable Systems;
(iii) that it does not cater adequately for billing, metering or other
customer administration systems; or
(iv) that it is technically inadequate in the light of technical
developments which have taken place since it was originally
created;
(c) if the Essential Interface concerned is of a genuinely innovative
nature and accordingly the use in connection with it of the Relevant
Standard would not be appropriate;
(d) if compliance with the Relevant Standard would involve the
infringement by the Licensee of any intellectual property right vested
in any person; or
(e) if the Director so agrees.
11.10 Where paragraph 11.9(b) or 11.9(c) applies, the Licensee shall notify the
Director thereof in writing, providing an explanation why.
11.11 It is a precondition of any obligation on the Licensee under this
Condition that an equivalent Condition to this Condition is included in the
respective Licences of all Operators running telecommunication systems that are
connected to the Applicable Systems.
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Condition 12
CUSTOMER INTERFACE STANDARDS
12.1 This Condition shall only apply where the Applicable Systems are connected
to a telecommunication system not run under a licence issued to a particular
person.
12.2 The Licensee shall ensure that on each occasion on which it introduces an
interface provided or to be provided at a Network Termination Point on the
Applicable Systems not previously so provided a notice is published specifying
the technical characteristics of the interface introduced.
12.3 The technical characteristics to be included in such a notice shall
include:
(a) physical, electrical and other relevant characteristics;
(b) network interworking and service management protocols; and
(c) reference to national and international standards and recommendations
with which the interface complies.
in sufficient detail for compatible terminal apparatus to be produced, tested
and approved.
12.4 Subject to paragraph 12.5, any notice under this Condition shall be
published in a manner appropriate for bringing the matters to which the notice
relates to the attention of persons likely to be affected by or to have an
interest in them.
12.5 Where the Director following any representation or observation made to him
reasonably concludes that a notice under paragraph 12.2 has not been published
in an appropriate manner he may direct the Licensee to carry out such further
publication as he considers reasonably necessary to meet the requirements of
paragraph 12.4.
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Condition 13
METERING AND BILLING ARRANGEMENTS
13.1 This Condition shall only apply where the Applicable Systems are connected
to a telecommunication system not run under a Licence issued to a particular
person.
13.2 As regards any description of Meter in use on a date specified by the
Director in connection with the Applicable Systems and which has been specified
by the Director, the Licensee shall apply for Approval as soon as is practicable
and in any case not later than such date as the Director may determine in
relation to that description of Meter.
13.3 As regards any description of Meter specified by the Director and not in
use in connection with the Applicable Systems on the date specified under
paragraph 13.2, the Licensee shall, unless the Director consents otherwise,
apply for Approval not later than such date as is further specified by the
Director or not fewer than six months before the date on which the Licensee
intends to bring that Meter into such use, whichever shall be the later.
13.4 The Licensee shall not after such date as the Director may determine in
relation to any description of Meter so specified by him, keep in use or bring
into use in connection with the Applicable systems, any Meter of a description
so specified which is not Approved or for which the Licensee has not made an
application for Approval.
13.5 Where Approval is not granted to or is withdrawn from a particular
description of Meter the Licensee shall, as soon as is reasonably practicable,
either;
(a) inform the Director of the action to be taken by the Licensee to
remedy the absence of Approval in relation to that description of
Meter and the anticipated date of such Approval; or
(b) inform the Director that the Licensee intends to cease use of that
description of Meter in connection with the Applicable Systems within
a time reasonably practicable for the Licensee whereupon, on request
of the Director, the Licensee shall provide the Director with a
timetable for the withdrawal of that description of Meter.
13.6 The Licensee shall not render any bill in respect of any description of
telecommunication Service provided by means of the Applicable Systems unless
every amount (other than an indication of unit charge) stated in that bill is no
higher than an amount which represents the true extent of any such Service
actually provided by the Licensee to the customer in question. In this paragraph
"customer" does not include an Operator.
13.7 Without prejudice to the generality of paragraph 13.6 the Licensee shall at
all times maintain in operation such a Billing Process as facilitates compliance
by the Licensee with, and is calculated to prevent contravention by it of, that
paragraph.
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13.8 The Licensee shall not be regarded as being in contravention of its
obligation under paragraph 13.6 except where the failure is in relation to the
Billing Process and the Licensee has failed to take all reasonable steps to
prevent a contravention of that obligation.
13.9 The Licensee shall keep such records as may be necessary or as may be
determined by the Director to be necessary for the purpose of satisfying the
Director that the Billing Process has the characteristics required by paragraph
13.7, provided that nothing in this paragraph shall require the Licensee to
retain any records for more than 2 years from the date on which they came into
being.
13.10 For the purpose of giving the Director an independent quality assurance
from time to time that the Billing Process has the characteristics required by
paragraph 13.7, the Licensee shall, where the Director has prima facie grounds
to believe the Billing Process does not have those characteristics and has so
notified the Licensee, extend its prompt co-operation to the Director and, in
particular, on request by the Director shall;
(a) furnish the Director in accordance with the Director's reasonable
requirements any Information, document (including any facility
enabling him to read data not held in readable form) or other thing;
(b) carry out (or cause to be carried out by such person having such
special expertise as the Director may specify and to whom the Director
has raised no reasonable objection) in such manner as the Director may
specify an examination of the whole or of any part of the Billing
Process and as soon as practicable after the conclusion of such
examination furnish to the Director a written report by the Licensee
or that specified person, as the case may be, of the results of such
examination;
(c) on reasonable notice by him allow at all reasonable times the Director
and, in the case of any member of his staff, on production of his
special authority in that behalf, access to any relevant premises,
plant or equipment of the Licensee;
(d) on reasonable notice by him allow at all reasonable times the Director
and, in the case of any member of his staff, on production of his
special authority in that behalf, to examine or test the whole or any
part of the Billing Process including any plant or equipment whether
or not forming part of the Applicable Systems;
(e) for the purpose of paragraphs 13.10(c) and 13.10(d), allow the
Director to be accompanied by any person as the Director may specify
and to whom the Licensee has raised no reasonable objection whose
assistance he might reasonably require for the purpose described at
the beginning of this paragraph provided that the Director shall have
given the Licensee notice (save in exceptional circumstances) of at
least 5 working days of the identity of that person; and
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35
(f) install and keep installed any equipment (whether or not supplied by
the Director) for the purpose of verifying;
(i) the accuracy and reliability of any equipment or apparatus
(including any Meter) of the Licensee;
(ii) in the case of any Meter which is or is required to be Approved
and is in use in connection with the Applicable Systems,
compliance with any conditions or other matters which may be
required as regards such use of that Meter.
13.11 In this Condition:
(a) "Approval" and "Approved" mean approval and approved under section 24
of the Act.
(b) "Billing Process" means Metering systems and Billing Systems taken
together, where "Billing System" means the totality of all apparatus,
data, procedures and activities which the Licensee employs to
determine the charges to be sought for Service usage recorded by a
Metering System based on published or previously negotiated pricing
structures and to present these charges on customers' bills and
"Metering System" means the totality of all apparatus, data,
procedures and activities which the Licensee employs to determine the
extent of any telecommunication Services provided by means of the
Applicable Systems;
(c) "Information" includes accounts, estimates and returns;
(d) "Meter" means any system or apparatus constructed or adapted for use
in ascertaining the extent of telecommunication Services provided by
means of the Applicable Systems; and
(e) "Service" includes any service provided by any person to whom the
Licensee is bound to account for any part of the amount charged by the
Licensee.
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Condition 14
NUMBERING ARRANGEMENTS
14.1 This Condition shall only apply where the Applicable Systems are connected
to a telecommunication system not being run under a Licence issued to a
particular person, or where the Licensee has been granted Numbers by the
Director.
14.2 The Licensee shall from the day on which it first provides a switched
telecommunication service or any other telecommunication service in connection
with which the Licensee allocates to users Numbers adopt a Numbering Plan and
shall furnish details thereof to the Director and on request to any other person
having a reasonable interest.
14.3 The Numbering Plan shall describe the method adopted and to be adopted for
allocating and re-allocating in respect of each Network Termination Point such
Number or Numbers as may be necessary for each item of Relevant Apparatus or
each Relevant System that is or is to be connected by means of that Network
Termination Point to any of the switched Applicable Systems.
14.4 The Licensee shall install, maintain or adjust its switched Applicable
Systems so that those Systems convey Messages to Network Termination Points in
respect of which Numbers have been allocated in accordance with the Numbering
Plan.
14.5 The Licensee shall from time to time consult:
(a) the Director about the arrangements for the allocation and
reallocation of Numbers within the Numbering Plan; and
(b) in one body approved by the Director for the purpose and
representative of telecommunications operators and other persons whom
the Director considers appropriate about any developments of,
additions to or replacements of, the Numbering Plan.
14.6 The Licensee shall from time to time prepare, taking into account the
consultations mentioned in paragraph 14.5(b), and furnish to the Director
proposals for developing, adding to or replacing the Numbering Plan and changing
the switched Applicable Systems to the extent necessary to secure that:
(a) sufficient Numbers are made available, having regard to the
anticipated growth in demand for telecommunication services, for a
Number or Numbers to be allocated without undue delay;
(b) Numbers include as few digits as practicable and their allocation does
not confer any undue advantage on the Licensee or undue disadvantage
on persons running Relevant Systems;
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(c) the cost of changing any of the switched Applicable Systems or any
Relevant Apparatus or Relevant System in order to accommodate the
revised Numbering Plan is reasonable; and
(d) inconvenience caused by the alteration of the Numbering Plan to the
Licensee and to persons using Relevant Apparatus or Relevant Systems
in respect of which Numbers have previously been allocated is
minimised.
14.7 If the Director determines that the Numbering Plan with any developments,
additions and replacements submitted in accordance with paragraph 14.6 is
sufficient to provide compatibility with the numbering arrangements applied or
to be applied by telecommunications operators and to meet the objectives
specified in paragraph 14.6 the Licensee shall adopt the Numbering Plan but, if
the Director determines that it is not compatible with numbering arrangements
applied or to be applied by another public telecommunications operator or will
not be sufficient to achieve the objectives specified in paragraph 14.6, then
the Licensee shall adopt the Numbering Plan with such developments, additions or
replacements as the Director may determine are best calculated to secure the
objectives specified in paragraph 14.6.
14.8 Before making a determination under paragraph 14.7 the Director shall take
account of:
(a) the state of technical development of the Applicable Systems and the
Licensee's plans for their commercial development;
(b) the balance of advantage between:
(i) making developments of, additions to or replacements of numbering
arrangements applied or to be applied, or making changes to
systems run, by others; and
(ii) making any requirement of the Licensee;
(c) the cost to the Licensee and to those to whom the Licensee provides
telecommunication services arising from any determination;
(d) any obligations and recommendations of the International
Telecommunication Union which apply to Her Majesty's Government and
are accepted by it and any other standard to which the Director
consents for the purpose from time to time; and
(e) the views of the Licensee and such other persons (including operators
of telecommunication systems, those to whom telecommunication services
are provided or telecommunication apparatus is supplied and producers
of telecommunication apparatus) as appear to the Director to have an
interest in the matter.
<PAGE> 42
38
14.9 Where the Licensee has adopted a Numbering Plan in accordance with
paragraph 14.7, or the Director has made a determination under that paragraph
(by virtue of which the Licensee shall adopt the Numbering Plan), the Numbering
Plan so adopted shall be the Licensee's Numbering Plan until the Licensee adopts
a Numbering Plan pursuant to the following provisions of this Condition. The
Numbering Plan referred to in the following provisions of this Condition is the
Numbering Plan adopted pursuant to those provisions.
14.10 The Director may determine a Specified Numbering Scheme (the "Scheme") in
accordance with the National Numbering Conventions (the "Conventions") published
in accordance with paragraph 14.14 and he will allocate Numbers from this Scheme
to the Licensee in accordance with the Conventions. The initial allocation of
Numbers to the Licensee shall be of those Numbers to which the Numbering Plan
referred to in paragraph 14.3 relates and of any other Numbers to which any
other Numbering Plan in force immediately before such allocation relates,
provided that, at such time of initial allocation, those Numbers are currently
in use by the Licensee, and where not so in use, the Director shall have due
regard to the Licensee's plans and future requirements for its use and
allocation of additional Numbers. The Director shall, at the request from time
to time of the Licensee, allocate to it:
(a) such quantity of additional Numbers as it may require; and
(b) in accordance with the Conventions, such specific Numbers as it may
request and which the Director is satisfied are not required for other
purposes.
14.11 The Licensee shall adopt a Numbering Plan for such Numbers as the Director
may allocate to it from time to time in accordance with the Conventions. It
shall within three month's of being notified of such allocation furnish details
of the Numbering Plan to the Director, and keep him informed of material changes
to the Numbering Plan as they occur. The Licensee shall also furnish details of
the Numbering Plan together with any material changes to that Numbering Plan on
request to any other person having a reasonable interest. Except where the
Director agrees otherwise, the Numbering Plan shall be consistent with the
Conventions published in accordance with paragraph 14.14. If the Numbering Plan
is not consistent with those Conventions, the Director may direct the Licensee
to adopt and furnish him with a new Numbering Plan or to take such other
reasonable remedial action which does not cause undue inconvenience to the
Licensee's customers, as may be necessary to ensure consistency.
14.12 The Licensee shall install, maintain and adjust its switched Applicable
Systems so that those Systems route Messages and otherwise operate in accordance
with the Numbering Plan. The Licensee shall not use Numbers other than those
allocated to it from the Scheme except:
(a) with the written consent of the Director; or
(b) where the use of those Numbers is the subject of an agreement to which
Condition 5 applies.
<PAGE> 43
39
14.13 (a) The Licensee shall provide to the Director, on request, such
information about its operations under its Numbering Plan as he may
reasonably require to administer the Scheme and in particular on:
(i) the percentages of Numbers in significant ranges which have
already been allocated to end-users or which for other reasons
are unavailable for further allocation;
(ii) any allocation of blocks of Numbers to any person for purposes
other than end use;
(iii) Numbers whose use has been transferred at an end-user's request
to another Operator; and
(iv) the Licensee's current forecasts of all of the above matters.
(b) The Licensee shall not be required to provide information about
individual end-user customers.
(c) In making any such request the Director shall ensure that no undue
burden is imposed on the Licensee in procuring and furnishing such
information and, in particular, that the Licensee is not required to
procure or furnish information which would not normally be available
to it, unless the Director is satisfied that such information is
essential to the administration of the Scheme.
14.14 (a) The Conventions referred to in this Condition will be a set of
principles and rules published from time to time by the Director after
consultation with interested parties who are members of the
Telecommunications Numbering and Addressing Body and, if deemed
appropriate, with end-users.
(b) In consulting the said interested parties, the Director shall afford a
reasonable period, not being less than 28 days, for them to make
representations, and he shall take the said representations into
account when publishing the Conventions. The Conventions shall govern
the specification and application of the Scheme and the Numbering Plan
of the Licensee and may also include such other matters relating to
the use and management of Numbers as (but not limited to):
(i) criteria and procedures relating to the application for,
allocation of and withdrawal of Numbers;
(ii) dialling plans;
(iii) access codes;
(iv) prefixes;
<PAGE> 44
40
(v) standard ways of recording Numbers for convenience or ease of
use, such as the grouping of digits in Numbers of particular
lengths; and
(vi) methods of enabling end-users to understand the meaning implicit
in Numbers or other dialled digits, and in particular the rate at
which a call to a particular Number will be chargeable.
(c) The Director may from time to time amend or withdraw a Convention
already published, after consultation with interested parties who are
members of the Telecommunications Numbering and Addressing Body. The
Licensee shall not be required to comply with any such amendment or
withdrawal unless the Licensee has been given a reasonable period of
notice, such notice not being less than three months. Numbers
allocated to the Licensee may only be withdrawn after similar
consultation and notice, and the Director shall consult end-users
affected by such withdrawal. Subject to overriding national interests,
or where there is no alternative solution available, the power to
withdraw Numbers shall not apply to any Numbers which the Director has
approved from time to time as part of a specific service of the
Licensee, which, as a result of investment by the Licensee, has a
recognised identity and quality associated with that particular
Number and which the Licensee is using and plans to continue to use.
14.15 In deciding on the details of and any subsequent changes to the Scheme and
the Conventions, and when making or changing Number allocations within the
Scheme or making determinations under this Condition, the Director shall ensure
that the Scheme complies with the Conventions and shall have regard to:
(a) the need for sufficient Numbers to be made available, having regard to
the anticipated growth in demand for telecommunication services,
together with the need for good husbandry of that supply at any time;
(b) the need to ensure Compatibility with the the Numbering Plans adopted
or to be adopted by telecommunications operators;
(c) the convenience and preferences of end-users;
(d) the requirements of effective competition;
(e) the practicability of implementing the Conventions in licensed systems
by the date when the Conventions are intended to apply;
(f) any costs or inconvenience imposed on the Licensee, other
telecommunications operators, end-users and other interested parties
(including those overseas);
(g) any relevant international agreements, recommendations or standards;
(h) the views of the Licensee and other interested parties; and
<PAGE> 45
41
(i) any other matters he regards as relevant.
14.16 The Licensee shall not, unless the Director consents otherwise, charge any
person for a Number which is allocated to him (other than a coveted Number
allocated to a person who is not a public telecommunications operator at the
request of such a person), but nothing in this Condition shall preclude the
Licensee from recovering from the operator of a Relevant System the reasonable
costs associated with allocating Numbers to and routing calls to that System;
save that in the case of any dispute or difference as to those costs the
Director may determine them and the Licensee shall not be obliged so to allocate
Numbers and route calls unless such operator agrees to bear the costs so
determined.
14.17 For the purposes of this Condition, "Telecommunications Numbering and
Addressing Body" means a body approved by the Director as representative of the
Licensee and other persons whom the Director considers it appropriate to include
in consultations about the content of the Conventions and the Scheme.
14.18 For the avoidance of doubt, it is hereby declared that this Condition
applies notwithstanding any arrangements for numbering arising by virtue of any
agreement to which Condition 5 applies. But nothing in this paragraph shall
affect the operation of any such agreements entered into before the coming into
force of this Licence.
14.19 The Numbers to which this Condition applies are Numbers:
(a) of a class described in CCITT Recommendation E.160, E.163, E.164,
E.165, E.166 or F.69 or their functional successors; or
(b) which are of a class described in CCITT Recommendation X.121 and which
include any Data Network Identification Code which has been:
(i) allocated before 14 November 1986 in accordance with a Numbering
Plan furnished to the Director; or
(ii) specified by the Director for the purposes of this Licence and
described in a list kept for that purpose by the Director and
made available by him for inspection to the general public.
<PAGE> 46
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Condition 15
ARRANGEMENTS FOR PROPORTIONATE RETURN
15.1 This Condition shall apply in respect of the conveyance of Messages to or
from each country and territory in the world other than as specified from time
to time by the Secretary of State.
15.2 Except insofar as the Director may otherwise consent in writing, the
Licensee shall ensure (using the most up-to-date information available) that
over each quarterly period for each Accounting Rate Service the First Ratio
shall be no greater than the Second Ratio.
15.3 Where it appears to the Director that in respect of any country or
territory the obligation imposed by paragraph 15.2 is being breached, he may
make a determination to that effect and the Licensee shall take such steps as
the Director may direct for the purpose of remedying the situation. In
particular, and without prejudice to the generality of the foregoing, any such
direction may require the Licensee to cease to convey any Messages to that
country or territory.
15.4 In this Condition:
"First Ratio" means the volume of Messages comprised in
each Accounting Rate Service which are
conveyed by the Applicable Systems and are
delivered to the United Kingdom divided by
the volume of all Messages comprised in
each Accounting Rate Service which are
delivered to the United Kingdom; and
"Second Ratio" means the volume of all Messages comprised
in each Accounting Rate Service which are
conveyed by the Applicable Systems and are
sent from the United Kingdom divided by
the volume of all Messages comprised in
each Accounting Rate Service which are
sent from the United Kingdom.
<PAGE> 47
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Condition 16
ARRANGEMENTS FOR ACCOUNTING IN RESPECT OF INTERNATIONAL CONVEYANCE SERVICES
16.1 This Condition shall apply in respect of the conveyance of Messages to or
from each country and territory in the world other than as specified from time
to time by the Secretary of State.
16.2 The Licensee shall inform the Director of accounting rates and methods of
settlement and division of the accounting rates agreed for all Accounting Rate
Services, before those rates are put into operation.
16.3 As soon as practicably possible after making any correspondent arrangement
with an overseas operator, the Licensee shall inform the Director and all other
holders of a Licence authorising the provision of International Conveyance
Services in the United Kingdom and who are operating, or who have announced an
intention to operate on that particular route, of the terms of that arrangement,
in particular and without prejudice to the generality of the foregoing,
including details of any changes to existing accounting rates or methods of
settlement or division of the accounting rates.
16.4 Where it appears to the Director that any accounting rate or methods of
settlement or division of the accounting rates agreed by the Licensee in respect
of any Accounting Rate Service has or is likely to have an effect to the
detriment of providers and users of International Conveyance Services in the
United Kingdom, he may make a determination to that effect and the Licensee
shall take such steps as the Director may direct for the purpose of remedying
the situation. In particular, and without prejudice to the generality of the
foregoing, any such direction may require the Licensee to cease to convey any
Messages to that country or territory.
<PAGE> 48
44
Condition 17
PROHIBITION OF EXCLUSIVE DEALING IN INTERNATIONAL SERVICES
17.1 The Licensee shall not enter into any agreement or arrangement with any
person running an Authorised Overseas System on terms or conditions which
unfairly preclude or restrict the provision by another public telecommunications
operator of International Conveyance Services.
17.2 The Licensee shall not unreasonably exclude any other public
telecommunications operator who is authorised by a licence to connect his system
to another telecommunication system situated outside the United Kingdom so as to
convey Messages to that other system from a reasonable opportunity to
participate in any international arrangements into which it proposes to enter
after the date on which this Licence enters into force for the installation and
operation of any submarine cable linking any of the Applicable Systems to any
telecommunication system outside the United Kingdom.
<PAGE> 49
45
Condition 18
NOTIFICATION OF CHANGES IN SHAREHOLDINGS
18.1 The Licensee shall notify the Secretary of State if an undertaking becomes
a Parent Undertaking in relation to the Licensee.
18.2 Subject to paragraph 18.3, the Licensee shall notify the Secretary of State
of:
(a) any change in the proportion of the Shares held in a Relevant
Company by any person;
(b) the acquisition of any Shares in a Relevant Company by a person not
already holding any such Shares, and the proportion of any such
Shares held by that person immediately after that acquisition.
18.3 The Licensee shall be obliged to notify the Secretary of State of any
acquisition of Shares or change in the Shareholding of a Relevant Company by any
person only if, by reason of that acquisition or change, the total number of
Shares in that Relevant Company held by that person otherwise than as trustee or
nominee for another person together with any Shares held by any nominee or
trustee for that person immediately after that change or acquisition:
(a) exceeds 15 per cent of the total number of Shares in that company
(where it did not exceed 15 per cent prior to that change or
acquisition);
(b) exceeds 30 per cent of the total number of Shares in that company
(where it did not exceed 30 per cent prior to that change or
acquisition); or
(c) exceeds 50 per cent of the total number of Shares in that company
(where it did not exceed 50 per cent prior to that change or
acquisition),
provided that where a Relevant Company is a public company as defined in section
1 of the Companies Act 1985, the obligation shall be discharged by forwarding to
the Secretary of State as soon as practicable all information in respect of that
acquisition or that change as is entered on or received for entry on the
register required to be maintained by that Relevant Company under section 211 of
the Companies Act 1985.
18.4 In any case referred to in paragraph 18.1 or 18.2, notification shall be
given by a date which is 30 days prior to the taking effect of such change or
acquisition, as the case may be, or as soon as practicable after that date.
<PAGE> 50
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Condition 19
LICENSEE'S GROUP
19.1 Without prejudice to the Licensee's obligations under these Conditions in
respect, in particular, of anything done on its behalf, where:
(a) the Director determines either:
(i) that a member of the Licensee's Group has done something which
would, if it had been done by the Licensee, be prohibited or
not be authorised under these Conditions; or
(ii) that a member of the Licensee's Group has done something which
would, if it had been done by the Licensee, require the
Licensee to take or refrain from taking a particular action
under these Conditions and that neither the Licensee nor the
member has met that further requirement; and
(b) the Director is not satisfied that the Licensee has taken all
reasonable steps to prevent any member acting in that way,
then the Director may direct the Licensee to take such steps as the Director
deems appropriate for the purpose of remedying the matter, including refraining
from carrying on with that member such commercial activities connected with
telecommunications as the Director may determine.
19.2 Where these Conditions apply in respect of the Applicable Systems they do
not apply in respect of any other telecommunication system, whether run by the
Licensee or another.
19.3 Where any person becomes a member of the Licensee's Group then the Licensee
shall not be subject to paragraph 19.1 before that is reasonably practicable but
shall be so not later than one year after that person becomes such a member or
such later date as the Director may determine.
19.4 This Condition shall not apply to any particular member of the Licensee's
Group if and to the extent that the Director so determines.
<PAGE> 51
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Condition 20
PAYMENT OF FEES
20.1 The Licensee shall pay the following amounts to the Secretary of State at
the times stated:
(a) on the grant of this Licence the sum of (pounds)7,000;
(b) on 1 April 1997 a renewal fee of (at the option of the Director)
either(pounds)8,000 or such amount which shall represent a fair
proportion, to be determined each year by the Director according to
a method that has been disclosed to the Licensee, of the estimated
costs to be incurred in that fiscal year by the Director in the
regulation and enforcement of telecommunication licences and in the
exercise of his other functions under the Act. The first renewal fee
shall be reduced by the proportion which the period from the date of
granting of this Licence until the next following 1 April 1997 bears
to the period of one year; and
(c) when the Director so determines, a special fee which shall represent
a fair proportion, to be determined by the Director according to a
method that has been disclosed to the Licensee of the amount, if
any, by which the aggregate of:
(i) the costs estimated to have been already incurred in that
fiscal year by the Director in the regulation and enforcement
of telecommunication licences and in the exercise of his other
functions under the Act;
(ii) the costs estimated to have been already incurred in that
fiscal year by the Monopolies and Mergers Commission following
licence modification references under section 13 of the Act;
and
(iii) the estimated costs to be incurred in the remainder of that
fiscal year:
(A) by the Director in the regulation and enforcement of
telecommunication licences and in the exercise of his
other functions under the Act; and
(B) by the Monopolies and Mergers Commission following
licence modification references under section 13 of the
Act,
exceeds the renewal fee for that year,
save always that the aggregate of the renewal fee and the special fee for any
fiscal year shall not exceed 0.08% of the annual turnover of the Systems
Business in the financial year before the last complete financial year of the
Licensee before the renewal fee is payable, or (pounds)35,000 (adjusted in the
manner described in paragraph 20.1(b), whichever is the greater (the "normal
<PAGE> 52
48
aggregate fee"), unless the Director determines that the costs incurred in any
fiscal year by him and the Monopolies and Mergers Commission in respect of the
Licensee's activities exceeds the normal aggregate fee, in which case the
aggregate of the renewal fee and the special fee for the following year shall be
such amount as the Director determines is sufficient to take account of that
excess as well as of the other costs to be incurred as mentioned in this
paragraph.
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49
Condition 21
REQUIREMENT TO FURNISH INFORMATION TO THE DIRECTOR
21.1 Without prejudice to Condition 22, the Licensee shall furnish to the
Director, in such manner and at such times as the Director may reasonably
request, such documents, accounts, estimates, returns or other information and
procure and furnish to him such reports as he may reasonably require for the
purpose of exercising the functions assigned or transferred to him by or under
Parts II and III of the Act.
21.2 In making any such request the Director shall ensure that no undue burden
is imposed on the Licensee in procuring and furnishing such information and, in
particular, that the Licensee is not required to procure or furnish a report
which would not normally be available to it unless the Director considers the
particular report essential to enable him to exercise his functions.
<PAGE> 54
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Condition 22
REQUIREMENT TO SUBMIT ACCOUNTS TO THE DIRECTOR
22.1 The Licensee shall maintain such accounting records dealing separately with
its International Business carried on in the United Kingdom as will enable it to
show separately and explain, in response to any request from the Director under
paragraph 22.4, all the transactions to which paragraph 22.2 refers.
22.2 This paragraph refers to:
(a) all transactions between each Relevant International Function run as
part of the Licensee's International Business; and
(b) all transactions between the Licensee's International Business and:
(i) any other business carried on by the Licensee whether in the
United Kingdom or elsewhere; or
(ii) the business of any Associated Person whether in the United
Kingdom or elsewhere.
22.3 The Licensee shall update the accounting records referred to in paragraph
22.1 no less frequently than monthly and those records shall include in
particular the costs (including capital costs), revenue and a reasonable
assessment of assets employed in and liabilities attributable to the
International Business and, separately, the amount of any material item of
revenue, cost, asset or liability which has been either:
(a) charged from or to any other business of the Licensee or Associated
Person together with a description of the basis of the value on
which the charge was made; or
(b) determined by apportionment or attribution from an activity common
to the business and any other business of the Licensee or any
Associated Person and, if not otherwise disclosed, the basis of the
apportionment or attribution.
22.4 The Director may at any time request from the Licensee copies of any of the
accounting records and detailed attribution policies and procedures which the
Licensee is obliged to maintain by this Condition, covering any period between:
(a) the date on which the Licensee first carried on any International
Business in the United Kingdom or, if later, the date of this
Licence; and
(b) the date on which such records were, or should have been, last
updated in accordance with paragraph 22.3.
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51
The Licensee shall provide any such records requested by the Director within
28 days of receiving such a request in writing.
22.5 (1) Accounting records submitted to the Director shall, so far as
reasonably practicable, be prepared in the formats and in accordance
with the accounting principles and rules which apply to the annual
statutory accounts of the Licensee and shall state the attribution
policies and procedures used and where the Licensee is a body
corporate incorporated outside the United Kingdom the preparation
and adoption of those accounts shall comply with the requirements of
sections 226 and 231 to 234A of the Companies Act 1985 as if that
body corporate were incorporated in the United Kingdom.
(ii) The Licensee shall procure in respect of each set of accounting
records submitted to the Director an audit report which shall
conform to UK auditing standards by the Auditor in which he shall
state whether in his opinion the record complies with paragraph 22.1
and is fairly presented in accordance with the formats, accounting
principles, rules and requirements referred to in paragraph 22.5(i).
22.6 Where it appears to the Director that to do so would be beneficial to the
promotion or maintenance of competition he may direct the Licensee to publish
the accounting statements submitted to the Director in such way as he sees fit.
In so directing the Licensee the Director shall have regard to the need for
excluding, so far as that is practicable, any matter where publication of that
matter might, in the opinion of the Director, seriously and prejudicially affect
the interests of the Licensee or any Associated Person.
<PAGE> 56
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Condition 23
EXCEPTIONS AND LIMITATIONS ON OBLIGATIONS IN SCHEDULE 1
23.1 Unless the context otherwise requires and subject to paragraph 23.9, the
Licensee's obligations under these Conditions have effect subject to the
following exceptions and limitations.
23.2 The Licensee is not obliged to do anything which is not practicable.
23.3 The Licensee shall not be held to have failed to comply with an obligation
imposed upon it by or under these Conditions if and to the extent that the
Licensee is prevented from complying with that obligation by any physical,
topographical or other natural obstacle, by the malfunction or failure of any
apparatus or equipment owing to circumstances beyond the control of the
Licensee, by the act of any national authority, local authority or international
organisation or as the result of fire, flood, explosion, accident, emergency,
riot or war.
23.4 An obligation to provide any telecommunication service shall not apply:
(a) where there is no reasonable demand for it; or
(b) where provision of the service requested would expose any person
engaged in its provision to undue risk to health or safety; or
(c) where the Licensee is unable to obtain (either because it has not
been developed or for some other reason beyond the Licensee's
control) anything necessary to provide a service of the quality or
standard required by the person who requests the provision of the
service and, in the event of dispute, the Director's decision as to
whether anything is necessary shall be final; or
(d) where the person to whom the Licensee would otherwise be under an
obligation to provide any service requests a service at a place in
which the apparatus necessary to provide that service in that area
has not been installed (or in which the installation of such
apparatus has not been completed) or as the case may be such
apparatus has not been adapted or modified to make it capable of
providing that service or the trained manpower necessary to provide
that service is not available in that area, provided that in every
case where the Licensee declines to provide a service to which this
paragraph relates it shall have published, or furnished to the
Director, within 28 days (or such longer period as the Director
considers reasonable) following receipt by it of the request that
that service be provided, proposals for:
(i) progressively installing, or completing the installation,
adaptation or modification of, the apparatus; or
(ii) the allocation of the trained manpower,
<PAGE> 57
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necessary for the provision of that service in that area and
the Director has not determined that those proposals are
unreasonable or are not being effectively carried out; or
(e) where the person to whom the Licensee would otherwise be under an
obligation to provide any service requests a service at a place in
an area in which the demand or the prospective demand for the
service is not sufficient, having regard to the revenue likely to be
earned from the provision of the service in that area, to meet all
the costs reasonably to be incurred by the Licensee in providing the
service there, including:
(i) the cost of apparatus necessary for the provision of the
service there;
(ii) the cost of installing, maintaining and operating such
apparatus for the purpose of providing the service there; and
(iii) the cost of the trained manpower necessary to provide the
service there; or
(f) where in the opinion of the Director it is not reasonably
practicable in all the circumstances for the Licensee to provide the
service requested at the time or place demanded.
23.5 The Licensee shall not be obliged to connect or to keep connected to the
Applicable Systems or to permit to be so connected or kept connected any
telecommunication system or telecommunication apparatus or to provide
telecommunication services or to permit the provision of any service if the
person to or for whom that is or is to be done:
(a) has not entered or will not enter into a contract for the purpose
with the Licensee for reasons other than the unreasonable refusal of
the Licensee to agree terms for the purpose but this paragraph does
not apply in a case where the Director is satisfied that:
(i) the Licensee has not published standard terms and conditions
which it proposes to apply for the purpose in question, or the
transaction is not fit to be governed by such terms and
conditions; and
(ii) the Licensee has unreasonably refused to agree terms and
conditions for the purpose;
(b) is, or in the Director's opinion has given reasonable cause to
believe that he may become:
(i) in breach of a contract with the Licensee for the provision of
telecommunication services by the Licensee; or
<PAGE> 58
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(ii) in default in regard to any debt or liability owed to the
Licensee in respect of any such contract;
(c) is using, or permitting the use of, apparatus so connected or kept
connected for any illegal purpose or has done so in the past and is
likely to do so again; or
(d) has obtained, or attempted to obtain, any telecommunication service
from the Licensee by corrupt, dishonest or illegal means at any
time.
23.6 Nothing in these Conditions shall prevent the Licensee from withdrawing
from, or declining to provide to, any person any telecommunication service which
the Licensee has notified the Director that it is providing in a limited area,
or to a limited class of customers, for the purpose of evaluating the technical
feasibility of, or the commercial prospects for, that service.
23.7 Nothing in these Conditions shall require the Licensee to provide any
telecommunication service, or to provide any telecommunication service of any
particular class or description, if it provides instead a service, or a service
of a class or description, which satisfies the purposes of that requirement at
least to the same extent.
23.8 This Condition shall apply without prejudice to any limitation or
qualification of the requirements imposed by or under any other Condition.
23.9 This Condition does not apply to Condition 5, 8 or 10 and:
(a) only paragraphs 23.1, 23.2, 23.3 and 23.8 apply to Conditions 7,
13.2, 13.3, 19, 20 and 21;
(b) only paragraphs 23.1, 23.5(a) and 23.8 apply to Condition 4.2;
(c) only paragraphs 23.1, 23.2, 23.3, 23.5 and 23.8 apply to Condition
14;
(d) only paragraphs 23.1, 23.2, 23.3, 23.4(b), 23.5(a) and 23.8 apply to
Condition 3; and
(e) only paragraphs 23.1, 23.2, 23.3, 23.4, 23.6 and 23.8 apply to
Condition 4.1;
but paragraph 23.2 does not apply to Condition 9 or Condition 22.
<PAGE> 59
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SCHEDULE 2: REVOCATION
1 Notwithstanding paragraph 3 of the Licence the Secretary of State may at any
time revoke this Licence by at least 30 days' notice given to the Licensee in
writing in any of the following circumstances:
(a) if the Licensee agrees in writing with the Secretary of State that
this Licence should be revoked; or
(b) if either
(i) an undertaking has become a Parent Undertaking in relation to
the Licensee; or
(ii) a change or acquisition of a description specified in
paragraphs 18.2 and 18.3 of Condition 18 of Schedule 1 to this
Licence has taken place;
and either
(iii) the Licensee has duly notified the Secretary of State in
accordance with those paragraphs; or
(iv) the Licensee has failed to notify the Secretary of State that
such event, change or acquisition has taken place in
accordance with an obligation under that Condition;
and
(v) the Secretary of State has notified the Licensee in writing
that he is minded to revoke this Licence on the grounds either
that:
(A) the event, change or acquisition would in his opinion be
against the interests of national security or relations
with the government of a country or territory outside
the United Kingdom; or
(B) the Licensee has committed a breach of Condition 18 of
Schedule 1; and
(vi) the event, change or acquisition has not been reversed or
remedied within 30 days of the receipt by the Licensee of such
notification; or
(c) if, following a change or acquisition of the type referred to in
Condition 18 of Schedule 1 to this Licence, the Secretary of State
considers, or the Director has notified the Secretary of State that
the Director considers, that the Licensee is
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56
relying, has relied or is likely to rely on this Licence in
circumstances in which an effect of such reliance is, was or may be
that the Licensee or any member of the Licensee's Group is or was
relieved wholly or in part of any obligation, limitation or
restriction imposed by a Licence issued to the Licensee or any
member of the Licensee's Group; or
(d) where the Licensee has failed to comply with a final order (or a
provisional order confirmed) under section 16 of the Act and the
Secretary of State has given the Licensee not less than 30 days'
notice in writing that, if the Licensee fails to comply with the
order within that period of 30 days, he intends to revoke the
Licence, provided that no such notice of intention shall be given
where the question of the validity of the order is the subject of
any court proceedings, and where that question becomes so subject
during the 30 day notice period, that period shall cease to run
until the final disposal of those proceedings (including any
Appeal); or
(e) if the Licensee:
(i) is deemed to be unable to pay its debts (within the meaning of
section 123 of the Insolvency Act 1986 as applied for the
purposes of this Licence by paragraph 2(b)), convenes any
meeting with its creditors generally with a view to the
general readjustment or rescheduling of its indebtedness or
makes a general assignment for the benefit of its creditors
generally; or
(ii) enters into administration, receivership or liquidation; or
(iii) ceases to provide telecommunication services of the type
authorised in paragraph 3 of Schedule 3 to this Licence; or
(f) if the Licensee or any other person takes any action for the
voluntary winding-up or dissolution of the Licensee; or
(g) if the Licensee enters into any scheme of arrangement under the
Insolvency Act 1986 (other than in any such case for the purpose of
reconstruction or amalgamation upon terms and within such period as
may previously have been approved in writing by the Secretary of
State); or
(h) if an administrator, receiver, trustee or similar officer of the
Licensee, or of all or any material part of the revenues and assets
of it, is appointed; or
(i) if any order is made for the compulsory winding-up or dissolution of
the Licensee; or
(j) if any amount payable under Condition 20 of Schedule 1 is unpaid 30
days after it becomes due and remains unpaid for a period of 14 days
after the Secretary of State notifies the Licensee that the payment
is overdue.
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57
2 For the purposes of paragraph 1(e)(i), in applying section 123 of the
Insolvency Act 1986:
(a) if a written demand served on the Licensee is satisfied prior to the
expiry of the notice of revocation the Secretary of State shall not
revoke the Licence; and
(b) the figure of "(pounds)750", or such other money sum as may be
specified from time to time pursuant to sections 123(3) and 416 of
the Insolvency Act 1986, shall be deemed to be replaced by
"(pounds)250,000" or such higher figure as the Director may from
time to time determine.
3 In this Schedule:
(a) "Group" means a parent undertaking and its subsidiary undertaking or
undertakings within the meaning of section 258 of the Companies Act
1985 as substituted by section 21 of the Companies Act 1989; and
"Licensee's Group" means a Group in respect of which the Licensee is
either a parent undertaking or a subsidiary undertaking; and
(b) "Parent Undertaking" has the same meaning as in section 258 of the
Companies Act 1985 as substituted by section 21 of the Companies Act
1989.
4 For the purposes of this Schedule "Appeal" includes further appeal and
application for leave to appeal or further to appeal.
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58
SCHEDULE 3: AUTHORISATION TO CONNECT OTHER TELECOMMUNICATION SYSTEMS AND
APPARATUS TO THE APPLICABLE SYSTEMS AND TO PROVIDE TELECOMMUNICATION
SERVICES BY MEANS OF THE APPLICABLE SYSTEMS
1 Nothing in this Licence removes any need to obtain any other licence that may
be required under any other enactment.
Connection Authorisation
2 Subject to paragraph 1, this Licence authorises the connection to the
Applicable Systems of:
(a) any telecommunication system run under a Licence;
(b) any telecommunication system outside the United Kingdom except a
telecommunication system which the Secretary of State has notified
the licensee should not, or as the case may be should cease to, be
connected to the Applicable Systems;
(c) any earth orbiting apparatus, provided that:
(i) the relevant requirements, if any, for consultation and
compliance with specified operating parameters under the
INTELSAT Operating Agreement, INMARSAT Convention and EUTELSAT
Convention have been and continue to be satisfied;
(ii) the relevant rules and standards, if any, issued under the
INTELSAT Operating Agreement, INMARSAT Operating Agreement and
EUTELSAT Operating Agreement have been and continue to be
satisfied; and
(iii) it is not earth orbiting apparatus to which the Secretary of
State has notified the Licensee that the Licensee should not,
or as the case may be should cease to, connect the Applicable
Systems;
(d) any telecommunication system run by the Crown;
(e) telecommunication apparatus of every description which is comprised
in a telecommunication system mentioned in paragraphs 2(a) to 2(d);
(f) any telecommunication apparatus not comprised in the Applicable
Systems which is for the time being Compliant Terminal Equipment or
approved for
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59
connection to the Applicable Systems in accordance with section 22
of the Act; and
(g) any hearing aid.
Service Authorisation
3 Subject to paragraph 1, this Licence authorises the provision by means of the
Applicable Systems of any telecommunication services except:
(a) International Simple Voice Resale Services;
(b) International Simple Data Resale Services;
(c) conveyance of Messages for the delivery of one or more of the
services specified in paragraphs (a) to (c) of section 72(2) of the
Broadcasting Act 1990 for simultaneous reception in two or more
Dwelling-Houses;
(d) conveyance of Messages which have originated in the United Kingdom
and are subsequently to be terminated in the United Kingdom, unless:
i) such Messages are also to be conveyed over a
telecommunications system outside the United Kingdom; or
ii) such Messages are conveyed in compliance with any
obligations imposed under Condition 2, Condition 3 or
Condition 4 in Schedule 1 of this Licence; and
(e) any Mobile Radio Tails Service.
Definitions and interpretation
4 In this Schedule unless the context otherwise requires:
(a) "Applicable Terminal Equipment" means apparatus which is applicable
terminal equipment within the meaning of regulation 4 of the
Telecommunications Terminal Equipment Regulations 1992;
(b) "Compliant Terminal Equipment" means Applicable Terminal Equipment
which satisfies the requirements of regulation 8 of the
Telecommunications Terminal Equipment Regulations 1992;
(c) "Dwelling-House" has the same meaning as in section 202 of the
Broadcasting Act 1990;
(d) "EUTELSAT Convention" means the Convention establishing the European
Telecommunications Satellite Organisation EUTELSAT including its
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60
Preamble and its Annexes, opened for signature by governments at
Paris, France on 15 July 1982, and any subsequent amendments made to
it:
(e) "EUTELSAT Operating Agreement" means the Operating Agreement
relating to the European Telecommunications Satellite
Organisation EUTELSAT, including its Preamble and Annexes, opened
for signature at Paris, France on 15 July 1982, and any subsequent
amendments made to it;
(f) "INMARSAT Convention" means the Convention establishing the
International Mobile Satellite Organisation (formerly the
International Maritime Satellite Organisation) INMARSAT including
its Preamble and its Annex, opened for signature by governments at
London, England on 3 September 1976, and any subsequent amendments
made to it;
(g) "INMARSAT Operating Agreement" means the Agreement, including its
Annex, opened for signature at London, England on 3 September 1976
by entities designated by governments party to the INMARSAT
Convention, and any subsequent amendments made to it;
(h) "INTELSAT Agreement" means the Agreement including its Annexes but
excluding all titles of Articles, opened for signature by
governments at Washington DC, USA, on 20 August 1971 by which the
International Telecommunications Satellite Organisation INTELSAT
was established, and any subsequent amendments made to it;
(i) "International Private Leased Circuit" means a communication
facility which is:
(i) comprised both in a public telecommunication system and in an
equivalent telecommunication system in a country or territory
other than the United Kingdom;
(ii) for the conveyance of Messages between points, all of which
are points of connection between telecommunication systems
referred to in paragraph 4(i)(i) and other telecommunication
systems;
(iii) made available to a particular person or particular persons;
(iv) such that all of the Messages transmitted at any of the points
mentioned in paragraph 4(i)(ii) are received at every other
such point; and
(v) such that the points mentioned in paragraph 4(i)(ii) are fixed
by the way in which the facility is installed and cannot
otherwise be selected by persons or telecommunication
apparatus sending Messages by means of that facility;
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61
(j) "International Simple Data Resale Services" means telecommunication
services consisting in the conveyance of Messages which do not
include two-way live speech, but include only such switching,
processing, data storage or protocol conversion as is necessary for
the conveyance of those Messages in real time, which have been or
are to be conveyed by means of all of the following;
(i) a Public Switched Network;
(ii) an International Private Leased Circuit; and
(iii) the equivalent of a Public Switched Network in another country
or territory;
provided that conveyance of a Message by means of a Public Switched
Network or, as the case may be, the equivalent of a Public Switched
Network in another country or territory shall be disregarded where
that Message is so conveyed in circumstances specified for the time
being by the Secretary of State as not being material for the
purposes of paragraph 3 and included in a list kept for the purpose
by the Director and made available by him for inspection by the
general public;
(k) "International Simple Voice Resale Services" means telecommunication
services consisting in the conveyance of Messages which include
two-way live speech which have been or are to be conveyed by means
of all of the following:
(i) a Public Switched Network;
(ii) an International Private Leased Circuit; and
(iii) the equivalent of a Public Switched Network in another
country or territory;
provided that conveyance of a Message by means of a Public Switched
Network or, as the case may be, the equivalent of a Public Switched
Network in another country or territory shall be disregarded where
that Message is so conveyed in circumstances specified for the time
being by the Secretary of State as not being material for the
purposes of paragraph 3 and included in a list kept for the purpose
by the Director and made available by him for inspection by the
general public;
(l) "Message" means anything falling within paragraphs (a) to (d) of
section 4(1) of the Act;
(m) "Mobile Radio Tails Service" means a telecommunication service
consisting in the conveyance of Messages through the agency of
Wireless Telegraphy to
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62
or from the Applicable Systems directly from or to any apparatus
designed or adapted to be capable of being used while in motion;
(n) "Private Leased Circuit" means a communication facility which is:
(i) provided by means of one or more public telecommunications
systems;
(ii) for the conveyance of Messages between points, all of which
are points of connection between telecommunication systems
referred to in paragraph 4(n)(i) and other telecommunication
systems;
(iii) made available to a particular person or particular persons;
(iv) such that all of the Messages transmitted at any of the points
mentioned in paragraph 4(n)(ii) are received at every other
such point; and
(v) such that the points mentioned in paragraph 4(n)(ii) are fixed
by the way in which the facility is installed and cannot
otherwise be selected by persons or telecommunication
apparatus sending Messages by means of that facility;
(o) "Public Switched Network" means a public telecommunication system by
means of which two-way telecommunication services are provided
whereby Messages are switched incidentally to their conveyance, and,
for the avoidance of doubt, a Public Switched Network does not
include Private Leased Circuits or International Private Leased
Circuits; and
(p) "Wireless Telegraphy" has the same meaning as in the Wireless
Telegraphy Act 1949.
5 Expressions cognate with those referred to in this Schedule shall be construed
accordingly.
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63
SCHEDULE 4: EXCEPTIONS AND CONDITIONS RELATING TO THE APPLICATION OF THE
TELECOMMUNICATIONS CODE
DEFINITIONS AND INTERPRETATION
1 In this Schedule, unless the context otherwise requires:
(a) "Agricultural" has the meaning given to it by paragraph 1 of
Schedule 2 to the Act;
(b) "Appropriate Authority" means a public authority of a type described
in subsection 49(6) or, in Scotland, subsection 108(6) of the New
Roads and Street Works Act 1991 or, in Northern Ireland, Article
7(5) of the Street Works (Northern Ireland) Order 1995;
(c) "The Broads" means the area in which the Broads Authority exercises
power of development control;
(d) "Condition" means a Condition in this Schedule;
(e) "Cost Price" means the cost of any item of Telecommunication
Apparatus, including the full cost of its installation, calculated
before any charges for depreciation by the Licensee and modified to
take account of any alteration in the CSO Price Index for Buildings
and Works since it was installed;
(f) "Duct" means a structure or apparatus (with appropriate entry
points) installed underground in such a way that lines can be
installed in it without having to break up the surface of the
highway;
(g) "Emergency" means an emergency of any kind, including any
circumstance whatever resulting from major accidents, natural
disasters and incidents involving toxic or radio-active materials;
(h) "Emergency Organisations" means in respect of any locality:
(i) the relevant public police, fire, ambulance and coastguard
services for that locality; and
(ii) any other similar organisation in respect of which any public
telecommunications operator licensed to operate in the
locality in question is providing a Public Emergency Call
Service on the day on which this License enters into force;
(i) "Emergency Works" has the meaning given to it by section 52 or, in
Scotland, section 111 of the New Roads and Street Works Act 1991 or,
in Northern Ireland, Article 6 of the Street Works (Northern
Ireland) Order 1995;
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64
(j) "Gross Book Value", in relation to any period referred to in
paragraph 13.3, means the sum of the Cost Price of each piece of
Telecommunication Apparatus installed by or on behalf of the
Licensee under paragraph 9 of the Telecommunications Code before the
beginning of that period;
(k) "Highway Authority" means, in England and Wales, the highway
authority as defined in section 1 of the Highways Act 1980 and, in
Northern Ireland, the Department of the Environment for Northern
Ireland;
(l) "Line" has the same meaning as in paragraph (a) of the definition of
"Telecommunication Apparatus" in paragraph 1 of Schedule 2 to the
Act;
(m) "Maintainable Highway" has the meaning given to it by paragraph 1 of
Schedule 2 to the Act as amended by paragraph 113(1) of Schedule 8
of the New Roads and Street Works Act 1991, or in the case of
Northern Ireland, as amended by paragraph 9(a)(i) of Schedule 3 to
the Street Works (Northern Ireland) Order 1995;
(n) "Major Office" means the Licensee's registered office and such other
offices as the Director, having consulted the Licensee, may direct;
(o) "New Forest" means the area defined in the New Forest Act 1964;
(p) "Planning Authority" means:
(i) in relation to England and Wales, the local planning authority
for the area in question within the meaning of section 1 of
the Town and Country Planning Act 1990;
(ii) in relation to Scotland, a planning authority within the
meaning of section l72(1) of the Local Government (Scotland)
Act 1973; and
(iii) in relation to Northern Ireland, the Department of the
Environment for Northern Ireland;
(q) "Public Emergency Call Services" means a telecommunication service
by means of which any member of the public may, at any time and
without incurring any charge, by means of any item of
telecommunication apparatus which is lawfully connected to the
Applicable Systems and which is capable of transmitting and
receiving unrestricted two way voice telephony services when so
connected, communicate as swiftly as practicable with any of the
Emergency Organisations for the purpose of notifying them of an
Emergency;
(r) "Public Road" has the same meaning as in paragraph 1(1) of Schedule
2 to the Act, as amended by the Roads (Scotland) Act 1984 and the
New Roads and Street Works Act 1991;
(s) "Relevant Area" means:
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65
(i) in relation to England and Wales, any area designated as a
conservation area under sections 69 and 70 of the Planning
(Listed Buildings and Conservation Areas) Act 1990;
(ii) in relation to Scotland, any area designated as a conservation
area under section 262 of the Town and Country Planning
(Scotland) Act 1972;
(iii) in relation to Northern Ireland, any area designated as a
conservation area under Article 50 of the Planning (Northern
Ireland Order 1991; and
(iv) a park within the meaning of the Parks Regulation Acts 1872 to
1974;
(t) "Relevant Event" means:
(i) the revocation of this Licence;
(ii) where the Licensee is not immediately granted another similar
licence to run the Applicable Systems, the expiry of this
Licence; or
(iii) any of the events specified in paragraph 1(e) of Schedule 2 to
this Licence; provided that paragraph 2 of that Schedule shall
have effect for the purposes of this definition as it has for
the purposes of paragraph 1 of that Schedule;
(u) "Relevant Owner" means any person who owns or operates electric
lines for the transport of electricity;
(v) "Relevant Supplier" means in relation to an area in which the
Licensee has installed or proposes to install any apparatus the
person who is authorised by a licence granted under paragraph (b) or
(c) of section 6(1) of the Electricity Act 1989, or in the case of
Northern Ireland, under Article 10(1) of the Electricity (Northern
Ireland) Order l992 to transmit or supply electricity;
(w) "Relevant Undertaker" has the meaning given to it by paragraph
23(10) of Schedule 2 to the Act, and includes persons mentioned in
paragraph 23(l0)(b) in respect of services and apparatus for the
supply of water, or disposal of sewage, and additionally includes
any undertaking for the supply of heat;
(x) "Road" has the meaning given to it in section l07(1) of the New
Roads and Street Works Act 1991;
(y) "Road Works Authority" has the meaning given to it in section 108(1)
of the New Roads and Street Works Act 1991;
(z) "Roads Authority" has the same meaning as in section 151 of the
Roads (Scotland) Act 1984;
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66
(aa) "Service Line" means any line placed or intended to be placed for
the purpose of providing any telecommunication service to the
occupier from time to time of any land, as distinct from lines
placed or intended to be placed for the general purposes of any
telecommunication system;
(ab) "Statutory List of Buildings" is the list of buildings of special
architectural or historic interest compiled by the Secretary of
State under section 1(1) of the Planning (Listed Buildings and
Conservation Areas) Act 1990 or under section 52 of the Town and
Country Planning (Scotland) Act 1972 or in the case of Northern
Ireland, compiled by the Department of the Environment for Northern
Ireland under Article 42 of the Planning (Northern Ireland) Order
1991;
(ac) "Street" has the meaning given to it by paragraph 1 of Schedule 2 to
the Act, as amended by paragraph 113(1) of Schedule 8 of the New
Roads and Street Works Act 1991, or in the case of Northern Ireland,
as amended by paragraph 9(a)(ii) of Schedule 3 to the Street Works
(Northern Ireland) Order 1995;
(ad) "Street Authority" has the meaning given to it by section 49 of the
New Roads and Street Works Act 1991, or in Northern Ireland by
Article 7 of the Street Works (Northern Ireland) Order 1995;
(ae) "Telecommunication Apparatus" shall have the extended meaning given
to it by paragraph 1(1) of Schedule 2 to the Act;
(af) "Traffic Authority" has the same meaning as in the Road Traffic
Regulation Act 1984, or in Northern Ireland means the Department of
the Environment for Northern Ireland; and
(ag) "Urgent Works" in relation to England, Wales and Northern Ireland,
has the meaning given in regulation 2 of the Street Works
(Registers, Notices, Directions and Designations) Regulations 1992
and, in relation to Scotland, has the meaning given in regulation 2
of the Road Works (Registers, Notices, Directions and Designations)
(Scotland) Regulations 1992.
2 Any word or expression used in this Schedule shall unless the context
otherwise requires have the same meaning as it has in the Act.
3 For the purposes of interpreting this Schedule headings and titles shall be
disregarded.
4 For the avoidance of doubt, it is hereby declared that the conditions in this
Schedule apply in addition to any obligations of the Licensee in relation to
England, Wales and Scotland under the New Roads and Street Works Act 1991 and
the Public Utilities Street Works Act 1950, insofar as not superseded by the New
Roads and Street Works Act 1991, and in relation to Northern Ireland under the
Street Works (Northern Ireland) Order 1995.
5 Expressions cognate with those referred to in this Schedule shall be construed
accordingly.
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Condition 1
CONSERVATION AREAS
1.1 Subject to paragraph 1.2 and except in the case of Emergency Works, any Line
installed by the Licensee after the date on which this Licence enters into force
in any Relevant Area shall be installed underground and no pole shall be
installed in any such area after that date.
1.2 Notwithstanding paragraph 1.1, nothing in this Condition shall prevent the
installation on or above the ground of:
(a) a Line or pole required temporarily for the purpose of Emergency
Works;
(b) a Line flown between poles or pylons belonging to a Relevant Owner
and used by that Relevant Owner for the transport of electricity at
a nominal voltage of at least 6,000 volts;
(c) an overhead Service Line flown from a pole installed:
(i) before the area was designated a conservation area; or
(ii) under paragraphs 1.2(f) or 1.2(g),
provided that the Line is of not noticeably larger diameter than
that of the majority of the Licensee's overhead Service Lines in the
same locality;
(d) an overhead Service Line flown from a building in a locality where
overhead Service Lines attached to poles or buildings are already
installed in adjacent streets or on neighbouring land by the
Licensee for the purpose of providing telecommunication services,
provided that the Line is of a not noticeably larger diameter than
that of the majority of such other overhead Service Lines;
(e) any other Line replacing an existing Line provided that the
replacement Line is of a not noticeably larger diameter than that of
the Line it replaces;
(f) a replacement pole in a position not substantially different from
the pole it replaces;
(g) subject to paragraph 1.3, a pole (other than one mentioned in
paragraph 1.2(f)) in a street or on neighbouring land where overhead
Service Lines attached to poles are already installed by the
Licensee in that street or on that neighbouring land for the purpose
of providing telecommunication services; or
(h) a Service Line affixed to and lying on the surface of the exterior
structure of a building provided that the Line is of a not
noticeably larger diameter than the majority of Service Lines
affixed to and lying on the surface of the exterior structures of
buildings in the same locality.
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1.3 Before installing a pole under paragraph 1.2(g) the Licensee shall give the
Planning Authority written notice of its intention to do so describing the
proposed works and shall consider any written representations made by the
Planning Authority within 28 days of the giving of the notice.
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Condition 2
LISTED BUILDINGS AND ANCIENT MOMENTS
2.1 Except in the case of Emergency Works, the Licensee shall before installing
Lines, poles or other Telecommunication Apparatus in proximity to a building
shown as Grade 1 or, as the case may be, Category A in the Statutory List of
Buildings give written notice to the Planning Authority. Where the installation
would detrimentally affect the character or appearance of the building, or its
setting, and the Planning Authority indicates within 28 days of the giving of
the notice that the installation should not take place, the Licensee may install
the Apparatus only if the Secretary of State (after having consulted the
Planning Authority) so directs in writing, or with the agreement of the Planning
Authority.
2.2 For the avoidance of doubt it is hereby declared that nothing in this
Licence affects:
(a) the statutory requirement that the consent of the Secretary of State
or, in the case of Northern Ireland, the Department of the
Environment (NI), shall be obtained before any work is carried out
which will affect the site of an ancient monument scheduled under
Sections 1 and 2 of the Ancient Monuments and Archaelogical Areas
Act 1979 or Article 3 of the Historic Monuments and Archaeological
Objects (NI) Order 1995; or
(b) the obligation imposed on the Licensee by virtue of section 7 of the
Planning (Listed Buildings and Conservation Areas) Act 1990 (or by
section 53 of the Town and Country Planning (Scotland) Act 1972 or
by Article 44 of the Planning (Northern Ireland) Order 1991) to
obtain listed building consent for any works which affect the
character of a listed building, or involve the demolition of any
part of such a building.
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Condition 3
OVERHEAD LINES
3.1 Without prejudice to Condition 1.1 and subject to paragraph 3.4, the
Licensee shall take steps to ensure that, wherever practicable, taking into
account the need to provide telecommunication services at the lowest reasonable
cost, new Lines (other than overhead Service Lines flown from poles) installed
after the date on which this Licence enters into force are installed
underground.
3.2 The Licensee shall consider carefully a request by any person that any of
its existing Lines be resited underground. If the Licensee is satisfied that the
person making the request will pay the costs of placing any such Line
underground, the Licensee shall, wherever it is reasonable and practicable, so
place the Line. In other cases, except where the request is frivolous, the
Licensee shall be obliged within 28 days of receiving it, to give notice in
writing of its decision whether or not to accede to the request to the person
making the request giving, where it decides to refuse, reasons.
3.3 Where telecommunication services are to be provided to a person occupying or
proposing to occupy a new development the Licensee shall consider in conjunction
with those responsible for the development and any other statutory undertaker
providing or proposing to provide a service to persons occupying that
development whether Lines can be installed underground on a shared cost basis.
3.4 Nothing in this Condition or Condition 4 shall prevent the Licensee from
installing new overhead Telecommunication Apparatus where that Apparatus is
supported on poles or pylons belonging to a Relevant Owner and used by that
Relevant Owner for the transport of electricity at a nominal voltage of at least
6,000 volts.
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Condition 4
NATIONAL PARKS ETC
4.1 Subject to paragraph 4.2 and to Condition3.4, and except in the case of
Emergency Works, before installing overhead Telecommunication Apparatus in any
National Park, Area of Outstanding Natural Beauty, National Nature Reserve,
National Scenic Area, the New Forest, or the Broads, and before installing any
Apparatus or undertaking any works involving the breaking up of any land within
any Limestone Pavement Area, Site of Special Scientific Interest, Area of
Special Scientific Interest, Marine Nature Reserve or Natural Heritage Area, the
Licensee shall give the Relevant Authority written notice of its intention to do
so describing the proposed works.
4.2 Where:
(a) the Licensee has given notice of proposed works in accordance with
paragraph 4.1; and
(b) the Relevant Authority has, within 28 days of the giving of the
notice, made written representations to the Licensee about the
proposed works,
the Licensee shall consider those representations and if it considers that,
notwithstanding those representations, the proposed works which are the subject
of that notice should be carried out in the form proposed in that notice or with
modifications to take account of those representations it shall, before carrying
out the proposed works, give written notice to the Relevant Authority of its
intentions to carry out the proposed works and of the modifications, if any, of
the proposed works and the reasons for its decision to do so.
4.3 The Licensee shall also comply with any direction given to it in writing by
the Secretary of State or, in the case Northern Ireland, the Department of the
Environment (NI), relating to giving notice to and considering representations
made by any other authority exercising statutory functions in relation to any of
the areas specified in paragraph 4.1 or such other environmentally sensitive
areas as may be specified in the direction.
4.4 The Licensee shall not be required to give notice pursuant to paragraph 4.1
where the Apparatus to be installed consists solely of, or where works are to be
undertaken on Apparatus consisting solely of:
(a) an overhead Service Line affixed to and lying on the surface of the
exterior structure of a building or flown from a pole provided that
the line is of a not noticeably larger diameter than that of the
majority of such overhead Service Lines in the same locality; or
(b) a replacement pole installed in a position not substantially
different from the pole it replaces
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but in carrying out any such installation or works as are referred to in this
paragraph the Licensee shall have regard to the need to liaise effectively with
the Relevant Authority.
4.5 In this Condition:
(a) in relation to England, Wales and Scotland:
(i) "National Park" and "Area of Outstanding Natural Beauty"
respectively mean any area designated and confirmed as such
under section 5 or section 87 of the National Parks and Access
to the Countryside Act 1949; and the Relevant Authority in
relation thereto shall be the Planning Authority;
(ii) "Site of Special Scientific Interest" means an area designated
as such under section 28 of the Wildlife and Countryside Act
1981 or an area in respect of which the Secretary of State has
made an order under section 29 of that Act. In both cases the
Relevant Authority in respect of any such area shall be: in
England, English Nature, established under the Environmental
Protection Act 1990; in Scotland, Scottish Natural Heritage,
established under the Natural Heritage (Scotland) Act 1991;
and in Wales, the Countryside Council for Wales, established
under the Environmental Protection Act 1990;
(iii) "Limestone Pavement Area" means an area designated by the
Secretary of State or relevant authority under section 34 of
the Wildlife and Countryside Act 1981; and the Relevant
Authority in England and Wales is the Planning Authority and
in Scotland is the Planning Authority exercising district
planning functions;
(iv) "National Scenic Area" means any area in Scotland designated
as such under the Town and Country (Planning) Scotland Act
1972; and the Relevant Authority in relation thereto is
Scottish Natural Heritage, established under the Natural
Heritage (Scotland) Act 1991;
(v) "Marine Nature Reserve" means an area designated by the
Secretary of State under section 36 of the Wildlife and
Countryside Act 1981. The Relevant Authority in relation
thereto shall be in England, English Nature, established under
the Environmental Protection Act 1990; in Scotland, Scottish
Natural Heritage, established under the Natural Heritage
(Scotland) Act 1991; and in Wales, the Countryside Council for
Wales, established under the Environmental Protection Act
1990; and
(vi) "Natural Heritage Area" means any area in Scotland designated
as such under the Natural Heritage (Scotland) Act 1991 and the
Relevant Authority in relation thereto shall be Scottish
Natural Heritage, established under that Act; and
<PAGE> 77
73
(b) in relation to Northern Ireland:
(i) "National Park" means any area designated as such under
Article 12(l) of the Nature Conservation and Amenity Lands
(NI) Order 1985 (S.I.1985/170 (NI 1)); and the Relevant
Authority in relation thereto shall be the Department of the
Environment for Northern Ireland; and
(ii) "Area of Outstanding Natural Beauty" means any area
established in accordance with Section 10 of the Amenity Lands
Act (Northern Ireland) 1965 or designated under Article 14(1)
of the Nature Conservation and Amenity Lands (NI) Order 1985
(S.I. 1985/170 (NI 1)); and the Relevant Authority in relation
thereto shall be the Department of the Environment for
Northern Ireland; and
(iii) "Area of Special Scientific Interest" means an area designated
under Article 24(1) of the Nature Conservation and Amenity
Lands (NI) Order 1985 (S.I. 1985/170 (NI I)) as amended by
Article 10 of the Nature Conservation and Amenity Lands
(Amendment) (NI) Order 1989, as amended by Article 10 of the
Nature Conservation and Amenity Lands (Amendment) (NI) Order
1989 (SI 1989/492 (NI 3)); and the Relevant Authority in
relation thereto means the Department of the Environment for
Northern Ireland; and
(iv) "National Nature Reserve" means any land declared to be a
national nature reserve under Article 18(1) of the Nature
Conservation and Amenity Lands (NI) Order 1985 (SI 1985/170
(NI 1)); and the Relevant Authority in relation thereto shall
be the Department of the Environment for Northern Ireland.
<PAGE> 78
74
Condition 5
NATIONAL TRUST AND NATIONAL TRUST FOR SCOTLAND
5.1 Except in the case of Emergency Works, before installing any
Telecommunication Apparatus for the purpose of providing a service to the
occupier of any land which the National Trust or the National Trust for Scotland
has notified the Licensee that it owns, or holds any interest in, the Licensee
shall give the relevant regional office of whichever of those bodies is
concerned written notice of its intention to do so, describing the proposed
works; and shall consider any written representations made within 28 days of the
giving of such notice to it by either of those bodies.
<PAGE> 79
75
Condition 6
MAINTAINABLE HIGHWAYS AND PUBLIC ROADS
6.1 Except in the case of Emergency Works or Urgent Works, before executing any
works involving the breaking up of a Maintainable Highway or, in Scotland, a
Public Road in connection with the installation, inspection, maintenance,
adjustment, repair or alteration of any Telecommunication Apparatus in that
Highway or that Road the Licensee shall:
(a) in the case of an overhead Line or an underground Service Line,
consider any written representations made by the Highway Authority
or, in Scotland, the Road Works Authority within seven working days
after the giving of any such notice as is required to be given, in
England and Wales, to the Highway Authority under section 55 of the
New Roads and Street Works Act 1991 or, in Scotland, to the Road
Works Authority under section 114 of the New Roads and Street Works
Act 1991 or, in Northern Ireland, to the Highway Authority under
paragraphs 1(3) and 3(2)(a) of Schedule 3 to the Electricity Supply
(NI) Order 1972 as amended by the Telecommunications (Street Works)
(NI) Order 1984;
(b) in all other cases, consider any such written representations made
within 29 days of the giving of any such notice; and
(c) unless the Highway Authority or, in Scotland, the Road Works
Authority consents otherwise, shall not commence those works until
the expiry of seven working days or 29 days as the case may be.
<PAGE> 80
76
Condition 7
PLACING OF UNDERGROUND LINES IN DUCTS
7.1 All lines installed underground after the date on which this Licence enters
into force, in a part of a Maintainable Highway which is paved or in a Street
which the Highway Authority has notified the Licensee is to be paved, shall,
whenever practicable, be installed in Ducts.
7.2 In Scotland, all lines installed underground after the date on which this
Licence enters into force, in a part of a Road which is paved or in a Road which
the Road Works Authority has notified the Licensee is to be paved, shall,
whenever practicable, be installed in Ducts.
<PAGE> 81
77
Condition 8
HEIGHT OF OVERHEAD LINES
8.1 Lines installed over the carriageway of a Maintainable Highway or, in
Scotland, a Public Road shall be placed at a height of not less than 5.5 metres
above the carriageway (or in the case of a designated high load route not less
than 6.7 metres), except where the Highway Authority or, in Scotland, the Roads
Authority has previously otherwise agreed in writing.
<PAGE> 82
78
Condition 9
MAINTENANCE AND THE SAFETY OF APPARATUS
9.1 The Licensee shall from time to time inspect its Telecommunication Apparatus
which is not inside a building and which is on or above the surface of the
ground with a view to ensuring that it will not cause physical harm to other
persons or property; and the Licensee shall notify the Director and the Highway
Authority of its arrangements for inspecting such Apparatus.
9.2 In addition to carrying out inspections of its own Apparatus on or above the
surface of the ground the Licensee shall take such steps as are appropriate in
the circumstances to investigate any report (other than a frivolous one) of any
of its Apparatus (wherever situated) being in a dangerous state and to remove
any danger.
<PAGE> 83
79
Condition 10
ARRANGEMENTS WITH ELECTRICITY SUPPLIERS
10.1 Before exercising any rights under the Telecommunications Code in the
authorised area of any Relevant Supplier, the Licensee shall use its best
endeavours to enter into an agreement with that Relevant Supplier as to the
engineering principles to be adopted and the allocation and apportionment of
costs which arise:
(a) when the Licensee installs and keeps installed apparatus in
proximity to plant which is already installed and which is the
responsibility of a Relevant Supplier: and
(b) when a Relevant Supplier gives notice to the Licensee that it
proposes to install its plant in proximity to any of the Licensee's
apparatus which is already installed.
1O.2 The Licensee shall:
(a) within three months of this Licence coming into force; and
(b) after the expiry of the period of three months beginning on the date
when this Licence comes into force, within three months of the
commencement of any negotiations for the making of any such
agreement as is mentioned in paragraph 10.1.
inform the Director of the steps taken to implement paragraph 10.1 and of the
terms of any agreement entered into by it with the Relevant Supplier.
10.3 Where the Licensee has not offered to enter into such an agreement as is
mentioned in paragraph 10.1 being an agreement which makes reasonable provision
for securing that:
(a) the Licensee will, when installing its apparatus in proximity to
plant of the Relevant Supplier which is already installed, protect
its apparatus from electrical interference from that plant; and
(b) the Relevant Supplier will, when installing its plant in proximity
to apparatus of the Licensee which is already installed, protect
that apparatus of the Licensee from electrical interference from
that plant,
the Licensee shall only install apparatus of such a kind and in such a position
as will not be adversely affected by or of itself adversely affects any plant of
the Relevant Supplier which is already installed.
1O.41 In this Condition, the words "authorised area" have the meaning ascribed
to them in section 6(9) of the Electricity Act 1989 and, in Northern Ireland,
Article 3 of the Electricity (NI) Order 1991.
<PAGE> 84
80
Condition 11
INSTRUCTIONS FOR THE INSTALLATION OF APPARATUS
11.1 Without prejudice to any of its statutory obligations the Licensee shall
take all reasonable steps to secure (in particular by giving instructions to its
employees and agents) that:
(a) where apparatus is to be installed underground in a Street or, in
Scotland, a Road, the normal practice will be to place it in the
verge or footway (or the prospective verge or footway), if any,
rather than the carriageway;
(b) provision is made for any new Ducts installed after the date on
which this Licence comes into effect to, contain sufficient spare
capacity to meet demand which is reasonably foreseeable by the
Licensee for telecommunication services provided by it;
(c) where apparatus is to be installed underground in a Street or, in
Scotland, a Road the Street Authority or, in Scotland, the Road
Works Authority and Relevant Undertakers are consulted about the
appropriate depth of cover for the apparatus and its lateral
position in that Street or Road, as the case may be;
(d) effective liaison is maintained with Highway Authorities or, in
Scotland, Road Authorities with a view to ensuring that works which
entail breaking up the surface of a Maintainable Highway or, in
Scotland, a Public Road are carried out in advance of scheduled
resurfacing works or together with other schemes affecting the
highway;
(e) effective liaison is maintained with Relevant Undertakers with a
view to avoiding the disruption of the services provided by those
persons;
(f) effective liaison is maintained, with the Street Authority or, in
Scotland, the Road Works Authority in order to ensure that
(i) all works are executed in accordance with the provisions of
and made under sections 65 to 69 or, in Scotland, sections 124
to 128 of the New Roads and Street Works Act 1991 or, in
Northern Ireland, Schedule 3 to the Electricity Supply (NI)
Order 1972 as amended by the Telecommunications (Street Works)
(NI) Order 1984; and
(ii) following the execution of the works, the Licensee discharges
its duties of reinstatement of the Street under sections 70 to
73 or, in Scotland, sections 129 to 132 of the New Roads and
Street Works Act 1991 or, in Northern Ireland, paragraphs 1 to
5 of Schedule 3 to the Electricity Supply (NI) Order 1972 as
amended by the Telecommunications (Street Works) (NI) Order
1984; and
<PAGE> 85
81
(iii) in England and Wales the Street Works Register or, in
Scotland, the Road Works Register contains such information in
respect of the works carried out as may be required under
section 53 or, in Scotland, section 112 of the New Roads and
Street Works Act 1991;
(g) with a view to reducing to a minimum the need for the erection of
new poles or the construction of new Ducts, before installing any
such poles or Ducts steps will be taken to investigate the
possibility of using poles, Ducts or other conduits which are
already installed;
(h) the minimum practicable number of poles and other items of apparatus
is installed, allowing for estimated growth in demand for
telecommunication services;
(i) the visual amenity of properties (in particular buildings in the
Statutory List of Buildings which have been notified by the Planning
Authority to the Licensee as deserving special consideration) in
proximity to which poles or other items of apparatus are installed
is protected as far as practicable;
(j) Telecommunication Apparatus is placed so that it does not present
safety hazards;
(k) underground Lines to be installed in Agricultural land are installed
at such a depth that they will not interfere with the use of the
land for Agricultural purposes, unless the occupier, any superior
lessee and the freeholder agree otherwise; and
(l) effective liaison is maintained with the Planning Authority in
respect of the arrangements for the installation of
Telecommunication Apparatus in Local Nature Reserves designated
under section 21 of the National Parks and Access to the Countryside
Act 1949.
11.2 The Licensee shall within three months of the date on which this Licence
enters into force, and thereafter from time to time as the Director may require,
furnish details to the Director of the instructions given in accordance with
paragraph 11.1.
11.3 The requirement specified in paragraph 11.1(i) is without prejudice to
Condition 2.1.
<PAGE> 86
82
Condition 12
RECORDS OF APPARATUS
12.1 The Licensee shall keep records of any of its apparatus installed
underground after the date on which this Licence enters into force which can be
made available in the form of route plans based on Ordnance Survey map
backgrounds of one of the following scales (1:500, 1:625, 1:1,250, 1:2,500,
1:10,000) according to the density of development in the area concerned.
12.2 The Licensee shall provide by means of a telecommunication system free of
charge, to any Highway Authority or, in Scotland, any Roads Authority or other
person who is intending to undertake works in the vicinity of any
Telecommunication Apparatus it has installed underground, a service furnishing
information about the location of that Apparatus and shall whenever practicable:
(a) respond to bona fide enquiries; and
(b) where necessary confirm its advice in diagrammatic form and make
trained staff available to give on-site advice about such Apparatus
so installed,
and shall also respond to any other reasonable request from a Highway Authority
or, in Scotland, a Roads Authority, for information about the location of the
Licensee's apparatus installed underground.
12.3 The Licensee shall co-operate in any joint projects involving the Highway
Authority or, in Scotland, the Roads Authority or Relevant Undertakers which
have as their purpose the recording and making available of information about
underground apparatus, unless the Director agrees that it would be inappropriate
having regard to its existing practice in the area concerned for it to do so.
<PAGE> 87
83
Condition 13
FUNDS FOR MEETING LIABILITIES
13.1 Subject to paragraph 13.3 the Licensee shall make arrangements which are
adequate to ensure that sufficient funds are available after the Relevant Event
occurs for meeting the liabilities described in paragraph 13.2 which have arisen
on or before the date on which that Event occurred or may arise thereafter from
the exercise of rights conferred upon the Licensee by paragraph 9 of the
Telecommunications Code.
13.2 The liabilities referred to in paragraph 13.1 are:
(a) liabilities, including those for the payment of indemnities in
respect of costs or expenses incurred, or arising under the New
Roads and Street Works Act 1991 towards:
(i) any Appropriate Authority, Traffic Authority or other
responsible authority under that Act:
(ii) any other person having authority to execute works in, or
having apparatus in, a Street;
(iii) any concessionaire within the meaning of section 1 of that
Act;
(b) any other costs or expenses reasonably incurred by any Appropriate
Authority or other responsible authority in making good any damage
caused by the installation or removal of Telecommunication
Apparatus, whether such damage occurs before or after the Relevant
Event;
(c) any other costs or expenses reasonably incurred by any Appropriate
Authority or other responsible authority after the Relevant Event
occurs in removing any Telecommunication Apparatus:
(i) which is installed under, over, along or across a Street;
(ii) which is not, or is no longer, used for the purposes of any
telecommunication system and in relation to which there is no
reasonable likelihood that it will be so used; and
(iii) the removal of which is desirable having regard to any harm it
may cause to other persons or property, or to the visual
amenity of properties in proximity to which the Apparatus is
installed.
13.3 The funds available under paragraph 13.1 shall include, in relation to the
period extending from the date on which this Licence enters into force until 31
March 1997 and, thereafter, in relation to every period of one year beginning on
1 April:
<PAGE> 88
84
(a) an amount which is equal to:
(i) 10 per cent of the Gross Book Value: or
(ii) (pounds)1,000,000,
whichever is the lesser, or such greater amount as the Director may
direct; and
(b) an amount which, having regard to any works begun by the Licensee
before the beginning of the period in question, is sufficient to
meet any liabilities of the kinds described in paragraph 13.2(a)
which may arise.
13.4 The Licensee shall:
(a) within three months of this Licence coming into force; and
(b) once a year thereafter,
inform the Director of the steps taken to implement this Condition.
13.5 Where:
(a) the Licensee has failed to inform the Director in accordance with
paragraph 13.4; or
(b) the Director is not satisfied that the arrangements made by the
Licensee are adequate to secure that sufficient funds are available
after the Relevant Event occurs for meeting the liabilities
described in paragraph 13.1
the Director may direct the Licensee to take such steps as the Director
considers appropriate for the purpose of securing that such sufficient funds are
available and the Licensee shall comply with any such direction.
<PAGE> 89
85
Condition 14
EMERGENCY WORKS AND URGENT WORKS
14.1 Without prejudice to the duties of the Licensee under sections 55, 57 and
93 or, in Scotland, sections 116 and 152 of the New Roads and Street Works Act
1991 or, in Northern Ireland, paragraphs 6 and 6A of Schedule 3 to the
Electricity Supply (NI) Order 1972 as amended by the Telecommunications (Street
Works) (NI) Order 1984 concerning the giving of notice in respect of Emergency
Works or Urgent Works, the Licensee shall provide, in addition to the
information contained in any such notice, a reasonable estimate of the date by
which the Emergency Works or the Urgent Works are expected to be completed and a
statement of the grounds for the need to execute those Emergency Works or Urgent
Works, as the case may be.
<PAGE> 90
86
Condition 15
PUBLIC EVENTS AND CONSTRUCTION SITES
15.1 Where the Licensee is to provide telecommunication services for a limited
period at the site of a public event or a construction site, it may install
overhead Lines and associated poles to provide that service notwithstanding
Conditions 1, 2, 4 and 5, provided that the Lines or poles are removed within a
reasonable period after the end of the event or after the work at the
construction site is complete.
<PAGE> 91
87
Condition 16
EMERGENCY ORGANISATIONS
16.1 Where the Licensee is to provide any telecommunication service for a
limited period to an Emergency Organisation in an Emergency it may,
notwithstanding Conditions 1, 2, 4, 5, 6 and 8, install overhead Lines and
associated poles for the purposes of providing such services as are made
necessary by the Emergency provided that any such line or pole is removed within
a reasonable period after such services cease to be required.
<PAGE> 92
88
Condition 17
PUBLIC INSPECTION OF CODE RELATED LICENCE CONDITIONS
17.1 The Licensee shall place a copy of this Schedule and of every direction
given to the Licensee under section 10(4) of the Act in a publicly accessible
part of every Major Office of the Licensee in such a manner and in such a place
that it is readily available for inspection free of charge by the general public
during such hours as the Secretary of State may by order prescribe under section
19(4) of the Act for the register of licences and orders to be open for public
inspection or in the absence of any such order having been made by the Secretary
of State, during normal office hours.
<PAGE> 93
Price (pounds)10
Copies of this licence are available from OFTEL Library, 50 Ludgate Hill,
London EC4M 7JJ (telephone 0171 634 8764)
c. Crown Copyright
Issued by the Department of Trade and Industry
<PAGE> 94
SPECIFICATION BY THE SECRETARY OF STATE FOR THE PURPOSES OF CONDITIONS 15 AND 16
OF THE LICENCE GRANTED TO HERMES EUROPE RAILTEL B.V. ON 18 DECEMBER 1996
1. The Secretary of State in accordance with paragraph 15.1 of Condition 15 and
paragraph 16.1 of Condition 16 of Schedule 1 to the Licence granted to Hermes
Europe Railtel B.V. under section 7 of the Telecommunications Act 1984 on 18
December 1996 (the "Licence") hereby specifies that the provisions of Conditions
15 and 16 to Schedule 1 shall not apply in respect of the countries and
territories listed below:
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Gibraltar
Greece
Iceland
Ireland
Italy
Liechtenstein
Luxembourg
Netherlands
New Zealand
Norway
Portugal
Spain
Sweden
United States of America
2. In this specification words and phrases shall have the same meaning as in
the Licence.
/s/ Iain Osborne
Iain Osborne
For the Secretary of State
18 December 1996
<PAGE> 95
SPECIFICATION BY THE SECRETARY OF STATE FOR THE PURPOSES OF PARAGRAPHS 1(s) AND
1(t) OF SCHEDULE 1 AND PARAGRAPHS 4(j) AND 4(k) OF SCHEDULE 3 TO THE LICENCE
GRANTED TO HERMES EUROPE RAILTEL B.V. ON 18 DECEMBER 1996
1. The Secretary of State in accordance with paragraphs 1(s) and 1(t) of
Schedule 1 and paragraphs 4(j) and 4(k) of Schedule 3 to the Licence granted to
Hermes Europe Railtel B.V. under section 7 of the Telecommunications Act 1984 on
18 December 1996 (the "Licence") hereby specifies that the circumstances in
paragraph 2 below are not material for the purposes of paragraph 3 of Schedule 3
to the Licence.
2. The circumstances referred to in paragraph 1 above are those where a Message
is so conveyed from or to a telecommunication system by means of which that
Message is initially sent or received exclusively for the purpose of carrying
out such initial or final switching of that Message as could lawfully have been
carried out by the person running that system, or another on that person's
behalf, under the Class Licence for the Running of Self Provided
Telecommunication Systems granted by the Secretary of State under section 7 of
the Telecommunications Act 1984 on 9 September 1996 and any successors to that
licence on the premises where that Message was initially sent or, as the case
may be, ultimately received.
3. In this specification words and phrases shall have the same meaning as in
the Licence.
/s/ Iain Osborne
Iain Osborne
For the Secretary of State
18 December 1996
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF DEFICIENCY OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ --------------------
1994 1995 1996 1996 1997
----- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Earnings available for fixed charges(1):
Loss from continuing operations........ $(220) $(6,502) $(15,969) $(7,117) $(10,030)
Add:
Interest expense....................... 0 9 153 1 649
----- ------- -------- ------- --------
Total.......................... $(220) $(6,493) $(15,816) $(7,116) $ (9,381)
===== ======= ======== ======= ========
</TABLE>
- ---------------
(1) Because of the Company's historic losses, the Company has experienced a
deficiency of earnings to fixed charges throughout its existence. The
deficiency of earnings to fixed charges equals the loss from continuing
operations before income taxes minus fixed charges. Fixed charges consist of
interest on all indebtedness.
2
<PAGE> 1
Page 1 List of Subsidiaries Exhibit 21.1
--------------------
1. Hermes Europe Railtel N.V.
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG REVISEURS D'ENTREPRISES S.C.C.
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 11, 1997 except for Note 9, which is as of July
15, 1997, in the Registration Statement (Form S-4) and related Prospectus of
Hermes Europe Railtel B.V. dated on or about October 10, 1997.
/s/ Ernst & Young Reviseurs d'Entreprises S.C.C.
Brussels, Belgium
October 9, 1997
<PAGE> 1
Exhibit 25.1
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2) |_|
--------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
--------------------
Hermes Europe Railtel B.V.
(Exact name of obligor as specified in its charter)
Netherlands None
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Terhulpsesteenweg 6A
1560 Hoeilaart, Belgium
(Address of principal executive offices) (Zip code)
--------------------
11 1/2% Senior Exchange Notes Due 2007
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York, N.Y.
New York 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y.
10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d)
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit
1 to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE> 3
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 9th day of October, 1997.
THE BANK OF NEW YORK
By: /s/ MARY JANE MORRISSEY
---------------------------
Name: MARY JANE MORRISSEY
Title: VICE PRESIDENT
-4-
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provision of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ............. $ 7,769,502
Interest-bearing balances ...................................... 1,472,524
Securities:
Held-to-maturity securities .................................... 1,080,234
Available-for-sale securities .................................. 3,046,199
Federal funds sold and Securities purchased under agreements
to resell ...................................................... 3,193,800
Loans and lease financing receivables:
Loans and leases, net of unearned income .........35,352,045
LESS: Allowance for loan and lease losses ...........625,042
LESS: Allocated transfer risk reserve ...................429
Loans and leases, net of unearned income, allowance
and reserve .................................................. 34,726,574
Assets held in trading accounts .................................. 1,611,096
Premises and fixed assets (including capitalized leases) ......... 676,729
Other real estate owned .......................................... 22,460
Investments in unconsolidated subsidiaries and associated
companies ...................................................... 209,959
Customers' liability to this bank on acceptances outstanding ..... 1,357,731
Intangible assets ................................................ 720,883
Other assets ..................................................... 1,627,267
-----------
Total assets ..................................................... $57,514,958
===========
LIABILITIES
Deposits:
In domestic offices ............................................ $26,875,596
Noninterest-bearing ..............................11,213,657
Interest-bearing .................................15,661,939
In foreign offices, Edge and Agreement subsidiaries, and IBFs .. 16,334,270
Noninterest-bearing .................................596,369
Interest-bearing .................................15,737,901
Federal funds purchased and Securities sold under agreements
to repurchase .................................................. 1,583,157
Demand notes issued to the U.S. Treasury ......................... 303,000
Trading liabilities .............................................. 1,308,173
Other borrowed money:
With remaining maturity of one year or less .................... 2,383,570
With remaining maturity of more than one year through three
years ........................................................ 0
With remaining maturity of more than three years ............... 20,679
Bank's liability on acceptances executed and outstanding ......... 1,377,244
Subordinated notes and debentures ................................ 1,018,940
Other liabilities ................................................ 1,732,792
-----------
Total liabilities ................................................ 52,937,421
-----------
EQUITY CAPITAL
Common stock ..................................................... 1,135,284
Surplus .......................................................... 731,319
Undivided profits and capital reserves ........................... 2,721,258
Net unrealized holding gains (losses) on available-for-sale
securities ..................................................... 1,948
Cumulative foreign currency translation adjustments .............. (12,272)
-----------
Total equity capital ............................................. 4,577,537
-----------
Total liabilities and equity capital ............................. $57,514,958
===========
I, Robert E. Keitman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keitman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyl )
J. Carter Bacot ) Directors
Alan R. Griffith )
__________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
12/31/96 AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,853
<SECURITIES> 0
<RECEIVABLES> 84
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,528
<PP&E> 20,978
<DEPRECIATION> 675
<TOTAL-ASSETS> 27,831
<CURRENT-LIABILITIES> 11,907
<BONDS> 562
0
0
<COMMON> 45
<OTHER-SE> (19,491)
<TOTAL-LIABILITY-AND-EQUITY> 27,831
<SALES> 0
<TOTAL-REVENUES> 48
<CGS> 4,694
<TOTAL-COSTS> 4,694
<OTHER-EXPENSES> 11,678
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153
<INCOME-PRETAX> (15,969)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,969)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,969)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
6/30/97 UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,192
<SECURITIES> 0
<RECEIVABLES> 749
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,560
<PP&E> 25,457
<DEPRECIATION> 1,507
<TOTAL-ASSETS> 33,510
<CURRENT-LIABILITIES> 16,304
<BONDS> 473
0
0
<COMMON> 45
<OTHER-SE> (31,782)
<TOTAL-LIABILITY-AND-EQUITY> 33,510
<SALES> 0
<TOTAL-REVENUES> 593
<CGS> 3,304
<TOTAL-COSTS> 3,304
<OTHER-EXPENSES> 6,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 569
<INCOME-PRETAX> (10,030)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,030)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,030)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
